Fw: US fueled Argentina's economic collapse

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US fueled Argentina's economic collapse

By Robert Kuttner, 1/7/2002

THE ECONOMIC COLLAPSE of Argentina is the latest failure of the
one-size-fits-all model that the United States tries to impose on
developing countries. Critics of this model are often attacked as
protectionists, tools of special interest groups, anarchists, and
worse. But in fact they include some of the world's most eminent
economists.

The economic model that the United States exports, with the
International Monetary Fund in the role of enforcer, works like this:
Developing nations are supposed to open their economies wide to
foreign investment - to allow their banks, public utilities, and
anything else to be sold to the highest foreign bidder. They are to
balance their budgets, restrict the role of government, discipline
wages, and limit social outlays.

All of this is intended to subject the local economy to global
competitive discipline and attract foreign private capital.

It sounds plausible, but there are several problems. For one thing,
foreign investments are notoriously subject to fads and whims.
Several otherwise sound economies in East Asia got into severe
difficulty in the late 1990s after following the American recipe. Too
much foreign capital poured in, and when the bubble burst, it poured
right out again. The IMF then came in to shoot the wounded.

Another problem is that the United States is telling these countries:
''Do as I say, not as I do.'' When America was a developing nation in
the 19th century, it had high tariffs to shelter infant industry. The
government was heavily involved in economic development - everything
from agriculture to radio to aircraft. The early Republic prohibited
land purchases by foreign speculators.

And when our economy was in trouble in the 1930s, we ceased letting
dollars trade freely, and we ran huge public deficits. The New Deal
worked. If there had been an IMF, it would have blacklisted the
country.

Argentina followed the IMF model more faithfully than almost any
other nation. Its economy was opened wide; its peso was pegged to the
dollar. For a few years this sparked an investment boom as foreigners
bought most of the country's patrimony - its banks, phone companies,
gas, water, electricity, railroads, airlines, airports, postal
service, even its subways.

As long as this money came in, there were enough dollars to keep
plenty of pesos in circulation. But the dollar-peso peg led to an
overvalued currency, which killed Argentine exports. And once there
was little more to sell off, the dollars ceased coming in, which
pulled money out of local circulation.

As Argentina tanked, the IMF's austerity program pushed the economy
further into collapse.

The American Prospect, the magazine I edit, recently devoted an issue
to mainstream critics of globalization. The 2001 Nobel laureate in
economics, Joseph E. Stiglitz, former chief economist of the World
Bank, observed that the countries that have benefited most from
globalization have been those that controlled the terms of
engagement. They benefited ''by taking advantage of the global market
for exports and by closing the technology gap.''

Those that suffered were the ones like Argentina that were coerced
into just leaving themselves vulnerable to forces beyond their
control. ''The international financial institutions,'' Stiglitz
wrote, ''have pushed a particular ideology - market fundamentalism -
that is both bad economics and bad politics.... The IMF has pushed
these economics policies without a broader vision of society ... and
it has pushed those policies in ways that have undermined emerging
democracies.''

In a companion piece, Amartya Sen, the 1998 Nobelist in economics,
lamented the fact that the current brand of globalization is ''much
more concerned with expanding the domain of market relations than
with, say, establishing democracy, expanding elementary education, or
enhancing the social opportunities of society's underdogs.''

Sen's scholarly work demonstrates that many different ways of sharing
benefits and burdens of economic growth are consistent with dynamic
capitalism. But the current model, promoted by the United States and
the IMF, is tilted to benefit investors often at the expense of
ordinary people, particularly in the Third World. The countries that
have had the highest growth rates, such as Korea and China, as
Stiglitz shows, are precisely those that have resisted much of the
IMF model.

These critics are not Seattle anarchists but Nobel Prize economists.
Almost exactly four decades ago, John F. Kennedy, in announcing the
Alliance for Progress, his new development policy for Latin America,
pledged to ''make the world safe for diversity.'' The threat to
diversity then was monolithic Soviet Communism. Today the threat is
monolithic market fundamentalism. If the United States wants the
world's support, much less its gratitude, it needs to let emerging
economies follow their own paths.

Robert Kuttner is co-editor of The American Prospect. His column
appears regularly in the Globe.

This story ran on page A15 of the Boston Globe on 1/7/2002.
© Copyright 2002 Globe Newspaper Company.