Argentina Defies Monetary Fund - Gives Economic Lesson to Big Finance
Three years after the collapse of Argentina's economy under IMF and World Bank recipes for development, the South American country's budding recovery is stunning international observers. Defying the IMF's prescriptions, president Kirchner and his economic advisers have told creditors to get in line and wait, while building the economy from the bottom up. An excellent article in the New York Times relates the story.
The looting of Argentina by international finance and the subsequent disintegration of its economy in December 2001 is but one example of what has been official policy of the International Monetary Fund and the World Bank for decades: Indebt developing nations by granting humongous loans for projects that benefit foreign contractors rather than the local economy, collect repayments and when the entirely predictable financial trouble occur, put on the squeeze to "open the country to a market economy". Lower the wages, eliminate any social subsidies, open basic services to multinational competition and give away raw materials at fire sale prices.
John Perkins, a former respected member of the international banking community has blown the whistle on this practice. In his book Confessions of an Economic Hit Man he describes how as a highly paid professional, he helped the U.S. cheat poor countries around the globe out of trillions of dollars by lending them more money than they could possibly repay and then take over their economies. Democracynow.org has posted an interesting interview with Perkins.
Sour grapes criticism by the advocates of economic globalism paints a bleak picture indeed. The "magic solution" proposed by the economic creme de la creme is - it is hard to believe - linking the Argentine currency to the Dollar and a renewal of efforts to please international finance, but of course that is exactly what caused the trouble in the first place.
How did the Argentinians do it? They repudiated the "good advice" and started working at home, realizing that a country's economy is not made up of international investments but rather of production and consumption going on right inside the country. Here is a copy of the NY Times article...
Economic Rally for Argentines Defies Forecasts
*By LARRY ROHTER *
Published: December 26, 2004
(original in NY Times)BUENOS AIRES, Dec. 23 - When the Argentine economy collapsed in December 2001, doomsday predictions abounded. Unless it adopted orthodox economic policies and quickly cut a deal with its foreign creditors, hyperinflation would surely follow, the peso would become worthless, investment and foreign reserves would vanish and any prospect of growth would be strangled.
But three years after Argentina declared a record debt default of more than $100 billion, the largest in history, the apocalypse has not arrived. Instead, the economy has grown by 8 percent for two consecutive years, exports have zoomed, the currency is stable, investors are gradually returning and unemployment has eased from record highs - all without a debt settlement or the standard measures required by the International Monetary Fund for its approval.
Argentina's recovery has been undeniable, and it has been achieved at least in part by ignoring and even defying economic and political orthodoxy. Rather than moving to immediately satisfy bondholders, private banks and the I.M.F., as other developing countries have done in less severe crises, the Peronist-led government chose to stimulate internal consumption first and told creditors to get in line with everyone else.
"This is a remarkable historical event, one that challenges 25 years of failed policies," said Mark Weisbrot, an economist at the Center for Economic and Policy Research, a liberal research group in Washington. "While other countries are just limping along, Argentina is experiencing very healthy growth with no sign that it is unsustainable, and they've done it without having to make any concessions to get foreign capital inflows."
The consequences of that decision can be seen in government statistics and in stores, where consumers once again were spending robustly before Christmas. More than two million jobs have been created since the depths of the crisis early in 2002, and according to official figures, inflation-adjusted income has also bounced back, returning almost to the level of the late 1990's. That is when the crisis emerged, as Argentina sought to tighten its belt according to I.M.F. prescriptions, only to collapse into the worst depression in its history, which also set off a political crisis.
Some of the new jobs are from a low-paying government make-work program, but nearly half are in the private sector. As a result, unemployment has declined from more than 20 percent to about 13 percent, and the number of Argentines living below the poverty line has fallen by nearly 10 points from the record high of 53.4 percent early in 2002.
"Things are by no means back to normal, but we've got the feeling we're back on the right track," said Mario Alberto Ortiz, a refrigeration repairman. "For the first time since things fell apart, I can actually afford to spend a little money."
Traditional free-market economists remain skeptical of the government's approach. While acknowledging there has been a recovery, they attribute it mainly to external factors rather than the policies of President Néstor Kirchner, who has been in office since May 2003. Increasingly, they also maintain that the comeback is beginning to lose steam.
"We've been lucky," said Juan Luis Bour, chief economist at the Latin American Foundation for Economic Research here. "We've had high prices for commodities and low interest rates. But if we want to grow in 2005, we're going to have to settle the debt question and have foreign capital come in."
The I.M.F., which Argentine officials blame for inducing the crisis in the first place, argues that the current government is acting at least in part as the I.M.F. has always recommended. It has limited spending and moved to increase revenues, a classic prescription when an economy is ailing, and has built up a surplus twice the size of what the fund had asked before negotiations were put on hold several months ago.
