Turbulent history, uncertain future

Given the tempestous history of Spanish speaking countries when it comes to economic and financial crises, these countries are always the first to be in the focus when the signs of the crisis emerge, and are given a special attention by all the interested parties – the creators of economic policy, domestic and foreign investors, international institutions – i.e. the whole economic public in general.

The World Economic Crisis, as the main characteristic of the world’s economy in the last three years, is often being referred to as one of the biggest by its measures and consequences since the World War Two. Some even compare it to the Great Depression (1929 – 1933), the largest economic crisis of the 20th century.

This crisis is very big and complex – all possible forms of it are present: bank crisis (characterized by the deterioration of the bank balance and their collapse; this is how the crisis first began in the US); balance of payment crisis (the decrease of the capital flow and big devaluations of the national currencies; which is present in the transition economies); sovereign debt crisis (the inability of states to pay off their debts; which is the case in Greece, with possible effect on other European countries such are Spain and Portugal) and the recession (the decrease of economic activities; the basic characteristic of the crisis in the majority of countries in the world).

Given the tempestuous history of Spanish speaking countries when it comes to economic and financial crises, these countries are always the first to be in the focus when the signs of the crisis emerge, and are given a special atention by all the interested parties – the creators of economic policy, both domestic and foreign investors, international institutions – i.e. the whole economic public in general.

Why these countries?

When studying the problems generated by financial crises, economists stick to the thesis that problematic history and already experienced forms of financial crisis, increase the possibility that it develops again.

Most analysts are not aware of the fact that financial crisis, as one of the characteristics of the capitalistic economic system, actually originated in Spain. In the 16th century, under the government of Filip II, Spain was one of the leading countries in the world, and had colonies on all known continents of that time. But its policy of great territorial aspirations without proper regulation of country’s state apparatus, generated fiscal deficits and high level of public debt. Irresponsible fiscal policy (the similarity to today’s happenings is accidental?), forced the country under Filip’s government to go bankrupt even four times (1557, 1560, 1575 and 1596). These are the first known examples of debt crisis in the world.

The contemporary forms of crises began in Spain, but the country with probably largest number of crisis is Argentina, ending with the 2001 financial crisis. The last one was very big, with considerable social and economic consequences, and the state’s credibility was affected in long-term.

The next big Spanish speaking country which has also shown its inability to deal with the economic and financial crisis is Mexico. In the last three decades, this country experienced two exceptionally big crises – in 1982 and 1994.

Periodic crises and unsorted economic conditions were the characteristic of other Spanish speaking countries, and they are often being referred to as the examples for bad economic policy.

The consequences and the expectations

Like the majority of other countries, the Spanish speaking countries are not spared from the negative effects of this crisis. According to the official data, the average decrease of GDP in 2009, in these countries was 1.1 percent, which is more in comparison to world economy (0.6 percent), but significantly less than the drop of the economic activities of developed countries (3.2 percent). The situation is more favorable if we consider that three countries had the significant drop of economic activities – Spain (3.6 percent), Mexico (6.5 percent) and Paraguay (4.5 percent), while the other countries facing unfavorable conditions had an economic growth of 0.2 percent. Also, excluding Spain, the employment drop was smaller in these than in developed countries. This suggests that the majority of Spanish speaking countries managed to amortize the effects of global crisis, but Spain can be considered as one of the most effected countries.

The drop of economic activities in Spain is one of the biggest amongst the developed countries and the expectations for the future economic growth are equally pessimistic. Except the mutual factors which led to crises in other countries, the crisis in Spain was largely generated by the problems in the real estate market.

When it comes to Spain, the following must be pointed out: after the escalation of the bank crises (in the end of 2007 and during 2008), and pay balance crisis (in the second half of 2008 and during 2009), the first half of 2010 is marked by debt crises. The epicenter of new developments is in Greece, which nearly escaped bankruptcy with the help of the European Union and the International Monetary Fund. Nevertheless, Greek problem is yet to be solved (the question is whether this country is able to pay off its debts long-term), and the ‘infection’ is spreading to other European countries with low economic rates (high external trade balance, higher inflation rate in comparison to significant trade partners, the loss of competitiveness, high level of unemployment), such are Spain and Portugal.

Today, Spain faces very serious threats that it won’t be able to pay off its debts. Though highly unlikely, the word ‘bankrupt’ is carefully mentioned. Given these risks, Spanish government had to incorporate some unpopular measures.

Learning based on experiences

Significant experience in economic and financial crisis in the Spanish speaking countries sure did contribute the fact that many other countries face the crisis in a better way and respond to it properly. The majority of these countries are going through many changes without the drop of the economic activities, which is a rarity in the world. Argentina, the land of economic crisis, seems to be going through this particular crisis without significant consequences, bearing in mind that last year brought a moderate growth of economic activities with some positive expectations for the future period. Also Chile continues to be a good example of the economic growth for the majority of related countries, and the crisis consequences for this country are minimal. The recognition for country’s successful economic path came in the form of acceptance to OECD (Organization for Economic Co-operation and Development), the group of world’s most developed countries. The other Spanish speaking countries are slowly following that path, by learning on their past experiences.

Nevertheless, there are countries which don’t quite understand that the history is the teacher of life. Mexico is going through a tough time of the adjustment to the external circumstances again (which is a consequence of country’s dependence of the US economy), and the story of Filip II maybe awaits the king Huan Carlos, i.e. the current prime minister Luis Sapatero.

By ALEKSANDAR ILIĆ

Wave Magazin in cooperation with the magazine REFLEJO and Serbian Economic Forum

Translation: DUNJA TASIĆ

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