After a historic default, Argentina is a far cry from its past

In a world awash in red ink, Argentina’s reforms since 2015 show how attitudes can shift toward excessive debt.

Argentina's President Mauricio Macri (left) dances in a carnival celebration in the Argentine northern town of Purmamarca,

The world’s largest economies are awash in red ink, the International Monetary Fund reported in October. And they are hard-pressed to service their debts, which on average amount to more than twice their domestic output. China accounts for much of this global rise in debt. After a leadership reshuffle this week, Beijing may start to finally tackle the problem. But one country in particular, Argentina, has shown how to change attitudes and turn around an unhealthy dependence on debt-fueled spending.

In 2001, after decades of subsidizing basic services in order to win elections, populist leaders in Argentina decided to stop paying foreign creditors. The debt default was the largest in modern history. The country saw a run on its banks. Inflation ballooned and the economy deflated. The government started to lie about economic statistics. Once one of the world’s wealthiest countries, Argentina dropped to 66th.

In 2015, voters elected a new president, Mauricio Macri, who promised to tackle the debt crisis and make Argentina a “normal” country. The former engineer and Buenos Aires mayor cut energy subsidies, ended currency controls, and started other reforms that have allowed Argentina to win back the favor of international financial markets. The economy is expected to grow 2 to 3 percent this year. Inflation is down by half.

In midterm elections on Oct. 22, voters endorsed Mr. Macri’s reforms, showing an appreciation for the idea that social services should not be paid by excess borrowing. Macri’s Cambiemos (Let’s Change) coalition picked up seats in the Senate and lower house. It became the first party since 1985 to win in Argentina’s five largest electoral districts.

The electoral boost will allow Macri to pursue further reforms and chip away at Argentina’s debt.

“We have entered into a period of permanent reform,” he said after the election.

Countries in deep debt, from China to the United States, can take a cue from Macri’s progress. Attitudes toward debt can shift. After suffering a historic default, Argentina may end up being a model of financial probity.

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