The Growth of Debt and the Debt of Growth: Lessons from the Case of Argentina

Abstract

Argentina's case is a ‘game changer’ in the discussion about sovereign debt across the globe, particularly regarding debt restructuring. This article reviews Argentina's sovereign debt and economic growth process over the last 25 years and draws lessons from the country's trajectory. Alternating austerity and heterodox economic policies resulted in different outcomes throughout this period. One lesson, in particular, stands out: sustainable debt has been a necessary condition for sustainable growth. Conversely, austerity policies combined with a lax approach toward debt have led to economic recession and debt unsustainability alike. Argentina's case underscores that the only way to overcome the debt‐recession trap is a timely and big‐enough debt restructuring that provides an economy with a fresh start. Neither austerity policies nor debt roll‐overs have done the job. That is why an orderly, predictable, fair, and balanced sovereign debt restructuring system is such a relevant – still pending – component of the international financial architecture.