Monday, June 28, 2010

Argentina Warns Europe: Do Not Cut Spending And Become New Argentina 2001 (But Let Inflation Run Wild?)

Brazil's Agencia Estado reports that at the G20 meeting in Toronto, Cristina Kirchner, Argentina's President, said she favors maintaining the stimulus to economic activity in Europe. In her speech at the summit, Cristina argued that the economic policies of fiscal adjustment envisaged by the EU may "deepen the crisis in the region and these countries will end up like Argentina, 2001,"

In 2001 Argentina decreed the largest debt default sovereign in history, more than $140B, after several tough fiscal squeezes. At the Mercosur-EU meeting last month in Madrid, Argentinean gave similar advice to the Head of the Spanish government Jose Luis Zapatero on how to tackle the crisis.

During her participation in the second world congress of the International Trade Union Confederation, in Vancouver, Cristina hit the same button. "We must sustain the counter-cyclical measures because these adjustment policies will worsen these situations,"

She asked to "take Argentina from 2001 as an example." "Many countries in the eurozone today apply the same policies that led Argentina to the disaster,"

However, stimulus policies have a high price. The Argentine president did not present any remedy for the high inflation in the country, which has already accumulated a high of 25% for the past 12 months and may reach 30% by the end of the year. It is the highest rate among the G-20. To the government, however, official inflation is 10%.

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