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March 2002 issue of
World Press Review
(VOL. 49, No. 3)
Rich Country Goes Bust Again
Those Who Ruined Argentina
Argentinas economic ruins, Eduardo Duhalde has settled
into the presidency after the departure of four predecessors
in only two weeks. But without a mandate, how long can he rule?
Few agree on a cure, let alone the cause of the current crisis.
Laurent Joffrin, Le Nouvel Observateur (left-wing weekly),
Paris, France, Jan. 10, 2002
You can look for
any excuse you want for the International Monetary Fund (IMF)
or its free-market remedies. The least we can say, if we want
to remain polite, is that the results of its actions in Argentina
are less than a complete success. Here is a modern, deserving,
and courageous country, one that emerged from a bloody dictatorship,
one that is re-establishing democracy, respects individual freedoms,
and has persistently endeavored to follow the draconian prescriptions
of the international financial community.
financial crisis, which had long simmered, finally boiled-over
on Dec. 19 amid looting and rioting (Photo: AFP).
Now, for all its trouble, it finds itself ruined and handicapped
for at least a generation. To be fair, the Argentine people
are also paying the price for the ineptness of their own leaders.
Perhaps it was to get people to forget its propensity for corruption,
demagoguery, and tax evasion that the leadership suddenly converted
to the most orthodox canons of international finance.
Between Christmas and New Years Day, the political leaders
were blown away one after another before finally bets were placed
on a horse marking a return to Peronism, Eduardo Duhalde, who
now has to save anything worth saving among the ruins.
Therefore, we can now leave behind the domain of tasteful understatements
and sum up the matter like this: The case of Argentina is one
of the most complete, spectacular, and revolting economic and
financial disasters we have seen since the Second World War.
The Argentine political earthquake should now make people wake
up. The market cannot provide for everything, and what is needed
for a country like Argentina is not another dose of laissez-faire
economics, but a state worthy of the name. To put it another
way, what should now occupy the IMF and the international community
is a cultural revolution in the area of regulating globalization.
At the outset, however, contrary to what a certain militant
line asserted, the intervention of the IMF was necessary and
helpful. Succeeding a corrupt military regime, the administration
of radical leader Raúl Alfonsín [president from
1983 to 1989] was unable to bring the countrys finances
Through deficits and creating money, the Argentine government
touched off a disastrous wave of inflation that led to the virtual
disappearance of the currency. In 1989, price increases had
reached an annual rate of 5,000 percent. Prices were readjusted
every day. Argentines were getting rid of their currency like
a hot potato.
The Peronists came back to power, led by the flamboyant and
shady Carlos Menem. Being short of resources, he turned to international
financiers to save a country devastated by hyper-
inflation. They prescribed two crucial measures. Parity was
fixed once and for all by a constitutional law. In its most
solemn charter, Argentina declared that the peso, henceforth
and for all eternity, would be worth as much as the U.S. dollar.
And to prevent the government, once and for all, from resorting
to printing more banknotes, it was stipulated that the total
currency in circulation in the country would be strictly indexed
to the number of dollars held by the central bank. For having
sinned by excess, Argentina was now abdicating all monetary
Actually, the measure was not completely unjustified. When a
currency sinks into hyperinflation, it cannot be saved without
dramatic gestures. The currency board, according to the technical
term designating the definitive linking of the peso to the dollar,
had the effect of restoring confidence. Knowing that their assets,
their savings, or their investments were convertible into dollars
at a preset exchange rate, Argentines and foreigners working
in the country began to use the national
currency again without fear of being fleeced.
The tight rein imposed on creating money was a guarantee against
thoughtless demagogic excesses by a political leadership known
for its irresponsibility. True, at the same time the ideologues
of the IMF and the international financial community imposed
structural reforms, consisting of abruptly dismantling
the Peronist heritage of a state-directed economy and a social
safety net. Government officials were laid off, there was privatization
on a massive scale, and spending for education and health was
Today we might doubt the need for these measures, especially
since the privatization program profited, through collusion
and corruption, the factions of the ruling elites linked to
this or that group in the political game, somewhat like in Yeltsins
Still, this looked like the price that had to be paid to rescue
a country from the brink. Thrown into globalization like a novice
swimmer into cold water, Argentina whipped up its energies and,
for four years straight, found itself with an average growth
rate of about 8 percent, a more than honorable performance.
