"Ready for dinner"
“The continuation of strong economic growth in Argentina,” says economist Dean Baker, is one of the five most important economic news stories of 2006. The reason: Argentina defaulted on billions of dollars of international debt in 2001, and then despite harsh entreaties from the International Monetary Fund, agreed to pay only 30 cents on the dollar to its creditors in 2003. But since then, despite numerous warnings from A-list economists predicting that Argentina’s self-imposed “exile” from the global economy would lead to imminent doom, Argentina has done quite nicely, thank you very much. Right now, along with Venezuela, it is one of the fastest growing economies in Latin America.
Ah, but at what price? If you believe Frederic Mishkin, author of a new book on how financial globalization is the cure for all development evils, Argentina is sacrificing future prospects for a quck fix today. “[Argentine President} Nestor Kirchner… has been pursuing anti-free market policies that increase the likelihood that Argentina will turn its back on the global economic system. The country is poised to lose another fifty years of economic growth.”
Argentina’s tango with the IMF is a dance to the tune of globalization. In the 1990s, Argentina eagerly followed the lead of the IMF and the World Bank and opened its doors wide to enthusiastic global capital markets. Bankers fell over themselves to manage Argentina’s flood of bond issues. But when it all went bad, and Argentina ran smack into an economic downturn of Great Depression proportions, suddenly, Argentina wasn’t such a straight A student. Instead, the star pupil was transformed into a delinquent, yet another developing nation in the South whose leaders had failed its people by improperly implementing the sage prescriptions of the North.
How the World Works has been remiss in not focusing more on Argentina in the past year, given how critical understanding its experience is to understanding a) globalization, b) Latin America’s “turn to the left,” and c) economic development in general. But reading Mishkin’s no-doubt-about-it dismissal of Kirchner’s so far successful repudiation of globalization has made me determined to learn more. If Mishkin is wrong about Argentina, then he may well be wrong about a lot of other things.
One of the great problems in evaluating economic theory is that economic data is slippery, slippery stuff. Obviously, we can’t wait 50 years to find out if Mishkin or Baker is right about whether Argentina should have taken a hard line with the IMF. But at the same time, it is very, very dangerous to extrapolate from the data generated by a quarter or two, or year or two, of economic growth, and think that the numbers prove anything definitively. The U.S. experienced dramatic economic growth in the first quarter of this year, which the Bush administration trumpeted as proof of its successful management of the economy. But growth has slumped steadily ever since, and even then, the GDP numbers masked accelerating weakness in the housing sector and the failure of worker wages to keep pace with inflation. Likewise, Mexico’s poor economic growth of the early 2000s has been blamed on NAFTA, but its strong economic performance of the last year has also been attributed to NAFTA. Perhaps the single greatest frustration involved in making sense of economic policy is how easy it is for people of different ideological perspectives to cherry-pick data to support their platform.
Another book sitting on my desk waiting to be read is Washington Post financial reporter Paul Blustein’s “And the Money Kept Rolling In (and Out): Wall Street, the IMF, and the Bankrupting of Argentina.” Blustein’s contemporaneous reporting of the debacle for the Post does a great job of underlining the complicity that global financial markets had in aiding and abetting Argentina’s massive debt rollup. But according to an Economist magazine review of his book, that doesn’t mean that Argentina should be “Exhibit A” for critics of globalization and free markets. “The author stresses that those chiefly to blame were Argentina’s own politicians and officials, who pursued an insufficiently rigorous fiscal policy to sustain a fixed exchange rate.”
So what do Argentina’s own politicians now think? In a statement given to the United Nations in 2003, Kirchner said the following:
Encouraging collective progress and security in an intelligent way requires an understanding of the fact that the value of security is not only a military concept but one which stems from a preexisting political, economic, social and cultural scenario. Those are the central tasks for the main players on the international agenda.
In this framework, the relations of countries such as ours, and others, with the rest of the world are marked by a crushing, gigantic debt owed to both multilateral financial institutions as well as private creditors.
As a country, we recognize our responsibility for having adopted the policies of others, which led us to such heavy indebtedness. But we also urge the international financial institutions, which, in dictating such policies, contributed to, encouraged and favoured the growth of debt, to accept their own share of responsibility. It is almost a truism to point out that when a debt grows to such an extent, it is not only the debtor that is responsible, but also the creditor.
It is therefore necessary to acknowledge an actual, verifiable and, to a certain extent, common sense fact: the terrible difficulties involved in paying such a debt. Without concrete international assistance aimed at enabling indebted countries to rebuild their economic solvency and, consequently, their payment capacity, and without measures to promote their growth and sustainable development by taking concrete steps to promote their market access and the growth of their exports, debt repayment becomes an impossible dream.
Developing exports which add value to the natural resources that most indebted countries have can lay the foundations for the first steps towards sustainable development, without which creditors will have to face their losses without any other realistic options. No one is known to have succeeded in getting their money back from the dead.
In furtherance of this objective, i.e., of making a country viable in order for it to be able to pay its debts, it would be of great help to intensify multilateral negotiations for elimination of tariff and nontariff barriers hindering access of our exports to the markets of developed countries, which have larger purchasing capacity.
The fact is that in international trade in food products, for example, which is Argentina’s main export item, export and production subsidies continue, as well as tariff quotas, unjustified phytosanitary measures and tariff ladders, which distort the terms of exchange for primary products and seriously hamper market access for products with higher added value.
The failure of the WTO negotiations at Cancun should serve as a reminder to us in this regard, and should be remedied by achieving the sort of link we are highlighting as desirable between new business opportunities in international trade, growth of indebted countries and their debt repayment capacity. It is a paradox, and almost ridiculous, that we should be expected to pay our debt while at the same time we are prevented from trading and selling our products.
On the other hand, although it is true that the objectives of multilateral institutions such as the International Monetary Fund include “shortening the duration and lessening the degree of imbalance in the balance of payments of member countries”, as well as to “instill confidence in them through resources in order to create the opportunity for correction without the need to resort to measures that are detrimental to national or international prosperity”, it is also necessary to redesign institutions such as the IMF.
Redesigning multilateral lending agencies should include changing their paradigms, so that the success or failure of economic policies is measured in terms of success or failure in the fight for growth, equitable distribution, the fight against poverty and in ensuring adequate employment levels.
This new millennium should put an end to adjustment models in which the prosperity of some is based on the poverty of others. The dawn of the 21st century should signal the end of an age and the beginning of a new cooperation between creditors and debtors.
Reading Kirchner’s own words, it becomes apparent that it may not matter at all whether or not the Economist or the IMF or anyone else declares that Argentina’s woes were not a result of globalization, the Washington Consensus, or mulish IMF officials. There’s no way you can read that speech without understanding that Argentina has made itself into Exhibit A, B,C,D and E of “globalization.” Somehow, as a result of the vagaries of history, great masses of people in Latin America and the leaders that they have recently elected to power have come to believe that the rules of the global economy have not worked for them, and need to be changed. That perception is now everyone’s reality.