Growth in Argentina: Tango del Rebound

Argentina’s recent growth performance has produced an air of confidence and excitement which, among other things, has positioned President Kirchner, with a current 70% approval rate, as a very secure bet to win the October elections. The most recent polls indeed reveal that he would beat former minister Roberto Lavagna, now in second place, by a landslide 56%-17%. Not to talk of the other guys.
It also suggests an important question: Those things that were said, circa 2002, regarding the horrors to befall a nation opting for default, just plain nonsense?
Data are quite clear in showing that as of 2006, GDP per capita is about the same that it was in 1998, before the recession. And, one must begin any discussion by acknowledging that this is much better than expected by all commentators... M. included… :(
But it is also a very sobering number. And sets the tone for the really important questions: are current trends sustainable? Or will Argentina return to its century-old tradition of disappointing us optimists?
The way economist friends tell Macarena to think through this hard question is by examining the sources of growth (investment in physical and human capital and productivity, they call it) in an explicit fashion and then to “model their various interactions”. WOW.
Lacking the patience & skills needed to embark in such endeavor, and preferring to spend that time by the pool sipping Jerez and flirting with handsome andaluces, Macarena finds it very useful to see what others are finding.
A nice paper was produced some months ago by Carlos Zarazaga, at the Dallas Fed.
His conclusions: Number one: a strictly constructed real business cycle (RBC) model, calibrated with Argentinean data, is consistent with the view that the stellar 2002-05 performance is simply a rebound from the deep recession that preceded it. There is no evidence that this performance is linked to structural change in productivity.
Number two: much more interestingly: Carlos’ model predicts that GDP per working age population should have increased by 35% in 2002-05, whereas in reality the number was much lower: 23%.
In other words, the view that we are witnessing an exciting new structural trend is wrong. The truth is (gulp)....... Argentina may well be underperforming.