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HAPPY NEW YEAR FROM EMPEROR'S CLOTHES WWW.TENC.NET
URL for this article: http://emperors-clothes.com/news/argen.htm
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How the IMF Messed Up Argentina
by Mark Weisbrot, co-director of the Center for Economic and Policy Research.
Reprinted from the 'International Herald Tribune,' December 26, 2001
[Posted 31 December 2001]
=============================================
[NOTE FROM EMPEROR'S CLOTHES: Our gratitude to N�stor Miguel Gorojovsky in Argentina
who found this article by Mark Weisbrot. It explains in easily understandable language
why pegging the Argentinean peso to the U.S. dollar has wrecked Argentina's economy.
Check out Further Reading (at the end) for other articles documenting the
nation-destroying policies of the International Monetary Fund (IMF).
We hope to post an analysis of the Argentinean rebellion against the New World Order.
- Emperor's Clothes.]
WASHINGTON -
Argentina's implosion has the fingerprints of the International Monetary Fund all over
it.
The first and overwhelmingly most important cause of the country's economic troubles
was the government's decision to maintain its fixed rate of exchange: one peso for one
U.S. dollar. Adopted in 1991, this policy worked for a while. But during the past few
years the dollar has been overvalued, which made the peso overvalued as well.
Contrary to popular belief, a "strong" currency is not like a strong body. It is very
easy to have too much of a good thing. An overvalued currency makes exports too
expensive and imports artificially cheap. Just look at the United States, where a
"strong" dollar has brought a record $400 billion trade deficit.
But it gets catastrophically worse for a country that has committed itself to a fixed
exchange rate. When investors start to believe that the peso is going to fall, they
demand ever higher interest rates. These exorbitant interest rates are crippling to
the economy. That is the main reason why Argentina has not been able to recover from
four years of recession.
To maintain an overvalued currency, a country needs large reserves of dollars; the
government has to guarantee that everyone who wants to exchange a peso for a dollar
can get one. The IMF's role here was crucial. It arranged large loans, including $40
billion a year ago, to support the peso. This was the IMF's second fatal error. To
appreciate its severity, imagine Washington borrowing $1.4 trillion - 70 percent of
the federal budget - just to prop up an overvalued dollar. It didn't take long for
Argentina to pile up a foreign debt that was impossible to pay back.
As if all that were not enough, the IMF made its loans conditional on a "zero-deficit"
policy in Buenos Aires. But it is neither necessary nor desirable for a government to
balance its budget during a recession, when tax revenues typically fall and social
spending rises. The zero-deficit target may make little economic sense, but it has
great public relations value. By focusing on government spending, the IMF has managed
to convince most of the press that Argentina's "profligate" spending habits are the
source of its troubles. But Argentina has run only modest budget deficits, much
smaller than U.S. deficits during recessions.
The IMF now claims that it was against the fixed exchange rate, and the large loans to
support it, all along. Officials say they went along with these policies to please the
Argentine government. So now Argentina tells the U.S. government what to do!
This is not a very credible story, but of course verifying who made what decision is a
little like tracking Qaida's chain of command. IMF board meetings, consultations with
government ministers and other deliberations are secret.
But they do have a track record. In 1998 the IMF supported overvalued currencies in
Russia and Brazil, with large loans and sky-high interest rates. In both cases the
currencies collapsed anyway, and both countries were better off for the devaluation.
Russia's growth in 2000 was its highest in two decades.
Argentina will undoubtedly recover, too, after it devalues its currency and defaults
on its unpayable foreign debt. But the people will need a government that is willing
to break with the IMF and pursue policies which put their own national interests first.
Washington has other ideas. "It's important for Argentina to continue to work through
the International Monetary Fund on sound policies," said White House spokesman Ari
Fleischer on Friday. For the IMF, failure is impossible.
The writer is co-director of the Center for Economic and Policy Research. He
contributed this comment to The Washington Post.
Copyright (c) 2001 The International Herald Tribune | www.iht.com
Posted for Fair Use Only
***
Emperor's Clothes Urgently Needs Your Help!
*************************************
Footnotes and Further Reading:
*************************************
1) It is amazing that, although the IMF has had the same effect on every economy it
has 'helped' for more than a decade (that is, the economies have been severely hurt)
nevertheless these guys are still in business. If they were doctors, they would have
been jailed for deliberately injuring their patients.
Doesn't this suggest that the giant U.S. and European financial interests behind the
IMF want to destroy these economies?
1) To find out more about the International Monetary Fund, see the award winning
article,' The International Monetary Fund and The Yugoslav Elections,' by Michel
Chossudovsky and Jared Israel. It explains how IMF policies destroy national
economies, including discussion of Yugoslavia, Russia, Ukraine, Bulgaria and Peru. Can
be read at http://emperors-clothes.com/analysis/1.htm
2) IMF policies destroy because they are calculated to destroy. This emerges clearly
from the sharp debate between Chossudovsky and Israel, on the one hand, and Prof.
Kjell Magnusson from Sweden. Prof. Magnusson sharply criticized the article, The
International Monetary Fund And The Yugoslav Elections,' after it was published by the
leading Swedish newspaper.
* 'Chossudovsky and Israel are Inaccurate and Misleading' By Kjell Magnusson, Balkan
expert, Uppsala University. Can be read at
http://emperors-clothes.com/debates/magnus.htm
* 'Everything We Wrote Comes from Official Sources' by Michel Chossudovsky and Jared
Israel Can be read at http://emperors-clothes.com/debates/data.htm
3) "Give Us Milosevic or We Won't Destroy Your Country!" is a statement by the SPS,
which is now apparently the leading party in Serbia (it came in first in recent
district elections.) The statement rejects the notion that the IMF and associated
institutions aim to help poorer countries.
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