This might be interesting to Pen-l-ers. This came from our Progressive Economics Forum.
Paul Phillips From: Progressive Economics Forum <[EMAIL PROTECTED]> Subject: PEF: More on Argentina Dear PEF Members and Friends; Somehow an article based on the research of two left-wing American economists -- Mark Weisbrot and Doug Henwood -- found itself into a mainstream U.S. newspaper. Miracles are still possible. It's worth reading! >Social Security privatization cost the Argentine government 1 percent >*of GDP* in lost revenues. > > The Miami Herald > March 24, 2002 Sunday > >HEADLINE: The debt did it: Argentina's economic crisis is a result of >huge interest payments, not runaway spending, a study says. > >BYLINE: JANE BUSSEY [EMAIL PROTECTED] > >As the Bush administration presses Argentina for more economic >sacrifices, a new study shows that the beleaguered South American >country ran into financial troubles more from insurmountable debt than >from profligate government spending. > >The study by the Center for Economic and Policy Research, a think tank >in Washington, showed that from 1993 to 2000, Argentina's primary >government spending -- funding for salaries, government programs and >operations -- >was essentially flat, but interest payments on the government debt rose >threefold. > >Interest-rate hikes in the United States starting in 1994, and the >continual shocks from devaluations in Mexico in 1994, in Asia in 1997, >in Russia in 1998 and Brazil in 1999, drove Argentina's debt service >from $2.9 billion in 1993 to $9.7 billion in 2000. > >"People are still trying to blame Argentina for everything. They are >still trying to say they were profligate," said economist Mark Weisbrot, >who did the study along with economist Dean Baker. > >"Argentina's spending increases were all on interest payments," Weisbrot >said. "It is this debt trap -- not overspending by the government -- >that caused the crisis." > >The center's report is part of a growing number of studies and hearings >trying to explain how a country with Latin America's highest per capita >income, which was continuously applauded for its economic management by >Washington and Wall Street, ended up a basket case. > >Rioting and looting in late December drove former President Fernando de >la Rua to resign and led to a default on the government debt, the >devaluation of the Argentine currency and now a string of private-sector >defaults and government probes. > >Much of the blame has fallen on the government, as the media has cited >cases of provincial legislators earning $14,000 a month or having two >dozen aides. > >Domingo Cavallo -- the former high-profile economics minister who is now >rarely seen in public -- lashed out at provincial governments. "The loss >of credit in Argentina was caused by excessive spending in the provinces," >he said before he resigned. > >Everyone is also pointing the finger at corruption. > >Bishop Ramon Artemia Staffolani told reporters that when a Catholic >Church delegation met with International Monetary Fund officials, "they >treated >us like we were lazy, charlatans, corrupt and thieves." Added Artemia >Staffolani: "We had to lower our heads because it was true." > >But President Eduardo Duhalde returned the fire to the IMF and other >critics in Washington. "They are looking for scapegoats, saying that it is >the [provincial] >governors, that it is corruption." Duhalde said. > >But Duhalde pointed out that the IMF fully supported Argentina to the >end, praising its economic management and its currency program, the >convertibility plan, that led the peso to become seriously overvalued. >"The [IMF] >deified convertibility," Duhalde complained. > >FALLING CURRENCY > >Renewed jitters last week sent the currency to a new low of 3.10 to $1, >after a 10-year peg of one peso to $1. > >If there was any excessive spending in the federal government, it is >simply not borne out by budget numbers. Nor did it figure in criticism >from the IMF until late 2000. > >Weisbrot said that overspending by the provinces, some of which have >defaulted on provincial bonds, does not affect the federal budget, any >more than a financial crisis in Miami affects spending in Washington. >During the budget period he studied, the revenue sharing from the >central government to the 23 provincial governments was essentially >flat, he said. > >Ironically, one of the programs pushed most by the IMF and the World >Bank -- privatization of the social security system -- cost the federal >government more than 1 percent of its budget each year, according to >Weisbrot and other economists. This is because when the contributions of >workers in a pay-as-you-go system are channeled into private pension >plans instead of going to retirees, the government has to find new >sources of funding for pensions. > >One of the contributing factors to public outrage in Argentina, where >government salaries were cut by 13 percent last year, was that retirees >saw their pensions reduced or stopped altogether. > >CHANGING TIMES > >Another big question Argentines ask is how a country that was among the >10 most developed in the world in 1910 could decline so far. But as Doug >Henwood, editor of Left Business Observer newsletter, points out, early >20th Century wealth was based on grain and meat exports. To remain >competitive in the world market, a country needs industry and technology >and a wealthy >land-owning class interested in industrialization. > >"They didn't have the internal market and they didn't have anything >like the technology," Henwood said. > >Last week, just before heading to a development summit in Monterrey, >Mexico, both President Bush and Secretary of State Colin Powell >criticized the Argentine government and warned that there would be no >renewal of loans if the country did not cut spending. > >"They have to be willing to make the necessary sacrifices . . . to go >through the structural reforms that are necessary," Powell told >reporters. > >The country's lawmakers voted on a budget midweek that will cut spending >by 4 percent, while Duhalde has pledged to end the economic chaos. > >Weisbrot said that without debt payments, the country's accounts are >balanced. Argentina is running both a budget surplus and a trade >surplus. > >In the meantime, Argentina is asking for some $10 billion in new loans >from the IMF. Most of the money will be used to refinance debts to official >creditors, like the IMF, which have never accepted a default or a >reduction in the loans. > >The government also has to open negotiations with international >bondholders, who expect to receive roughly 50 cents on the dollar for >their bonds. ------- End of forwarded message -------
