TORONTO (Reuters) - Europe’s focus on cutting deficits is “absolutely wrong,” Argentine President Cristina Fernandez said on Saturday, citing her country’s experience with austerity she said helped lead to a huge default in 2001.
Speaking in an interview with Reuters, Fernandez sounded a warning on the plans of several European nations, saying Argentina also cut salaries for public sector workers to get public accounts in order not long before running out of money to pay its debts.
“It all ended in an implosion and in default,” she said.
Fernandez is in Toronto for a meeting of the leaders of many of the world’s biggest economies. The Group of 20 is trying to forge consensus on how quickly to shrink government deficits, how best to strengthen banks so they can withstand any new downturn, and how to harmonize financial regulatory reforms.
Europe’s simmering debt troubles have led countries like Greece and Spain to embrace painful spending cuts.
But Fernandez said spending cuts in Europe would hit economic growth, reducing government revenue and hitting states’ ability to pay back their debt.
“This focus is absolutely wrong,” she said.
“We are critical of this policy of removing stimulus and of believing that the problem of the crisis will be solved with fiscal adjustments,” she said.
Before Argentina’s default, the government cut public spending in the middle of a recession, deepening the country’s economic malaise.
At the same time, Argentine policymakers also refused to devalue the currency, which was pegged to the dollar. That set the stage for a currency crash that eventually provoked a record $100 billion debt default and left one out of four Argentines unemployed.
Fernandez said Argentina’s economy would grow more than 5 percent this year and that the country felt it was in no rush to return to international capital markets after its recent debt swap aimed at satisfying creditors affected by the 2001 default.
“For us, returning to the capital markets hasn’t been that important,” she said.
Argentina hopes the debt swap will defuse lawsuits from “holdout” creditors who rejected a 2005 restructuring.
The G20 covers two-thirds of the world’s population. It includes China, Australia, Argentina, Brazil, Indonesia, Japan, Mexico, Russia, South Korea, Saudi Arabia, South Africa, Turkey, big European economies, the United States and Canada.
Editing by Padraic Cassidy