Another IMF Crash - Argentina
by Mark Weisbrot
The Nation magazine, December 3, 2001
Franklin Serrano, an economist at Federal University of Rio
de Janeiro, recently lamented the large proportion of graduate
students in economics who leave for the United States. "But
there is something worse than them leaving. It's when they come
"Brain damage," he says, "is worse than brain
Argentina is the latest Latin American economy to be mismanaged
into a crisis by US-trained economists. Unemployment is above
17 percent, the economy is in its fourth year of recession and
the country is now in the process of defaulting on its unpayable
foreign debt. It's not easy being the poster child of neoliberalism.
Argentina's currency has been pegged to the US dollar since 1991.
This worked for a while, but in the past few years the peso has
become highly overvalued. Rather than devalue the currency, the
country piled up mountains of debt to prop it up and watched its
interest rates soar as investors demanded ever higher risk premiums.
For comparison, imagine the United States borrowing $1.4 trillion
(70 percent of our federal budget) in order to keep our own overvalued
currency from falling.
This is not the first time in recent years that the IMF has
burdened a country with billions of dollars of debt in order to
prop up an overvalued currency. In 1998 it did the same thing
in Brazil and Russia, with predictable results. In both cases
the currency collapsed rather quickly in spite of the loans. And
in both cases the economy responded positively to the devaluation,
with Russia in 2000 registering its highest growth in two decades.
The fund's argument in the case of Brazil and Russia was that
if the currency was devalued, the result would be runaway inflation.
But that never happened.
The IMF has also insisted on budget austerity for Argentina-
which makes about as much sense during a recession as high interest
rates. First in line for cuts have been state pensions, salaries,
unemployment benefits and other social spending, insuring that
the burden of "adjustment" will continue to fall, as
it usually does, on those who can least afford it. And even the
debt "restructuring"-i.e., default-now under way may
not lead to economic recovery: If the currency remains fixed at
a rate that investors still see as overvalued, the crisis will
continue until it collapses.
Why does the IMF seem incapable of learning from repeated
failures? The interest of foreign bond-holders cannot be overlooked:
The longer the fixed exchange rate holds, the smaller will be
the losses of US lenders even if the peso eventually collapses.
But there has been a broader political concern as well: Argentina
has done everything that Washington has told it to do, and the
economy is a wreck. As a result the Bush Administration, despite
its distaste for IMF "bailouts," was reluctant to be
seen as abandoning the Argentine government. It kept pouring money
in until it became clear that Argentina's debt could never be
The sacrifice of Argentina's economy for the sake of Washington's
imperial interests and the interests of "emerging market"
bond-holders fits a pattern at the IMF, including some of the
most high-profile interventions of recent years. In Russia and
the transition economies, the first priority has been to execute
a rapid, irreversible change to a market-driven society, regardless
of the economic consequences. Russia lost half its national income
in about five years of IMF-led transition, an economic decline
never before seen in the absence of war or natural disaster. In
Asia, the fund's desire to open these economies to US capital
flows-in countries that because of their high savings rates had
little need for foreign borrowing caused a severe financial crisis
in 1997-98. The fund then exploited the crisis to further open
these economies, worsened it with exorbitantly high interest rates
and fiscal austerity and convinced the governments of the region
to guarantee the debt owed to foreign lenders.
The IMF is able to decide these major economic policies for
dozens of countries because it sits atop a creditors' cartel,
much like the OPEC oil cartel. Those who refuse to take the fund's
"advice" find themselves ineligible for credit from
the World Bank and other multilateral lenders-like the Inter-American
Development Bank or G-7 governments-or even for private credit.
The fund's aid packages are generally reported approvingly
in the press as "bailouts." But it is the bankers and
bond-holders, particularly foreign, who are being bailed out;
the people, especially the poor, are tossed overboard. Over the
longer term, the neoliberal program of the IMF and the World Bank-and
their ability to enforce it-has contributed to a substantial decline
in economic growth over the past twenty years throughout the vast
majority of low- and middle-income countries. In Latin America,
per capita GDP has grown a mere 6 percent over the past two decades,
as compared with 75 percent in 1960-80.
As Latin America's economies grind to a halt, dragged down
by the recession in the United States, the dismal reality of this
long, failed economic experiment is sinking in. The reign of US-trained
economists and their sponsors in Washington may be coming to an
Mark Weisbrot, co-director of the Center for Economic and
Policy Research, in Washington, is co-author of The Scorecard
on Globalization 1960 1980: Twenty Years of Diminished Progress
(Center for Economic and Policy Research).
Monetary Fund (IMF), World Bank, and Structural Adjustment