Where’s the money gone?

John Lloyd
Globe and Mail
July 1, 2002

Argentina’s default on its massive debt is the biggest economic collapse of the postwar period. The fact that, since December, there have been few violent riots in the streets (though people still don’t go to cafes or restaurants much) means we pay it little mind. It’s not on television any more. But it will get worse, and could be bad for all of us. It’s bad enough already. In the elegant streets of Buenos Aires, snaking past Gap and Armani and Burberry window displays, crowds wait sullenly for hours for foreign exchange offices to change their pesos to dollars.

Each night, into these elegant streets, comes a small army of the poor. Orderly, for the most part, armed with plastic and hessian sacks, they comb through the rubbish to get anything of value. Thomas, a taxi driver who took me round these streets at night earlier this month, is almost reduced to tears of humiliation by what he shows. He is a man who has worked hard to make a modestly good living. He says he cannot afford to cruise the streets any more, since these days he burns up more fuel (just doubled in price) than he earns a surplus. The clients at his wife’s laundry are slipping apologetically away — cleaning their clothes at home, or not at all. The couple, about 60, have a losing cab business and a failing laundry.

What now? Buenos Aires is the most sophisticated capital in Latin America. It is a city of broad avenues, high-ceilinged apartments looking over the Avenida de Libertador, stylish boutiques and cafes in renovated warehouses alongside yacht basins, a gorgeous opera house, multiplex cinemas in soaring shopping malls and a dozen universities. People will tell you, often, that Argentina was richer than much of Europe a century or less ago.

A decade ago or less, the good times that the pro-market policies of President Carlos Menem helped to stoke were booming away as if there was no tomorrow. But tomorrow never comes. The gloss disguised an inner corruption. The boom encouraged huge fiscal expansion — a good deal of it hidden, as powerful provincial governors who claimed much from, but gave little to, the central government went on a spree. In front was the then-governor of Buenos Aires province, Eduardo Duhalde. He’s now President. Back then, the peso was pegged on a ratio of 1:1 to the U.S. dollar, the highest-valued currency in the world during America’s wonderful decade.

Forced to devalue its currency as well as default on its debt, the peso has declined in worth by two-thirds. Now, Argentina is the kind of place of which you want to say — here’s somewhere that could do with a big loan to help it get back on an even keel. Here’s a place where the International Monetary Fund should be giving advice, but most of all, money.

In fact, the IMF is in Buenos Aires. But it hasn’t given any money yet. If it does give another loan (it has provided $48-billion (U.S.) over the past two years), it will be because it fears a contagion throughout the region, not because it believes Argentina has a program that deserves support. The IMF is not in a giving mood for Argentina — an attitude that will deepen the suspicion in which it is held in antiglobalization circles. But it’s right to be mean and suspicious: What’s wrong is that it is mean and suspicious too late.

The argument about Argentina is important not just because of the country’s fate and that of its 36 million people, but also because of what it says about how we and our institutions help other countries. In the demonology of the antiglobalization movements, Argentina is a country betrayed by the IMF into ruining its economy for the sake of the “Washington consensus” — the supposedly rigid series of rules and disciplines in which a country must clothe itself to qualify for assistance, and entry into true global citizenship.

My fellow columnist, Naomi Klein, wrote an article on these pages in April making that point with her usual power. At around the same time, a “tribunal” set up by the antiglobalization people’s annual conference, the World Social Forum, pronounced a sentence on the rich countries, to the effect that they and the IMF and other institutions like it had been exploiting the poor countries of the south for centuries. The tribunal held that not only should they not get their debt back, they should transfer large amounts of money to the South in order to compensate in some measure for their pillage. This proposal does no favours to Argentina, nor any other state in like position.

For the collapse in Argentina has not been so much financial as it has been political, going on over a long time. The Peronist tradition — deriving its strength from the extraordinary domination of the populist Juan Peron and his wife, Evita, over the state and government after the war — is dying. But it still smothers any other strong political force. The will to reform finance in an equitable and coherent way was not there in the good times of the 1990s; it is not there now. Until there is a political resolution and a political class able to take hard decisions consistently, any new rescue will be like the old.

The risk of political chaos, and of that chaos spreading, is significant. But the alternative is to reward inaction, corruption and the assumption that the bailout always comes. Argentina was and is the agent of its own misfortunes: Only it can be the agent of its own revival. It was Argentina that produced Peronism. It was Argentines who elected Carlos Menem as president, and it was he and his economics minister Domingo Cavallo who linked the peso to the dollar and brought in the breakneck privatization program (the IMF was much more cautious). To pretend that Argentina or any other country is merely a victim of the West, or the North, or the IMF, is to take away agency from the people of the state and to deprive them of the incentive for reform.

In the name of solidarity, it turns them into helpless orphans. One day, perhaps, the nation-state may wither away. It hasn’t done so yet. This means governments decide and democratic governments give people the responsibility for their decisions; foreign aid and advice have clear limits. What countries do with aid and advice is the largest determinant of their success: How good and clean is their government? How democratic are their systems? How efficient are they in doing what they do? Only when these conditions are set in place is it reasonable to talk of what aid can do.

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