Argentina's debt moratorium and exchange will not become a model for Latin American debtor nations, Jose Luis Machinea, executive secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), tells Emerging Markets.
Machinea, who was Argentina's economy minister between December 1999 and February 2001, says the Latin nation's restructuring "was successful in terms of the discount". But he adds that a default is a serious measure that could only happen in "extreme situations in which the debt is unmanageable".
Observers have raised the question of whether some of the region's other debtor nations might imitate Argentina's default. The growing number of governments with left-wing roots in the region gives this consideration new urgency.
The trend towards leftist leadership in Latin America is expected to expand during the presidential races of 2006 in Brazil, Mexico, Peru and Venezuela. Machinea does not see this as a threat to sound economic policies. "It is probable that the tendency [of governments from the left] will continue and that governments born on the left are very responsible in their economic management," he says.
Machinea says that Latin American nations should aim to lower their debt burden to around 40% of GDP. "You have to look at what type of debt it is [concessional or commercial] and what interest rate it carries, and worry more about the interest rate than the [total] burden," he says.
Turning to the region's economic outlook, Machinea says he is "moderately optimistic". This year he reckons overall growth will be 4.3%, which translates into 2.8% growth per capita. Last year, the region grew by 5.7%, the highest level since 1980.
Making growth sustainable is the challenge, he adds. Great strides have been made in transforming Latin nations into economies that are integrated into the world economy. Exports have grown, on average, at 9.2% in real terms annually for each of the last 15 years.
The remaining tasks to achieve conditions for sustainable growth are: increasing export production, particularly in the high-end and knowledge-based spectrum, increasing the capacity of governments to implement counter-cyclical economic policies and stimulating productive development.
The Asian examples should be studied especially, says Machinea, to analyze the policies of the tiger economies on innovation, diversification of production and the development of backward linkages with local and small-scale producers in the export chain. More spending on research and development – currently 0.5% of GDP, on average – is required to make Latin American and Caribbean products more competitive.