Argentina's Collapse Discredits U.S. Policy

by Mario Osava and Raul Pierri

Walter Cancela, a Uruguayan economist, said Argentina's participation in international trade is considered almost "marginal," meaning that the country's crisis will not have much of an impact on the global market for goods and services.

But the experts consulted believe that the case of Argentina, a country that in the 1990s carried out the reforms counselled by the Washington Consensus -- a set of policy recommendations for economic reform -- will leave a profound mark on economic theory.

The Argentine crisis will be cited to promote a strong new argument in favor of a more balanced trade system and fuel criticisms against the neo-liberal stance of the Washington Consensus, which promotes the deregulation of domestic markets, says Antonio Carlos Lacerda, president of the Brazilian Society for Studies of Transnational Firms and Globalization.

Argentina is a bad example of these conservative ideas, "which still predominate in the financial market, in the communications media and in the centers of power," Lacerda, who is also a professor at the Catholic University of Sao Paulo, told IPS.

The world is awaiting the impact of Argentina's chaotic financial situation, which in the last few weeks has caused a serious institutional crisis and put an end to the "convertibility plan" that had pegged the Argentine peso to the dollar at one-to-one parity for more than a decade.

The new Argentine government imposed a dual currency system that stands in contrast to the single currency market approach taken by Brazil, Mexico and Russia when they faced similar crises.

The peso will have a fixed exchange rate of $1.40 for foreign trade and financial transactions, but will float for tourism and other operations.

Lacerda said that the Argentine crisis is not expected to have a major impact on the international financial order.

"With a new currency system, Argentina could pull out of recession, attract investment and overcome fiscal imbalance" after undergoing an initial period of turbulence, he said.

According to Lacerda, the Argentine crisis will only have an impact on the global financial markets if Brazil, "another candidate for financial difficulties in the short term," proves unable to overcome its vulnerability to market fluctuations outside its borders.

But the Brazilian trade surplus of $2.64 billion in 2001, the expected $5 billion surplus for this year, and a predicted doubling of that sum in years to come, are keeping that risk at bay, he said.

The crisis could expand abroad, however, if President Duhalde does not win foreign assistance or if he is able to obtain only "vacillating and conditional" support, Lacerda stated.

Tullo Vigegani, professor at the State University of Sao Paulo and vice-president of the Center for Contemporary Cultural Studies, agrees that the Argentine crisis will not cause any important shifts in the global financial order.

"The World Bank and the IMF have already changed their discourse, but in relation to the palliative aspects. There will be no substantial changes. Argentina will be treated as an isolated case, just as occurred with Brazil, Mexico and Russia," predicted Vigegani.

Nevertheless, the president of the International Relations Council of the government of Rio de Janeiro State, Theotonio Dos Santos Junior, forecasts "a series of moratoria" on foreign debt payments.

Dos Santos Junior, professor at the Fluminense Federal University, believes there could be a cycle of currency devaluations that would force the multilateral organizations -- like the World Bank and IMF -- to engage in debt renegotiations, like those that took place from 1987 to 1993 under the U.S.-led Brady Plan.

Cancela, professor of monetary economy at the state-run University of Uruguay and adviser to the left-leaning Encuentro Progresista political coalition, says there likely will be "a decline in opportunities for financial investment."

The Argentine crisis "produces important indirect effects for all actors within the system. By raising the risk of Argentina's obligations, those of the creditors also increase, as well as their obligations with third parties, generating a chain reaction that involves everyone," Cancela told IPS.

"The most important effects in the commercial sphere can be expected to hit Argentina's partners in Mercosur (Southern Cone Common Market -- Argentina, Brazil, Paraguay and Uruguay) to the extent that the modification of the peso-dollar parity scheme will result in a relative improvement in competitiveness (for Argentine exports), both within the region and in other markets," he said.

Meanwhile, Brazil's Lacerda rules out the possibility of a global trade liberalization plan aimed at boosting the Argentine economy's recovery.

"The protectionism of the wealthy nations will remain in place. The European Union is not giving up its agricultural subsidies. The rich countries appear more conciliatory only in their discourse," he said.

Vigegani concurs that Argentina's financial crisis will contribute to a weakening of the neo-liberal discourse and strengthen the stance of those who oppose it.

In Brazil, for example, it will serve as an argument for the "progressive" currents within the Social-Democrat Party of President Fernando Henrique Cardoso, said Vigegani.

The Argentine collapse "will not bury neo-liberalism," but it is an important event that contributes toward "building an alternative proposal, from the center-left and with the unity of the productive forces, for full employment and economic development," stated Dos Santos Junior.

The expert even foresees the creation of conditions for "reconstructing the workers' movement and promoting the rebirth of socialism as a global model."

Dos Santos Junior pointed to the case of Europe, where the people condemn the neo-liberal policies they believe have caused high unemployment, and instead support new "socialist alliances" with social-democrat and "green" movements.

Cancela says it is possible that "the Argentine experience could lead to a greater appreciation of the more integral approaches to economic problems, taking into consideration that they are essentially social problems."

It is even probable, he said, that the events will contribute -- "with a return to the original scientific foundations -- to progress towards a new political economy."

The Argentine scenario "makes it painfully obvious that to carry out economic policy it is not enough to be a good economist. It is essential, above all, to be a good politician," stated Cancela.