Bolivarian devaluation

Why is Argentina working so hard to resemble Venezuela of late when last Friday’s 32 percent devaluation of the bolivar should send alarm bells ringing? Even if the currently stalled recovery from the 2001 economic meltdown (which began with Brazil’s maxi-devaluation) is generally considered to have begun with the massive devaluation here of early 2002 and even if Argentina’s current difficulties are far from requiring such drastic medicine yet, there are some worrying parallels. Despite record commodity prices, Venezuela somehow became the only oil giant in the world to run out of petro-dollars — this already led a decade ago to currency curbs which hurt the capacity to import supplies to meet the levels of demand, thus leading to price controls. Argentina, with a wealth of export dollars from soy, equally lacks greenbacks (when the region’s other major soy producer, Brazil, struggles to prevent the dollar inflow from appreciating its currency) — the currency curbs here only began 16 months ago but are already leading to a price freeze.

And yet this time it is not the economy, stupid — the real common ground between Argentina and Venezuela lies in foreign policy rather than admiration of Bolivarian economics. This common ground last month took the truly grotesque form of announcing an agreement with the country which most vehemently denies the Holocaust on United Nations Holocaust Commemoration Day. This alliance with Iran clearly owes more to Venezuelan ideology than to any Argentine economic or political (and far less electoral) interest. The main empathy with Iran and Venezuela would seem to be authoritarian rule overriding institutions, which includes the ability to intervene in the economy at will rather than the attractions of currently adrift Venezuelan economic policy as such.

Despite the strenuous efforts to make Argentina and Venezuela part of the same process, there seems little danger of a copycat maxi-devaluation here. The 2001 collapse leading to the 2002 devaluation cannot be repeated because far from being swamped by foreign debt, Argentina today has banished itself from capital markets — in terms of foreign debt, the Kirchner presidencies have been the most solvent in Argentine history, which has not prevented country risk from topping Venezuela at times. Yet the peso is vulnerable enough to devaluation without the Venezuelan precedent, which should be studied very carefully before insisting on the same path here.