USA: IMF Model Fueled Argentina's Economic Collapse
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.
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