[stop-imf] [Fwd: Argentina-- Miami Herald]

[Robert Weissman]

The Miami Herald
March 24, 2002 
The debt did it: Argentina's economic crisis is a result of huge
  interest payments, not runaway spending, a study says.
By Jane Bussey jbussey@herald.com

As the Bush administration presses Argentina for more economic 
sacrifices, a
  new study shows that the beleaguered South American country ran into 
financial
  troubles more from insurmountable debt than from profligate government 
spending.

    The study by the Center for Economic and Policy Research, a think
tank in
  Washington, showed that from 1993 to 2000, Argentina's primary government
  spending -- funding for salaries, government programs and operations
-- was
  essentially flat, but interest payments on the government debt rose 
threefold.

    Interest-rate hikes in the United States starting in 1994, and the 
continual
  shocks from devaluations in Mexico in 1994, in Asia in 1997, in Russia
in 
1998
  and Brazil in 1999, drove Argentina's debt service from $2.9 billion
in 
1993 to
  $9.7 billion in 2000.

    "People are still trying to blame Argentina for everything. They are still
  trying to say they were profligate," said economist Mark Weisbrot, who 
did the
  study along with economist Dean Baker.

    "Argentina's spending increases were all on interest payments," Weisbrot
  said. "It is this debt trap -- not overspending by the government --
that 
caused
  the crisis."

    The center's report is part of a growing number of studies and hearings
  trying to explain how a country with Latin America's highest per
capita 
income,
  which was continuously applauded for its economic management by 
Washington and
  Wall Street, ended up a basket case.

    Rioting and looting in late December drove former President Fernando
de la
  Rua to resign and led to a default on the government debt, the
devaluation of
  the Argentine currency and now a string of private-sector defaults and
  government probes.

    Much of the blame has fallen on the government, as the media has
cited 
cases
  of provincial legislators earning $14,000 a month or having two dozen aides.

    Domingo Cavallo -- the former high-profile economics minister who is now
  rarely seen in public -- lashed out at provincial governments. "The
loss of
  credit in Argentina was caused by excessive spending in the
provinces," 
he said
  before he resigned.

    Everyone is also pointing the finger at corruption.

    Bishop Ramon Artemia Staffolani told reporters that when a Catholic Church
  delegation met with International Monetary Fund officials, "they
treated 
us like
  we were lazy, charlatans, corrupt and thieves." Added Artemia
Staffolani: "We
  had to lower our heads because it was true."

    But President Eduardo Duhalde returned the fire to the IMF and other 
critics
  in Washington.

    "They are looking for scapegoats, saying that it is the [provincial]
  governors, that it is corruption." Duhalde said.

    But Duhalde pointed out that the IMF fully supported Argentina to
the end,
  praising its economic management and its currency program, the convertibility
  plan, that led the peso to become seriously overvalued. "The [IMF] deified
  convertibility," Duhalde complained.

    FALLING CURRENCY

    Renewed jitters last week sent the currency to a new low of 3.10 to
$1, 
after
  a 10-year peg of one peso to $1.

    If there was any excessive spending in the federal government, it is simply
  not borne out by budget numbers. Nor did it figure in criticism from
the IMF
  until late 2000.

    Weisbrot said that overspending by the provinces, some of which have
  defaulted on provincial bonds, does not affect the federal budget, any 
more than
  a financial crisis in Miami affects spending in Washington. During the budget
  period he studied, the revenue sharing from the central government to
the 23
  provincial governments was essentially flat, he said.

    Ironically, one of the programs pushed most by the IMF and the World 
Bank --
  privatization of the social security system -- cost the federal 
government more
  than 1 percent of its budget [CORRECTION: GDP -- ed.] each year,
according to Weisbrot and other
  economists. This is because when the contributions of workers in a 
pay-as-you-go
  system are channeled into private pension plans instead of going to retirees,
  the government has to find new sources of funding for pensions.

    One of the contributing factors to public outrage in Argentina, where
  government salaries were cut by 13 percent last year, was that
retirees saw
  their pensions reduced or stopped altogether.

    CHANGING TIMES

    Another big question Argentines ask is how a country that was among
the 10
  most developed in the world in 1910 could decline so far. But as Doug 
Henwood,
  editor of Left Business Observer newsletter, points out, early 20th Century
  wealth was based on grain and meat exports. To remain competitive in
the 
world
  market, a country needs industry and technology and a wealthy
land-owning 
class
  interested in industrialization.

    "They didn't have the internal market and they didn't have anything 
like the
  technology," Henwood said.

    Last week, just before heading to a development summit in Monterrey, 
Mexico,
  both President Bush and Secretary of State Colin Powell criticized the 
Argentine
  government and warned that there would be no renewal of loans if the 
country did
  not cut spending.

    "They have to be willing to make the necessary sacrifices . . . to
go 
through
  the structural reforms that are necessary," Powell told reporters.

    The country's lawmakers voted on a budget midweek that will cut 
spending by 4
  percent, while Duhalde has pledged to end the economic chaos.

    Weisbrot said that without debt payments, the country's accounts are
  balanced. Argentina is running both a budget surplus and a trade surplus.

    In the meantime, Argentina is asking for some $10 billion in new
loans from
  the IMF. Most of the money will be used to refinance debts to official
  creditors, like the IMF, which have never accepted a default or a 
reduction in
  the loans.

    The government also has to open negotiations with international 
bondholders,
  who expect to receive roughly 50 cents on the dollar for their bonds.