,
7 tweets,
2 min read
Read on Twitter
Crying for Argentina: I'm trying to understand the mess, and I have a first-pass sketch of a story. As I understand it, when Macri took office he already had a twin-deficit problem: budget and foreign, with significant current account imbalance 1/ 
The textbook answer is fiscal consolidation plus currency depreciation, so that net exports make up for the fall in domestic demand. But Macri either wouldn't or couldn't bite the bullet — unwilling to take the heat for large budget cuts 2/
And also unwilling to allow rapid peso depreciation both because of inflationary impact in a country with history of inflation, and bc of dollar-denominated debt. Instead, he resorted to more foreign borrowing 3/
This was doable at first bc of market honeymoon, then bc of massive IMF support. But in the end all it did was dig the hole deeper, with big rise in foreign debt and discrediting of neoliberalish reformers. 4/
The last desperate attempts to stabilize the situation involved drastic interest rate hikes and last-minute austerity — and hence a nasty slump. 5/
What's striking for those of us who've spent a long time on such crises is that this is incredibly close to the script from 1998-2001 — no convertibility law, but still similar policy mistakes, and similar enabling of those mistakes by the IMF 6/
And yes, this makes me worry a lot more about Lagarde at the ECB. Everyone involved really, really should have known better. 7/
