Argentina Didn't Fall on Its Own

Wall Street Pushed

The fantasyland that Argentina represented for foreign financiers came to a catastrophic end early last year, when the government defaulted on most of its $141 billion debt and devalued the nation's currency. A wrenching recession left well over a fifth of the labor force jobless and threw millions into poverty.

An extensive review of the conduct of financial market players in Argentina reveals Wall Street's complicity in those events. Investment bankers, analysts and bond traders served their own interests when they pumped up euphoria about the country's prospects, with disastrous results.

A year and a half after the crash, Argentina has begun recovering from its depression. Although the economy is still producing considerably less than before the crisis, and unemployment is much higher, growth has picked up in the past several quarters. A few Wall Street bankers are sniffing around again for deals to restructure defaulted debt, but the national government has ruled out hiring any firm that underwrote its bonds during the 1990s.
"The lesson is, we must pay attention to bubbles," Lavagna said in a visit to Washington this year. "With stocks, or companies, or countries, all are part of the same phenomenon. Probably Argentina is the best example of a country."

For developing nations, "the worst period is when financial markets have the most liquidity," Lavagna said. "This is when countries make the worst mistakes. That is certainly the case in Argentina."