QUITO - Free trade in the Americas will not benefit
the Latin American or Caribbean nations as long as the United
States refuses to lift its import barriers, warns US economist
Joseph Stiglitz, a winner of this year's Nobel Prize for economics.
The United States is not willing to eliminate its generous farm
subsidies or its restrictions on the entry into the US market of
products like sugar and beef from Brazil, Stiglitz told IPS in an
interview Friday in the Ecuadorian capital.
As such, he said, the Free Trade Area of the Americas (FTAA)
being negotiated by 34 countries of the Western Hemisphere will
not benefit the economies of Latin America and the Caribbean, but
will instead prolong an unequal relationship.
The United States maintains that it will begin dismantling
tariffs under the FTAA in 2005, but it would be more just if it
would resolve the existing disparities before moving forward with
the trade negotiations, said the Nobel laureate.
Stiglitz, former chief economist of the World Bank, was in
Quito invited by the Central Bank of Ecuador to lead a series of
The expert stated that the ''dollarization'' models, like
Ecuador's, or the one-to-one parity of the local currency with the
US dollar, as is the case of Argentina, increase vulnerability to
the ups and downs of the global economy.
''What is happening in Argentina, with its fixed exchange rate,
has demonstrated some of the problems that can arise from a scheme
like that,'' in particular, an overvaluation of the dollar and an
undervaluation of the Argentine peso, he said.
The economic crisis has caused a dramatic depreciation of the
Brazilian real, while Argentina has found it difficult to export
its goods to Brazil or to Europe because of its fixed exchange
Furthermore, Stiglitz argues that the slowdown of the
international economy could bring those countries that are tied to
the dollar profound uncertainty with respect to their ability to
compete on the global market.
And the weakened economies of the United States and Japan are
fueling a worldwide recession, which conspires against the
economies of Latin America, he said.
''It used to be said that when the United States sneezed,
Mexico caught a cold. With globalization, the United States
sneezes and all Latin America, and much of the rest of the world
end up with a bad case of the flu. Unfortunately, the United
States now has pneumonia,'' he said.
The economist, a professor at Columbia University in New York,
says the crisis affecting Argentina and Brazil is likely to worsen
because ''commodity sales will fall, and the countries that export
to the United States will have to do so at lower prices.''
Prior to the Sep 11 terrorist attacks, the US economy was
seeing a slowdown in economic growth, though it had not yet given
way to full recession. However, ''the attacks are now pushing the
economy into a recession,'' stated the expert.
Stiglitz took aim at the World Trade Organization (WTO) for
defending the interests of industrialized countries to the
detriment of the developing world. Though almost all countries are
included in its membership, ''the WTO bases its resolutions on the
interests of the inhabitants of the (industrialized) North,'' he
One example of this is the push the wealthy nations gave the
agreement on intellectual property rights in the Uruguay Round of
multilateral trade negotiations, which culminated in the creation
of the WTO, he pointed out.
The Sep 11 attacks could also harm the globalization process
itself because Washington is adopting extreme security measures
that will inflate its budget.
Furthermore, there are more and more layoffs each day in
various sectors of the US workforce, which will hurt purchasing
power, and therefore contribute to the recession.
Stiglitz does not think Washington is applying the appropriate
measures, but is instead staking its bets on ''the typical market
policy, which is ineffective in staving off the wave of
More than ever, given the current context, the United States
should focus on fiscal policies and aim government spending at
combating the effects of the terrorist attacks. The recovery of
the economy, which could take a long time, depends on effective
stimuli from the government, he said.
In comments on the case of Ecuador, Stiglitz said that while
the national economy recorded moderate growth last year,
production is still not much better than what it was during the
crisis two years ago, and that the stagnation of the standard of
living here is cause for great concern.
The economist also questioned the five-percent economic growth
rate established among the conditions of an agreement between
Ecuador and the International Monetary Fund (IMF).
He said he would not give much credence to such projections
because they are based on old models, and he insinuated that the
IMF invents some of the figures involved in its calculations.
Stiglitz is a co-recipient of this year's Nobel Prize for
economics alongside George Akerlof and Michael Spence, also of the
United States. Through their research conducted in the 1970s and
1980s, the three highlighted the distorting impacts on the market
by what they called ''asymmetric information.''
Their approach is based on the premise that one of the parties
in a trade relationship is always at a disadvantage when it comes
to information on the item being negotiated. Government must step
in to correct the problem by playing a stronger role in the
market, say the three laureates.
Stiglitz explained in Quito that the market economy is
characterized by imperfect information, which carries grave
consequences for the development of economies at the global level.
The models that have been applied are erroneous because they
ignore important phenomena like unemployment.
According to the economist, this is due to the fact that
''existing models are based on assumptions that information is
perfect, when the free market is characterized by imperfection.''
Stiglitz chaired the Council of Economic Advisers during the
first years of the Bill Clinton presidency (1993-2001), and later
served as chief economist at the World Bank.
He stepped down from that post in late 1999 after issuing
repeated criticisms of the IMF for its handling of Southeast
Asia's financial crisis of 1997-1998.
His commentaries sparked the ire of top financial officials of
the time, including World Bank president James Wolfensohn, IMF
managing director Michel Camdessus, and US Treasury Secretary
Since then, Stiglitz has dedicated himself to the academic
sphere, teaching economics, business and international affairs at
Upon announcing the Nobel Prize winners on Oct 10, the award's
committee in Norway underscored Stiglitz's numerous contributions
towards ''transforming they way economists think about markets.''
Copyright 2001 IPS -Inter Press Service