Inequalities were on the increase, but people could hope that
the average increase in wealth would, in the end, benefit those
most deprived, at least somewhat.
Alas, the structural reforms had not put a stop to the unpatriotic
and dishonest behavior patterns of the Argentine bourgeoisie,
who lined their pockets with the complicity of politicians while
they took advantage of the financial liberalization to massively
invest their fortunes abroad.
But, above all, the currency board bore within itself the seeds
of its own destruction. The dollar went up in value and oil
prices rose while Argentinas main trading partners, particularly
Brazil, devalued their currency. Without any internal reason,
the peso saw its value rise with the dollar. The exchange rate,
in the opinion of the experts, was being propelled to a level
twice what was required for economic balance. Exports ceased
abruptly, choked off by the overvaluation of the currency. Recession
set in. The government was betrayed by the economic slowdown
that was drying up tax revenues.
A vicious circle was set in motion: The Argentine state had
to cut its expenditures to pay back its debt, but by reducing
its expenditures, it stalled the economy, which in turn made
its revenues dwindle, forcing it to cut its expenditures even
more. In the 1930s, using the same methods, Pierre Laval had
led the French economy to the brink of a similar precipice.
Clinging to its dogmas, in a state of ideological and psychological
dependency on high-finance circles, the IMF failed to see the
cycle that was gearing up.
Yet many experts were predicting the catastrophe, both in Argentina
and in other countries. In France, the Observatoire Français
des Conjonctures Économiques, the economics institute
headed by Jean-Paul Fitoussi, titled its October 2001 memorandum:
No one can expect the impossible from Argentina.
But instead of organizing a gentle retreat from the currency
board, the IMF tightened its lending terms, demanding increasingly
draconian measures. That is, until the population rose up against
such insane austerity, bringing down both the government and
the clever schemes of the Talibans of orthodox finance.
Observing that their prescription had just about killed the
patient, the free-trade doctors recommended doubling the dose.
More structural reform, less social protection,
this time an almost total dismantling of the Argentine welfare
state, and handing over all autonomy to international bankers:
That was the remedy prescribed.
The new government turned its back on this prescription. It
decided to devaluate and to come to the aid, to the extent possible,
of its poorest citizens. Argentina is entering upon a perilous
phase, running the risk of an economic relapse and political
subversion that would bring back an authoritarian regime to
This tragic fable has two morals. What Argentina lacked, in
the first place, was not so much a total immersion in the market
economy. Rather, it was the draconian reform of a corrupt and
ineffective state. The free-marketers always forget, whether
it be in Russia, in Asia, or in Latin America, that the market
is not born by spontaneous generation. Without security for
transactions, the impartiality of the court system, sound infrastructures,
competent government officials, and government action to limit
the effects of reform on the poorest people, the economy will
not function. It will slide into corruption, casino financing,
inequality, and tax evasion.
It is the state that institutes the market, and it does so not
by retreating or disappearing. Worshiping at the altar of the
market, the international experts recommended to emerging countries
that they should push back the state at any price and by any
means. We have seen the result.
The second lesson goes along the same lines. In intervening
to manage crises, the IMF can no longer confine itself to strict
financial criteria. Political and social considerations must
also be present in its line of reasoning, which, among other
things, includes lightening the burden of the debt. If not,
populations will revolt with ever-growing violence against the
prescriptions of the world financial community.
Are we moving in that direction? No. The experts close to George
W. Bush have found a more radical way to shield the IMF from
criticism: They propose eliminating it. Financial crises would
then be entirely managed by the private sector. After one kind
of brutality had been called into question, it would be replaced
by an even greater kind of brutality. The Argentine people have
not yet finished suffering.