Why is Argentina doing so well?

Argentina has the highest per capita income in the Latin American region. It is the third biggest economy in the region after Brazil in the number one spot and Mexico at number two.

Argentina just makes it into the heady atmosphere of the top ten percent of world economies as tracked by the CIA's World Factbook -- at number 23 out of the 232 countries on the list.

And statistics released mid-June by Argentina's Statistics and Census office confirm that the country's economy expanded by 8 percent in the first quarter of 2005 when compared with the same period in 2004. Compared with the fourth quarter 2004, the economy increased 0.5 percent.

These results were posted on the MercoPress Website. MercoPress is an independent news agency specializing in news from the south Atlantic region.

The last time Argentina's economy did nearly as well was in the second quarter of 1998, the contemporary peak of the economy's performance. This was just ahead of the ensuing four years of very serious recession, the nadir of which was the biggest default by a country on its foreign debt in history.

The growth rate represented by first quarter 2005 results exceeds the 1998 peak.

MercoPress also reported that the Argentine government's official prediction of GDP growth is 6 percent for 2005. MercoPress says that private analysts think GDP could go higher. The International Monetary Fund (IMF) says GDP growth will be 4 percent in 2005, but this prediction was made in September 2004, before the resounding success of Argentina's debt swap.

Based on economic thinking prevalent before the default and success of the swap, Argentina should be in the throes of a major meltdown now instead of enjoying not only the current macroeconomic success but the resurgence of its domestic demand.

The debt swap wasn't merely a decision on the part of the Argentine government to execute a bondholder transaction that shed debt the economy could no longer support - it was a package of mind-bogglingly complex measures that broke new ground in the international finance arena.

For example, why didn't Argentina sink into a morass of hyperinflation that would have destroyed what was left of its domestic consumer market?

The answer is a series of exchange regulations that shielded the peso during the worst of the crisis.

Why didn't the banking system collapse and throw the country into a deep depression?

Argentina issued more regulations aimed at protecting banks that could survive and issuing new debt to absorb protections for banks that failed.

All of this - and much more - was exquisitely timed to coincide with the swap, and the country's political maneuvers that kept it alive.

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