Argentina and fruits of a global economy

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Published Sunday, August 12, 2001

FRUITS OF A GLOBAL ECONOMY

Argentina's financial woes could set off a deeper crisis in the region, if not beyond.

Times are tough for Argentina, and likely to get worse before getting better. In the short term, fix-up loans from the International Monetary Fund and rescheduling the country's massive debt will help. But until Argentina lets go of its overvalued currency and rigid exchange rate, little else will cure its three-year recession.

Whether it devalues, reschedules or -- worst case -- defaults on its debt, Argentina's financial crisis could affect the region and beyond. These economic travails will fuel critics of free global markets and the prospects of a protectionist backlash.

South Florida already has been affected by Argentina's three-year recession. Florida exports to Argentina fell 20 percent in 1999, and 2.4 percent last year. In the first four months of this year, they've dropped another 12 percent, led by declines in office equipment and computers largely shipped from South Florida ports and airports.

At home, Argentines now brace for the latest austerity measures. President Fernando de la Rúa barely scraped together enough congressional approval for the plan that will slash public spending, including salaries, pensions and services. This, when unemployment is at 16 percent.

The economic malaise has sparked repeated general strikes, anti-free-market protests and transit roadblocks by the jobless. But the austerity measures were a last-ditch attempt to bolster investor confidence and to avoid having to default on the country's $130 billion debt. The measures, however, make a devaluation even more pressing.

Ironically Argentina's current economy minister, Domingo Cavallo, was hailed as a hero for curing Argentina's hyperinflation in the early 1990s. He did so by pegging the Argentine peso to the U.S. dollar, and pushing open access to its market. The strategy worked, for a time. But eventually the fixed currency hurt.

That's what now happens in a global marketplace. When Russia's economy tanked, scared investors ran out of Brazil. So in 1999 Brazil -- Argentina's biggest trade partner -- was forced to devalue its currency. The relative price of Argentina's exports shot up, and its economy sank into recession. It hasn't recovered yet, and won't as long as the prices of Argentine goods and services can't be competitive.

Sadly, to devalue now will create added misery. Argentines could well see the value of their savings evaporate overnight. There's a real danger of a run on the banks.

Whatever course Argentina steers, more pain is inevitable before a recovery. The IMF, egged on by the United States, will accelerate an already approved $1.2 billion loan to Argentina. Yet that may not be enough to head off another round of global economic crises and questions on the wisdom of free markets -- including the pending Free Trade Area of the Americas.

Economists point out that emerging markets grew more overall in decades under protectionist policies than in the 1990s as global players. The gains of free markets, moreover, have flowed to an elite few. No wonder Argentines are disillusioned. After lowering trade barriers, privatizing public businesses and suffering extreme austerity measures, their economy is still in the tank.

World financial institutions need to rethink old assumptions. The benefits created by free trade and global investments must be better spread to avoid a backlash of nationalistic protectionism.

http://cgi.herald.com/cgi-bin/rc_emailfriend.cgi?mode=print&doc=http://www.miami.com/herald/content/opinion/editorials/digdocs/098715.htm

-- Martin Thompson (mthom1927@aol.com), August 12, 2001

Answers

They say the I.M.F. can keep Argentina standing for another two months. That would take it into October, and their elections, which left-wingers are favored to win because of all the discontent. October is the traditional stock market collapse month of the year.

I'd say that this year it is a good bet to occur, and probably just this way, in this time frame.

-- Wayward (wayward@webtv.net), August 12, 2001.


Moderation questions? read the FAQ