Asia Times: Argentina, the neo-liberal washout


	January 12, 2002	atimes.com

Global Economy

Argentina, the neo-liberal washout
By Mario Osava and Raul Pierri

MONTEVIDEO - The collapse of the Argentine economy will weaken the ideological foundations of neo-liberal economic theory, which Argentina bought into under the so-called "Washington Consensus", analysts in neighboring South American countries say.

In the 1990s, Argentina carried out economic reforms as counseled by the Washington Consensus, which promotes the deregulation of domestic markets. 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", said Antonio Carlos Lacerda, president of the Brazilian Society for Studies of Transnational Firms and Globalization.

However, Lacerda and economic analysts in Brazil and Uruguay agreed that Argentina's financial crisis will not create fissures in the world financial order. Walter Cancela, professor of monetary economy at the state-run University of Uruguay and adviser to the left-leaning Encuentro Progresista political coalition, 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.

The Argentine crisis will foment a strong new argument in favor of a more balanced trade system, said Lacerda, who is also a professor at the Catholic University of Sao Paulo.

The world is awaiting the impact of Argentina's chaotic financial situation, which in the past 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, led by Eduardo Duhalde of the Justicialista (Peronist) Party, imposed a dual currency system this week 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 US$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.

The disapproval the United States and the International Monetary Fund (IMF) have expressed with regard to Argentina is changing because nobody wants to see the situation grow worse, he added. Lacerda said that 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 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 multilateral organizations such as the World Bank and IMF to engage in debt renegotiations, such as those that took place from 1987-93 under the US-led Brady Plan.

Cancela 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 said.

"The most important effects in the commercial sphere can be expected to hit Argentina's partners in Mercosur 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. Mercosur is the Southern Common Market, comprising Argentina, Brazil, Paraguay and Uruguay.

Meanwhile, Brazil's Lacerda ruled 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 concurred 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 to "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 said 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 toward 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.

(Inter Press Service)