"The return to these encouraging numbers has been helped a lot by a fiscal discipline that is almost unprecedented by Argentine standards," said John Dodsworth, the senior I.M.F. representative here. "We've had a primary surplus which has increased steadily over these past few years at both the central and provincial levels, and that has been the main anchor on the economic side."
But some of that record budget surplus has come from a pair of levies on exports and financial transactions that orthodox economists at the I.M.F. and elsewhere want to see repealed. About a third of government revenues are now raised by those taxes, which have surged.
"The I.M.F. wants these taxes to be eliminated, but on the other hand they also want Argentina to improve its offer to creditors and also pay back the fund so it can reduce its own exposure here," said Alan Cibils, an Argentine economist associated with the independent Interdisciplinary Center for the Study of Public Policy here. "In other words, they are saying, 'You have to pay out more and take in less,' which is a sure prescription for another crisis."
Because of the absence of a debt accord and a stalemate over utility tariffs, some investors, mainly European, continue to shun Argentina, citing what they call the lack of "judicial security." But others, mainly Latin Americans used to operating in unstable environments or themselves survivors of similar crises, have increased their presence here amid expanding opportunities.
"These are slogans that people repeat without thinking, as if they were parrots," Roberto Lavagna, the minister of the economy, said when asked about the predictions that investment would disappear. "In 2001 and the beginning of 2002, all kinds of contracts were destroyed," he said. "So why are they investing? Because today clearly they can get a very good rate of return."
The Brazilian oil company Petrobras bought a stake in a leading energy company. Another Brazilian company, AmBev, has acquired a large interest in Quilmes, Argentina's leading beer brand, and a Mexican company has bought up control of a leading bread and cake maker.
Asian countries, with China and South Korea in the lead, have begun to move in. During a state visit last month, the Chinese president, Hu Jintao, announced that his country plans to invest $20 billion in Argentina over the next decade.
But the bulk of the new investment comes from Argentines who are beginning to spend their money at home, either bringing their savings back from abroad or from under their mattresses. For the first time in three years, more money is coming into the country than is leaving it.
That has given Mr. Kirchner the luxury of taking a hard line with the monetary fund and with foreign creditors clamoring for repayment.
"The thing is that Argentina has a current account surplus, so they don't really need so much foreign investment," said Claudio Loser, an Argentine economist and the former Western Hemisphere director for the I.M.F. "Domestic investment is taking place because there are opportunities in agriculture, oil and gas."
Just this week, the government announced that reserves of foreign currency have climbed back to $19.5 billion, their highest level since the crash and more than double the low recorded in the middle of 2002, a year with a net outflow of $12.7 billion.
"The peak of investment in the 1990's was 19.9 percent" of gross domestic product annually "and today it is at 19.1 percent, having risen from a low of 10 percent," Mr. Lavagna said. The Kirchner administration continues to seek an accord on the $167 billion in debt that is still outstanding, and plans to make what it calls its final offer early next month. But the turnabout here has inspired such a sense of confidence that the government is not only talking about cutting its last ties to the I.M.F. but also insisting that any payback to bondholders be linked to Argentina's continued good economic health.
"It's very simple," Mr. Lavagna said. "Nobody can collect from a country that is not growing."
See also:
Confessions of an Economic Hit Man
How the US Uses Globalization to Cheat Poor Countries Out of Trillions
Interview with John Perkins by Ant GoodmanThe World Bank and the Secret Argentine Plan
Transcript of Interview of Greg Palast, Journalist for BBC and Observer, London, by Alex JonesArgentina: Foreign debt museum opens its doors
BUENOS AIRES, Argentina (Reuters) - Three years after staging the largest debt default in modern history, Argentina on Thursday opened what may be the first Museum of Foreign Debt to teach people the perils of borrowing abroad.Argentina launches first bond sale since 2001 default
05.04.2005 - BUENOS AIRES (AFX) - Argentina has issued its first treasury bonds for sale to the financial markets since defaulting on its public debt mountain in 2001, officials said. The government's bond offering consisted of 1.0 bln pesos, according to finance secretary Guillermo Nielsen. The interest rate was fixed at 6.51 pct annually, but this could be adjusted according to inflation. Nielsen told reporters yesterday's offering was 'very successful' and said it showed Argentina was 'returning to normal' on the financial markets.Fábricas Recuperadas: crowd-storming your own just and equitable economy in Argentina
The workers usually spent many months hauling away debris. They cannibalized equipment and improvised with scrap to make at least one of each necessary machine. Neighbors donated what they could, be it their welding masks or their labor on a spare Sunday. As for what they faced in restarting production: They had no capital or credit lines with which to make over their former places of employment. For starters, they manufactured and sold infinitesimal amounts of whatever items they could produce with scrounged primary materials.
posted by Sepp Hasslberger on Thursday December 30 2004
updated on Monday September 29 2008URL of this article:
http://www.newmediaexplorer.org/sepp/2004/12/30/argentina_defies_monetary_fund_gives_economic_lesson_to_big_finance.htm
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