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Last tango in Argentina:
Now is the time for the U.S. government to step aside
by Aldo Vacs
For the last four years, as Argentinas economic situation worsened, I observed the countrys decline with ghastly fascinationas if watching a speeding car careen out of control until the inevitable crash. As a student and professor of Latin American politics, and as a native of Argentina, I followed the evolution of the crisis, interviewing Argentine public officials, politicians, and experts, and discussing it with friends who still live there. Without exception, everybody agreed that unless Argentina implemented new policies, its economy was going to collapse and a social explosion would follow.
In the 1990s free-market policies (deregulation, privatization, trade and financial liberalization), combined with the decision to peg the countrys peso to the U.S. dollar at a fixed one-to-one exchange, succeeded in subduing one of Argentinas traditional economic problems: runaway inflation. However, the rigid application of these policies resulted in the emergence or worsening of other hardships, including a deepening recession, high unemployment, industrial decline, sensitivity to external shocks, overvalued currency, trade deficits, and capital flight.
Undoubtedly, most of the blame for this debacle should be attributed to the Argentine leaders who formulated, implemented, and supported these policies. But influential outsidersincluding successive U.S. administrations also contributed to creating the conditions for this fiasco by urging the application of increasingly stringent economic policies. Last year U.S. Treasury Secretary Paul ONeill stated that the problem was entirely Argentinas fault, rejected any possibility of a bail-out, and insisted that the only solution was even tougher policies, including further cuts in social spending.
Argentine President Fernando de la Ruas administration implemented some of these policies while trying to prevent a run on the exchange market by freezing access to dollar-denominated accounts. Days later, the unemployed, workers, and the middle class revolted, forcing de la Rua to resign. Three provisional presidents later, Eduardo Duhalde is completing the rest of de la Ruas term.
Duhalde, who as vice president, governor, and senator supported moderately conservative policies, was forced by this crisis to suspend payments on foreign debt and let the peso float against the dollar. In an attempt to prevent further unrest, he also promised to promote economic growth, reduce unemployment, and increase social spending, but it is unclear if he can meet these ambitious goals.
Since its democratization in 1983, Argentina has been a liberal democracy with a distinctly pro-U.S. foreign policy. All it has received from the U.S. are a few symbolic gestures of support and some loans conditioned to the imposition of free-market policies. President Bush, Secretary ONeill, and other members of the U.S. administration have been happy to wash their hands of the Argentine mess and to exhort Argentines to take care of their problems without external help.
Recently, however, a growing chorus, including the same people who once chose avoidance, began to offer Argentina expert advice on solving its crisis. Interestingly, their advice is the opposite of the deficit spending and tax relief they recommend to overcome the U.S. recession. According to them, Argentina should apply more stringent fiscal and economic measuresincluding higher export taxes and reduced public spendingin exchange for some temporary financial relief. These are the same untenable policies that caused the current crisis, and any Argentine democratic government expecting to survive will be well advised to ignore them. These policies wont just accelerate the socioeconomic debacle; they will jeopardize the only encouraging aspect of the situation: the extraordinary capacity of the Argentine democratic regime to survive a crisis that in the past would certainly have resulted in a military coup.
In January many Argentines saw their savings, jobs, health care, and educational opportunities disappear while the rest of the world maintained its distance and hoped the financial crisis would not spread. Now that the economy has collapsed in ruins, it is crucial for the Bush administration, and its representatives in the International Monetary Fund and other financial institutions, to let Argentina solve its own problems. The best thing the U.S. can do is to stand aside and not interfere. Argentina still has its democratic institutions, and it is up to the Argentine people to decide what policies will best help them out of this crisis. This last tango is only for Argentines to dance.
Aldo Vacs is Skidmores Palamountain Professor of Government. A version of this essay first appeared in the Albany Times-Union of February 25.