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. Last Updated: 07/27/2016

If Argentina Had Only Studied Russia

With newfound strength following a financial crisis of its own three years ago, Russia on Thursday extended an offer of help to Argentina, where a smoldering financial crisis has flared into political strife, and default and devaluation appear ever more inescapable.

Russia was in nearly the same position on Aug. 18, 1998, when it announced a double whammy default and devaluation. However, the lead up to Russia's crisis was far shorter, and when the smoke clears Russia will most likely have gotten off far easier, analysts said.

It is unclear what Russia will, or can, do to help Argentina.

"Russia, acting with other participants of international organizations including the G-8, has provided and will continue to provide support in creating the external conditions needed to normalize Argentina's domestic situation," Foreign Ministry spokesman Vladimir Yakovenko said in a statement.

Argentina's President Fernando de la Rua accepted the resignation of Economics Minister Domingo Cavallo, once hailed as a guru for creating a currency board tying the peso to the dollar.

The Cavallo plan -- which was proposed to and ultimately rejected by Russia in 1998 -- may have played a leading role in the country's crisis.

A number of Argentinian companies have defaulted on corporate bonds this week, and the market fears the country could default on its huge $132 billion sovereign debt by the end of January.

Although defaulting on billions of dollars of mainly ruble and Soviet-era debt, Russia has not missed a payment on its sovereign Eurobonds.

"Unlike Russia, Argentina did everything to delay the collapse, therefore, essentially bleeding themselves to death," said Eric Kraus, chief strategist at NIKoil investment bank. "So the magnitude of the collapse is in fact far worse than it was in Russia.

"From the human standpoint, Russians were more accustomed to living with adversity," Kraus said. "Until recently Argentina was more of a middle-income country, so the social dislocation and human misery is greater still."

Both countries were dragged down the slope to default by an overvalued currency in an atmosphere of unbridled spending and spendthrift borrowing, analysts said. Had Argentina also rejected the Cavallo plan, it may have been the better for it.

"The regime currency board can only be justified when a country is living through a period of high inflation that can't be otherwise overcome," said Yevgeny Gavrilenkov of the Bureau of Economic Analysis. As the U.S. economy expanded and the dollar appreciated, Argentina's weaker economy failed to keep pace.

However, where devaluation worked for Russia, it would not work for Argentina largely because Argentina is not an exporter, said Alexei Moiseyev, economist at Renaissance Capital.

Its exports amount to about 10 percent of GDP. In Russia, where exports are about 50 percent, devaluation helped improve competitiveness and boosted domestic producers as foreign goods were priced out of the market.

The tide of protest in Argentina could sweep out the government, so international lending agencies are left wondering who will be around to negotiate with. The IMF said Thursday it would step in with a $22 billion loan package, but only once a new government is installed.