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How the IMF Messed Up Argentina
by Mark Weisbrot, co-director of the Center for Economic and Policy Research.
Reprinted from the 'International Herald Tribune,' December 26, 2001
[Posted 31 December 2001]

[NOTE FROM EMPEROR'S CLOTHES: Our gratitude to NÚstor Miguel Gorojovsky in Argentina who found this article by Mark Weisbrot. It explains in easily understandable language why pegging the Argentinean peso to the U.S. dollar has wrecked Argentina's economy.

Check out Further Reading (at the end) for other articles documenting the nation-destroying policies of the International Monetary Fund (IMF).

We hope to post an analysis of the Argentinean rebellion against the New World Order. - Emperor's Clothes.]


Argentina's implosion has the fingerprints of the International Monetary Fund all over it.

The first and overwhelmingly most important cause of the country's economic troubles was the government's decision to maintain its fixed rate of exchange: one peso for one U.S. dollar. Adopted in 1991, this policy worked for a while. But during the past few years the dollar has been overvalued, which made the peso overvalued as well.

Contrary to popular belief, a "strong" currency is not like a strong body. It is very easy to have too much of a good thing. An overvalued currency makes exports too expensive and imports artificially cheap. Just look at the United States, where a "strong" dollar has brought a record $400 billion trade deficit.

But it gets catastrophically worse for a country that has committed itself to a fixed exchange rate. When investors start to believe that the peso is going to fall, they demand ever higher interest rates. These exorbitant interest rates are crippling to the economy. That is the main reason why Argentina has not been able to recover from four years of recession.

To maintain an overvalued currency, a country needs large reserves of dollars; the government has to guarantee that everyone who wants to exchange a peso for a dollar can get one. The IMF's role here was crucial. It arranged large loans, including $40 billion a year ago, to support the peso. This was the IMF's second fatal error. To appreciate its severity, imagine Washington borrowing $1.4 trillion - 70 percent of the federal budget - just to prop up an overvalued dollar. It didn't take long for Argentina to pile up a foreign debt that was impossible to pay back.

As if all that were not enough, the IMF made its loans conditional on a "zero-deficit" policy in Buenos Aires. But it is neither necessary nor desirable for a government to balance its budget during a recession, when tax revenues typically fall and social spending rises. The zero-deficit target may make little economic sense, but it has great public relations value. By focusing on government spending, the IMF has managed to convince most of the press that Argentina's "profligate" spending habits are the source of its troubles. But Argentina has run only modest budget deficits, much smaller than U.S. deficits during recessions.

The IMF now claims that it was against the fixed exchange rate, and the large loans to support it, all along. Officials say they went along with these policies to please the Argentine government. So now Argentina tells the U.S. government what to do!

This is not a very credible story, but of course verifying who made what decision is a little like tracking Qaida's chain of command. IMF board meetings, consultations with government ministers and other deliberations are secret.

But they do have a track record. In 1998 the IMF supported overvalued currencies in Russia and Brazil, with large loans and sky-high interest rates. In both cases the currencies collapsed anyway, and both countries were better off for the devaluation. Russia's growth in 2000 was its highest in two decades.

Argentina will undoubtedly recover, too, after it devalues its currency and defaults on its unpayable foreign debt. But the people will need a government that is willing to break with the IMF and pursue policies which put their own national interests first.

Washington has other ideas. "It's important for Argentina to continue to work through the International Monetary Fund on sound policies," said White House spokesman Ari Fleischer on Friday. For the IMF, failure is impossible.

The writer is co-director of the Center for Economic and Policy Research. He contributed this comment to The Washington Post.

Copyright (c) 2001 The International Herald Tribune | www.iht.com
Posted for Fair Use Only


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Footnotes and Further Reading:

1) It is amazing that, although the IMF has had the same effect on every economy it has 'helped' or more than a decade (that is, the economies have been severely hurt) nevertheless these guys are still in business. If they were doctors, they would have been jailed for deliberately injuring their patients.

Doesn't this suggest that the giant U.S. and European financial interests behind the IMF want to destroy these economies?

1) To find out more about the International Monetary Fund, see the award winning article,' The International Monetary Fund and The Yugoslav Elections,' by Michel Chossudovsky and Jared Israel. It explains how IMF policies destroy national economies, including discussion of Yugoslavia, Russia, Ukraine, Bulgaria and Peru. Can be read at http://emperors-clothes.com/analysis/1.htm

2) IMF policies destroy because they are calculated to destroy. This emerges clearly from the sharp debate between Chossudovsky and Israel, on the one hand, and Prof. Kjell Magnusson from Sweden. Prof. Magnusson sharply criticized the article, The International Monetary Fund And The Yugoslav Elections,' after it was published by the leading Swedish newspaper.

* 'Chossudovsky and Israel are Inaccurate and Misleading' By Kjell Magnusson, Balkan expert, Uppsala University. Can be read at http://emperors-clothes.com/debates/magnus.htm

* 'Everything We Wrote Comes from Official Sources' by Michel Chossudovsky and Jared Israel Can be read at http://emperors-clothes.com/debates/data.htm

3) "Give Us Milosevic or We Won't Destroy Your Country!" is a statement by the SPS, which is now apparently the leading party in Serbia (it came in first in recent district elections.) The statement rejects the notion that the IMF and associated institutions aim to help poorer countries.

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