Hi Ed, Yes, the situation in Argentina certainly is complex. For a decade the IMF has been helping Argentina on reasonable conditions of reform but the country has still allowed its public debt to rise from 30% in 1993 to approaching 60% now. The Financial Times talks of "weak financial systems" and "poor fiscal discipline" as being the cause. More latterly, Argentina thought it could escape all normal sorts of budgetary disciplines by simply tying its currency to the dollar.
So the IMF is in a dilemma. It either carries on being captured by its borrowers -- much like a bank with a big customer -- and lending more money with the probability that no reforms will follow, or it refuses to lend more money. Either way it will be bitterly criticised. It seems to me that Argentina is in the grip of two problems which are intertwining but have two different causes and can only be solved separately. One is, simply, bad housekeeping over the years -- too much government expenditure than the growth of the economy ought to allow. The other is how it values its currency. And this is where I come back to the bee in my bonnet. At present, the world is full of different sorts of currency policy ranging from total control (e.g. North Korea), total control with a shadow unofficial free currency (e.g. Russia and others, with the dollar serving their grey economy),currency board (Hong Kong only, now that Argentina's has collapsed), pegged exchange rates (SE Asia), quasi free-floating (USA), and (almost) total free floating (UK). All of this mess really means to me that no present-day government and no group of economists (except the Austrian school) have the faintest idea of what a currency is supposed to mean. None are prepared to accept the notion that a currency ought to have intrinsic value which should exercise the same discipline on nations that it has on businesses and households. Otherwise it's just a token of varying degrees of arbitrariness. Sorry to harp on again about this! Keith At 09:31 21/12/01 -0500, you wrote: >The situation of Argentina is complex. There are no easy solutions and >there is no doubt that some fundmental change will be required before the >country can begin to limp its way out of caos. What has happened appears to >be a case of the road to Hell being paved with good (and perhaps bad) >intentions and the right thing (at least in the short run) going rather >horribly wrong. It's a case of corruption, inaction, and the danger of >pegging the value of a domestic currency to something that is beyond >national control unless a country is willing to undertake the kind of >restructuring that EU membership requires. > >The reason for pegging the Argentine peso to the US dollar was runaway >inflation, but it soon became obvious that the peso was greatly overvalued. >It was too easy a solution. How else might it have been done? Perhaps a >price and wage control board with strictly enforceable powers? Perhaps a >restructuring of the tax system that required people to pay up or face >extreme penalties, thus reducing the government's dependence on deficit >financing based on foreign loans? And in the longer term, perhaps a >concerted drive to move the country away from corned-beef exports to more >value added manufacturing? And also in the longer term, making Mercosur >into a viable economic union instead something that sounds nice in >politicians' speeches. > >It is probable that what we have seen this past week is only the beginning. >Somewhere in the wings, the ghost of Jaun Peron is waiting. > >Ed Weick > > > > > __________________________________________________________ �Writers used to write because they had something to say; now they write in order to discover if they have something to say.� John D. Barrow _________________________________________________ Keith Hudson, Bath, England; e-mail: [EMAIL PROTECTED] _________________________________________________
