Published on Sunday, December 30, 2001 in the Los Angeles Times
Blame the IMF Crowd
The One-Size-Fits-All Globalization Model Just Didn't Work
by Marc Cooper
A businessman trafficking in women in the red-light district of Buenos Aires refers to his most sought-after prostitute as la mina--the gold mine that produces his wealth. That's precisely the unfortunate role Argentina played in world markets over the last decade--it has been a gold mine for overseas investors.
Throughout the 1990s, Argentina dutifully carried out the orders of the men who run the international financial markets. It privatized state-owned industries, selling them off to foreigners. It embraced free trade and pegged its national currency, the peso, to the U.S. dollar. That Argentina was ruled by a gangster regime for most of the decade--former President Carlos Menem was only recently released from house arrest for his role in an international gun-running scheme--seemed to matter little to world bankers. As long as it remained a lucrative investment for mobile international capital, as long as it churned out double-digit profits for wealthy overseas bondholders, Argentina was the darling of globalization. But after bloody civil unrest drove President Fernando de la Rua from power earlier this month and Argentina suspended payments on its international debts, the global money managers acted as if they had nothing to do with the country's economic collapse. It was Argentine mismanagement and corruption that were to blame. True, they were contributing factors. Yet the men who run the International Monetary Fund, the World Bank and other multilateral financial agencies have some explaining to do, too. Argentina obeyed to the letter the nostrums the IMF routinely prescribes for the poorer half of the world: It cut social spending, reduced wages, raised prices and balanced the budget to attract foreign investment. Even as default loomed, the IMF pumped billions of dollars more into Argentina in return for its obedience--and the economy still collapsed.
That experience should be enough to throw into question the free-market globalization model that has increasingly been forced on Latin America countries as the only way to grow economically. A study released last summer by the Center for Economic and Policy Research in Washington provides further support for such a break. Of the world's 116 poorest countries, most are worse off after the last 20 years of global economic integration.
The IMF also pursued a money-for-austerity strategy in Russia in 1998 and in Brazil a year later, to similar disastrous effect. But the outcome in Argentina has been catastrophic. Pegging the peso to the dollar resulted in a vastly overvalued national currency. Argentine exports ceased to be competitive. Cheap imports smothered national production. As the value of the dollar rose 35% over the last five years, Argentine wages were depressed an equal amount. Interest rates soared. The foreign debt mushroomed to more than $130 billion. Unemployment floats near 20%. Argentina's four-year recession pushes an estimated 2,000 people a day below the poverty line. Even as the country simmered near political revolt, the IMF continued to insist that Argentina run no spending deficits and slash social spending.
Argentines are a proud people. Their country was among the world's richest. Until recently, its large middle class rivaled European counterparts in comfort and opportunity. Unionized factory workers could afford a house, a car and hope to put their children through college. All that has been lost in the name of "global economic integration." The surprise is that the political explosion was so long delayed.
Caretaker President Adolfo Rodriguez Saa must now try to restore financial stability while not provoking more social unrest. He's off to a good start by ignoring the prevailing financial orthodoxy. Rodriguez has temporarily suspended interest payments on the foreign debt, a figure now greater than Argentina's annual export income. More important, he has adopted a "third currency" to finance urgently needed social spending and promised to create 100,000 public-works jobs immediately, and a million total in the near future.
These are only remedial measures. To ensure authentic and sustainable economic development, Argentina and its neighbors should cast off the one-size-fits-all economic prescription beloved by the international money managers. The United States and other economically powerful nations, and the international financial organizations they finance, should allow for alternative models of development. Selling off privatized industries, exporting nonrenewable natural resources and buying cheap TVs on credit generate short-term prosperity but offer little of a national economic future.
Underneath the ledger numbers that world bankers hold up as the measure of success or failure are the lives, aspirations and dreams of real people. Those people flooded the streets of Argentina this month to say, simply if dramatically, that they had had enough.
Marc Cooper is a contributing editor to The Nation and a columnist for LA Weekly. His latest book is "Pinochet and Me: A Chilean Anti-Memoir."
Copyright 2001 Los Angeles Times