A fascinating article in this week’s Economist details the phenomenon whereby Argentina’s seemingly secular instability is this time paying dividends to its vastly smaller neighbor, which the newspaper predicts will better weather the global downturn despite having a “small, open economy dependent on banking, beach tourism and beef exports.”

Why? The primary reason provided is that Uruguay will better be able to finance stimulus, an ability it owes to its decision back in 2001-2 to enter into a rescheduling agreement with its creditors, while Argentina defaulted on its debt, nationalized foreign businesses and imposed price controls:

“Argentina may struggle to roll over the $23 billion in debt maturing this year and next because of investors’ distrust: its bonds yield 15 percentage points more than American Treasury bonds. Uruguay is charged a premium of only five percentage points, and can thus more easily afford a fiscal stimulus.”

Advertisements