Why Greece is not Argentina

June 28, 2011, 7:50 PM UTC

FORTUNE — This week, all eyes are (still) on Greece’s debt crisis. The country edges toward a possible default if the government fails to pass an austerity plan that asks citizens to make due with $111 billion worth of budget cuts and asset sales as part of last year’s multi-billion euro rescue package.

Amid the ongoing saga marked by union strikes against the unpopular measures, some have taken the contrarians’ view that defaulting might not be so bad for Greece. They point to places like Argentina and Russia, which defaulted and briefly struggled before emerging from their economic ruts unexpectedly well.

This might put Greeks a little more at ease, but hardly for the right reasons.

In 2001, Argentina defaulted on $81.8 billion of sovereign debt following months of turmoil in the country’s banking system. GDP dropped by 10.9% that year, and the country was locked out of the credit markets. Despite financing challenges, its economy recovered, growing by more than 8% a year since 2003. And Argentina’s resilience has led some to hint that Greece could actually follow some of Argentina’s playbook.

“The basic point is that Argentina’s economy has done extremely well following its default,” writes Dean Baker, co-founder of Washington DC-based think tank Center for Economic and Policy Research. “It is difficult to see why anyone in Greece would not want to default in an instant if they thought Greece’s economy would follow the same path as Argentina’s economy has over the last 9 ½ years.”

Argentina’s road to recovery is hardly something Greece could follow, however. One big factor explaining its comeback includes an advantage Greece isn’t so lucky to have: Agricultural exports. Whereas the engine driving Greece’s economy relies mostly on services, selling agricultural products abroad helped Argentina ride through its downturn. It runs a trade surplus, helped especially by rising global prices for agricultural commodities. Prices for soybeans, of which Argentina is a major producer, have risen from $200 a ton in 2003 to about $500 a ton today.

Aside from tourism and shipping services, Greece actually exports very little and has next to no foreign direct investments. So even if Greece defaults, drops the euro and devalues its own currency, it’s hard to see how Greece could export its way out of tough economic times.

“Greece has none of these advantages and fundamentally has a structural growth problem that even a restructuring won’t alleviate,” says Jacob Funk Kirkegaard, a fellow at the Peterson Institute for International Economics, whose research includes European economies and reform.

Similarly, Russia, which defaulted in 1998, is seeing better days. After a decade of steep declines, its economy is on the rebound driven also by higher commodity prices, especially oil. The Russian government has paid back foreign debts. Despite economic setbacks in 2009 amid the global financial crisis, growth has generally been robust throughout the 2000s.

It’s not that default is never the answer. What Greece’s sad predicament underscores is that every economy is different and default could work better for some and not others. The problems in Greece are significant and it’s unlikely that a default would be the best way out. Kirkegaard makes an interesting point: Whereas debt-ridden Ireland had a very healthy economy before its banks took on too many risky loans, Greece’s problem is the product of decades of poor tax enforcement, corruption, low retirement ages and other bad policies.

“They need to overhaul their entire economy, where Ireland …. merely has to reform its banking system and restore its fiscal finances to raise more revenue,” he says.

Needless to say, the bigger issue is what a Greek default could mean to the rest of Europe and the world at large. Not only could it be ugly for Greece’s individual economy, but there’s a real possibility that markets will think other peripheral euro-zone countries including Spain, Portugal and Italy, might default too. (See As Greece goes, so goes Italy?)

However it’s viewed, defaulting is no easy way out.