[stop-imf] SF Chronicle editorial: Who lost Argentina?

Mon, 07 Jan 2002 18:55:31 -0800

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Who lost Argentina?

Saturday, January 5, 2002 San Francisco Chronicle

URL:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2002/01/05/ED124049.DTL
<http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2002/01/05/ED124049.DTL>

THE DEBATE is on. Who is guilty for Argentina's economic collapse -- the
International Monetary Fund or corrupt, spendthrift Argentines?

Much of this debate follows well-worn ideological lines. Analysts from
the left say the IMF and the U.S. Treasury Department wrecked
Argentina's economy with conservative, free-market policies. Analysts on
the right blame irresponsible deficit spending by governments in Buenos
Aires.

In fact, both sides are right. And there are plenty of lessons that the
United States should learn.

Although Argentina is not a major trading partner for California, it is
the second-largest economy in South America, and any deepening of its
collapse could ripple through Mexico, Korea and Southeast Asia,
important markets for the state's products and services.

The news yesterday from Argentina was typically gloomy. President
Eduardo Duhalde failed to release details of his economic "salvation"
plan -- which is likely to include a devaluation of the peso by more
than 40 percent and adoption of a risky dual currency system.

Whatever the details finally are, the country is certain to be even
deeper in default on its $132 billion debt.

The Bush administration is taking a hard-line stand, refusing to endorse
a large IMF bailout until Duhalde slashes government spending and
devalues the currency.

Through most of the 1990s, Argentina was cited by the U.S. Treasury
Department and the IMF as a model of free-market reforms. But this model
was deeply flawed. As with Mexico, Russia and Brazil, the economic magic
was based on a fixed, overvalued exchange rate. Inflated currencies were
a powerful narcotic for Wall Street and local consumers alike,
facilitating repayment of foreign loans and making imported consumer
goods cheaper.

The IMF has made its loans conditional on adoption of a "zero deficit"
policy, and used Argentina's continued deficit spending as justification
for rejecting Argentina's pleas last month for another $1.2 billion in
loans to fend off collapse. But critics have pointed out that Argentina
has run only modest deficits, smaller than U.S. deficits.

Why hasn't the IMF learned its lessons? In part, the answer is sheer
bullheadedness. Two years ago, former World Bank chief economist Joseph
Stiglitz wrote a furious essay calling the IMF arrogant and
ideologically wedded to conservative policy.

Stiglitz, who last year won the Nobel Prize for economics, was
excoriated by the IMF and its defenders. Now, the Argentina case is
proving him right.

But the Argentines are hardly blameless. In a nation that prides itself
on its European culture and affluence, keeping imports cheap via an
overvalued peso was a political necessity.

Now that the peso is about to be devalued sharply, the party is over.
Riots like the ones last month are likely, and further changes of
government are possible. Fortunately, the nation's military has shown no
desire to step in. Unlike the 1970s and early 1980s, when a succession
of rightist dictatorships tortured and killed more than 30,000
civilians, the army seems content to remain on the sidelines.

Argentines, a proud people who have never been famed for modesty, will
increasingly find their affluent lifestyles difficult to maintain. Let's
hope the IMF also learns some humility.

Š2002 San Francisco Chronicle
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<h3>
Who lost Argentina?</h3>

Saturday, January 5, 2002 San Francisco Chronicle
URL: <A HREF="http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2002/01/05/ED124049.DTL">http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2002/01/05/ED124049.DTL</A>&nbsp;
&lt;<A HREF="http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2002/01/05/ED124049.DTL">http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2002/01/05/ED124049.DTL</A>>
THE DEBATE is on. Who is guilty for Argentina's economic collapse --
the International Monetary Fund or corrupt, spendthrift Argentines?
Much of this debate follows well-worn ideological lines. Analysts from
the left say the IMF and the U.S. Treasury Department wrecked Argentina's
economy with conservative, free-market policies. Analysts on the right
blame irresponsible deficit spending by governments in Buenos Aires.
In fact, both sides are right. And there are plenty of lessons that
the United States should learn.
Although Argentina is not a major trading partner for California, it
is the second-largest economy in South America, and any deepening of its
collapse could ripple through Mexico, Korea and Southeast Asia, important
markets for the state's products and services.
The news yesterday from Argentina was typically gloomy. President Eduardo
Duhalde failed to release details of his economic "salvation" plan -- which
is likely to include a devaluation of the peso by more than 40 percent
and adoption of a risky dual currency system.
Whatever the details finally are, the country is certain to be even
deeper in default on its $132 billion debt.
The Bush administration is taking a hard-line stand, refusing to endorse
a large IMF bailout until Duhalde slashes government spending and devalues
the currency.
Through most of the 1990s, Argentina was cited by the U.S. Treasury
Department and the IMF as a model of free-market reforms. But this model
was deeply flawed. As with Mexico, Russia and Brazil, the economic magic
was based on a fixed, overvalued exchange rate. Inflated currencies were
a powerful narcotic for Wall Street and local consumers alike, facilitating
repayment of foreign loans and making imported consumer goods cheaper.
The IMF has made its loans conditional on adoption of a "zero deficit"
policy, and used Argentina's continued deficit spending as justification
for rejecting Argentina's pleas last month for another $1.2 billion in
loans to fend off collapse. But critics have pointed out that Argentina
has run only modest deficits, smaller than U.S. deficits.
Why hasn't the IMF learned its lessons? In part, the answer is sheer
bullheadedness. Two years ago, former World Bank chief economist Joseph
Stiglitz wrote a furious essay calling the IMF arrogant and ideologically
wedded to conservative policy.
Stiglitz, who last year won the Nobel Prize for economics, was excoriated
by the IMF and its defenders. Now, the Argentina case is proving him right.
But the Argentines are hardly blameless. In a nation that prides itself
on its European culture and affluence, keeping imports cheap via an overvalued
peso was a political necessity.
Now that the peso is about to be devalued sharply, the party is over.
Riots like the ones last month are likely, and further changes of government
are possible. Fortunately, the nation's military has shown no desire to
step in. Unlike the 1970s and early 1980s, when a succession of rightist
dictatorships tortured and killed more than 30,000 civilians, the army
seems content to remain on the sidelines.
Argentines, a proud people who have never been famed for modesty, will
increasingly find their affluent lifestyles difficult to maintain. Let's
hope the IMF also learns some humility.
&copy;2002 San Francisco Chronicle &lt;<A HREF="http://www.sfgate.com/chronicle/info/copyright">http://www.sfgate.com/chronicle/info/copyright</A>>&nbsp;&nbsp;&nbsp;
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