[stop-imf] NYT and WPost editorials on Argentina

[Robert Weissman]

Two contrasting editorials. The New York Times attributes some blame to
the IMF ("The usual stern prescriptions from the
International Monetary Fund for greater austerity to weather the storm
only made matters worse."). The Post is more concerned that Argentina
continue with  extremist free trade/neoliberal policies ("It is
important, however, that the country resist pressure to throw out other
aspects of its economic program -- by renationalizing privatized
industries or reversing trade liberalization.").

--
Robert Weissman

Argentina Unraveling
New York Times
December 21, 2001

With severe economic troubles, weak political leadership
and a restive population, Argentina has been courting
trouble for months. It arrived yesterday with the collapse
of the elected government and deadly rioting in the streets
of Buenos Aires and other cities. Whether Argentina comes
out of this crisis as a stable democracy will depend on the
restraint of its army, the patience of its people and
steady leadership by the successor to President Fernando de
la Rúa, who resigned yesterday.

The sight of a democratically selected Latin American
leader, however unpopular, departing so hastily from office
is troubling for a country still trying to build democratic
institutions and practices. Instability and dashed hopes
have haunted Argentina since military rule ended in 1983.
Raúl Alfonsín, who oversaw the transition, did not finish
his presidential term, resigning in 1989 during another
economic crisis. His successor, Carlos Saúl Menem, steadied
the economy for a time but never addressed the country's
fundamental problems.

Mr. de la Rúa was an ineffectual leader. Given Argentina's
chronic instability, however, the country might have been
better served if the Peronist opposition had entertained
his offer yesterday to create a national unity government
to confront the economic crisis. Domingo Cavallo, the
powerful economy minister, who was responsible for imposing
a punishing austerity program and a currency board that
maintained an artificial one-to-one rate of exchange
between the peso and the American dollar, had already
resigned. The Peronists, who control Congress, could have
helped fashion a new bipartisan consensus on how to
proceed.

Instead they chose to take advantage of the crisis, forcing
Mr. de la Rúa to resign. In the absence of a sitting vice
president, Ramón Puerta, the Peronist leader in the Senate,
will become president. It is not yet clear whether he
intends to complete the last two years of Mr. de la Rúa's
term or call for an earlier vote. He should schedule
elections as soon as possible.

Argentina is beset by a 20 percent unemployment rate,
growing poverty and a bankrupt financial system. The
Argentine economic miracle of the 1990's was a mirage
created by foreign creditors enamored of the country's
monetary policy. The currency board allowed foreigners to
invest without having to fear devaluation or inflation.

This allowed Argentina to go on a $130 billion borrowing
binge without addressing longstanding shortcomings,
especially the corruption of its public finances and the
nation's uncompetitiveness as an exporter. Predictably, the
time has now come when Argentina can no longer make its
debt payments, and foreign investors have lost confidence
in the country. The usual stern prescriptions from the
International Monetary Fund for greater austerity to
weather the storm only made matters worse.

Like other nations that have reached this crisis point,
Argentina will most likely have to devalue its currency and
pass through even rougher economic times before it can
begin a recovery. It is a painful process, and one that can
be managed only if political stability is restored and
maintained, and if the army stays out of politics.

http://www.nytimes.com/2001/12/21/opinion/21FRI2.html?ex=1009954562&ei=1&en=1fea787762dd403d



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To view the entire article, go to
http://www.washingtonpost.com/wp-dyn/articles/A9951-2001Dec20.html

Crisis in Argentina
Washington Post
December 21, 2001



THE POLITICAL crisis that has engulfed Argentina -- with riots leading
to the resignation of the
economy minister and then, yesterday, of the president -- puts in
jeopardy everything the country
has accomplished since the end of military rule in 1983. Against
expectations, Argentina had
created a constitutional democracy and vanquished hyperinflation; it
undertook, but recently
failed to see through, brave free-market reforms. Now the departure of
President Fernando de la
Rua leaves a vacuum that could be filled by the ghosts of Argentina's
history. Market reform could
be replaced by economic populism. And unless the country's political
class pulls together to avert
a constitutional crisis, the military may be tempted to return to
politics.

The task now for Argentina's leaders is to come to the defense of the
nation's democracy, while
recognizing that the recent course of economic policy needs responsible
adjustment. In the weeks
leading up to the crisis, the government recklessly refused to grapple
with the recession by
embracing either of the two remedies available: an explicit default on
the country's unpayable
debt or a devaluation of its currency. Instead, the de la Rua
administration maintained that it
could muddle through by forcing ever more austerity on a public that had
already suffered plenty.
The riots of the past few days, which have led to the deaths of some 20
people, show how wrong
that view was. It is up to whatever government now emerges to make a
clear break.

This won't be easy. During the debt crisis of the 1980s, Latin
governments could meet with
creditor banks and negotiate cuts in what they would pay. Today
Argentina's debt is mostly in the
form of bonds, not bank loans, and bond holders are too numerous to
gather in one room. A debt
default may therefore trigger lawsuits from creditors demanding their
money back in full. And yet
it is absolutely necessary. There is no way Argentina's economy can
recover until its debt burden
is reduced.

Currency devaluation is also difficult. In 1991 Argentina tied its
currency to the dollar in order
to conquer hyperinflation, and encouraged Argentines to borrow in
dollars as well. These dollar
debts will be hard to pay if the peso is devalued, which means that the
Argentine banks that lent
the money could be in trouble. And yet devaluation, like debt default,
is probably unavoidable.
The dollar peg has removed two tools that countries use to deal with
economic slowdowns --
devaluation and lower interest rates. This might not matter if Argentina
had healthy public
finances and could fight recession with fiscal stimulus. But Argentina's
public sector is
chronically indebted. Because that seems unlikely to change, the country
needs to abandon its peg
to the dollar.

Debt default and devaluation are both big challenges, but they offer a
way to convince Argentina's
disaffected public that the four-year-long recession has a chance of
ending. It is important,
however, that the country resist pressure to throw out other aspects of
its economic program -- by
renationalizing privatized industries or reversing trade liberalization.
Argentina now needs above
all to preserve its democracy and free-market outlook. The alternatives
offer only worsened
misery.