I regard with some skepticism recent reports and articles by analysts, investors and bloggers talking up the investment opportunities in Argentine stocks. It appears that many don’t have an appreciation for the high level of risk that exists when investing in Argentina. They are solely fixated on the history of high economic growth, growing year over year company performance and dividend yields that are in excess of 5%. Argentina has been politically and economically unstable for decades, with reactionary populist socialist and Peronist political parties vying for political power after the end of the military dictatorship in 1983.

This ongoing economic instability created by poor fiscal policy, high public debt, an unstable currency and spiraling inflation boiled over into riots, popular dissent and an economic collapse in 2001, causing the country to officially default on its foreign debt in 2002. Since then Argentina has seen explosive economic growth with annual GDP rates in excess of 8% from 2003 to 2008 and then over 9% in 2010. Yet despite this I believe that Argentina is a volatile and crisis prone country that is particularly risky for investors and in this article I will explain why.

The Mirage of High Economic Growth

Despite Argentina’s volatile political and economic history, which ended in the 2002 debt default, the Argentine economy has grown at a rapid pace over the last decade. From 2003 to 2008 Argentina experienced an annual average GDP growth rate of 8.5%. and in some individual years it even exceeded 9%, putting its growth rate alongside China’s. The only time economic growth dipped was during the global financial crisis with the GDP growth rate bottoming out at 0.8% in 2009, only to recover to 9.2% in 2010.

It is this spectacular growth that has seen many Argentine companies grow at incredible rates reporting stronger year over year revenue and income growth and paying impressive dividend yields. There are a number of Argentine companies listed as American depositary receipts (ADRs), which historically have paid dividends in excess of 10% including; Banco Macro SA (BMA ). Telecom Argentina SA (TEO ). YPF SA (YPF ) and BBVA Banco Frances SA (BFR ). All of which has drawn investors to Argentine stocks as they seek to cash in on this growth.

For 2012, Argentina’s economic growth is forecast to continue with the IMF forecasting GDP growth of 4.6%, which is the fourth highest 2012 IMF forecast for South America. It is also a full percentage point higher than Brazil, which is world’s sixth largest economy and Latin America’s largest. This forecast is also more than double the United State’s 2012 GDP forecast of 1.8%, and higher than the forecast growth rates for Canada and Mexico, as set out in table 1 below.

Table 1: IMF 2012 GDP Forecasts