Published on Monday, January 7, 2002 in the Boston
Globe
US Fueled
Argentina's Economic Collapse
by Robert Kuttner
THE ECONOMIC
COLLAPSE of Argentina is the latest failure of the one-size-fits-all
model that the United
States tries
to impose on developing countries. Critics of this model are often
attacked as protectionists, tools
of special
interest groups, anarchists, and worse. But in fact they include some
of the world's most eminent
economists.
The economic
model that the United States exports, with the International Monetary
Fund in the role of
enforcer,
works like this: Developing nations are supposed to open their
economies wide to foreign
investment -
to allow their banks, public utilities, and anything else to be sold
to the highest foreign bidder.
They are to
balance their budgets, restrict the role of government, discipline
wages, and limit social outlays.
All of this
is intended to subject the local economy to global competitive
discipline and attract foreign private
capital.
It sounds
plausible, but there are several problems. For one thing, foreign
investments are notoriously subject
to fads and
whims. Several otherwise sound economies in East Asia got into severe
difficulty in the late
1990s after
following the American recipe. Too much foreign capital poured in, and
when the bubble burst, it
poured right
out again. The IMF then came in to shoot the wounded.
Another
problem is that the United States is telling these countries: ''Do as
I say, not as I do.'' When America
was a
developing nation in the 19th century, it had high tariffs to shelter
infant industry. The government was
heavily
involved in economic development - everything from agriculture to
radio to aircraft. The early Republic
prohibited
land purchases by foreign speculators.
And when our
economy was in trouble in the 1930s, we ceased letting dollars trade
freely, and we ran huge
public
deficits. The New Deal worked. If there had been an IMF, it would have
blacklisted the country.
Argentina
followed the IMF model more faithfully than almost any other nation.
Its economy was opened wide;
its peso was
pegged to the dollar. For a few years this sparked an investment boom
as foreigners bought
most of the
country's patrimony - its banks, phone companies, gas, water,
electricity, railroads, airlines,
airports,
postal service, even its subways.
As long as
this money came in, there were enough dollars to keep plenty of pesos
in circulation. But the
dollar-peso
peg led to an overvalued currency, which killed Argentine exports. And
once there was little more
to sell off,
the dollars ceased coming in, which pulled money out of local
circulation.
As Argentina
tanked, the IMF's austerity program pushed the economy further into
collapse.
The American
Prospect, the magazine I edit, recently devoted an issue to mainstream
critics of globalization.
The 2001
Nobel laureate in economics, Joseph E. Stiglitz, former chief
economist of the World Bank,
observed that
the countries that have benefited most from globalization have been
those that controlled the
terms of
engagement. They benefited ''by taking advantage of the global market
for exports and by closing
the
technology gap.''
Those that
suffered were the ones like Argentina that were coerced into just
leaving themselves vulnerable to
forces beyond
their control. ''The international financial institutions,'' Stiglitz
wrote, ''have pushed a particular
ideology -
market fundamentalism - that is both bad economics and bad
politics.... The IMF has pushed these
economics
policies without a broader vision of society ... and it has pushed
those policies in ways that have
undermined
emerging democracies.''
In a
companion piece, Amartya Sen, the 1998 Nobelist in economics, lamented
the fact that the current
brand of
globalization is ''much more concerned with expanding the domain of
market relations than with, say,
establishing
democracy, expanding elementary education, or enhancing the social
opportunities of society's
underdogs.''
Sen's
scholarly work demonstrates that many different ways of sharing
benefits and burdens of economic
growth are
consistent with dynamic capitalism. But the current model, promoted by
the United States and the
IMF, is
tilted to benefit investors often at the expense of ordinary people,
particularly in the Third World. The
countries
that have had the highest growth rates, such as Korea and China, as
Stiglitz shows, are precisely
those that
have resisted much of the IMF model.
These critics
are not Seattle anarchists but Nobel Prize economists. Almost exactly
four decades ago, John F.
Kennedy, in
announcing the Alliance for Progress, his new development policy for
Latin America, pledged to
''make the
world safe for diversity.'' The threat to diversity then was
monolithic Soviet Communism. Today the
threat is
monolithic market fundamentalism. If the United States wants the
world's support, much less its
gratitude, it
needs to let emerging economies follow their own paths.
Robert
Kuttner is co-editor of The American Prospect. His column appears
regularly in the Globe.
�
Copyright 2002 Globe Newspaper Company
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