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Argentina's Crisis Raises Questions About Roles of IMF, US - 2002-01-04

Argentina's ongoing crisis has raised serious questions among many Argentines about the validity of the free market economic model adopted by the South American nation during the 1990's. Many are also questioning the role of the International Monetary Fund and the United States in advocating policies which they believe helped lead Argentina to ruin.

Most Argentines are the first to say corruption, government overspending, uncontrolled borrowing and other factors are to blame for the current crisis. Argentina is struggling to emerge from a deep recession that has lasted almost four years, it is burdened with a huge public debt of $141 billion, and is facing a painful devaluation of its currency.

In the span of less than two weeks, in late December, unrest over the government's inability to deal with these problems drove two Presidents out of office. Now, a third president - Eduardo Duhalde - is trying to find a way out of the crisis.

Yet while Argentines blame misguided government policies for the country's ills, many now also are pointing the finger at the free market model that Argentina adopted during the early 1990's, with strong encouragement from the United States.

The views of municipal worker Miguel Angel Buljan are typical of the sentiment now heard on the streets of Buenos Aires. "The model we've been following with the advice of the economists has been a disaster," he says, "and we want that model to change."

In the early 1990's, then-President Carlos Menem embraced the economic policy prescriptions advocated by Washington and the IMF. These included dismantling trade barriers, selling off state enterprises, and taking other measures to promote competition. Even though investment and economic growth soared during the mid-1990's, so did borrowing on international markets. When a recession hit Argentina in mid-1998, the bubble began to burst.

The IMF - with US support - responded by calling for increasingly harsh fiscal austerity measures, especially after the administration of President Fernando de la Rua came to office in December, 1999.

Some analysts say the IMF acted too late, and could have done more to prevent the ensuing crisis. Atilio Boron of the Latin American Social Sciences Council (Consejo Latinoamericano de Ciencias Sociales), says the Fund and the U.S. administrations at the time bear much of the blame for what is happening now. "The IMF has played a major role. It kept saying to the Argentine public, and you can see this in the popular press in the years '93, '94, ' kept saying that the fundamentals of the Argentine economic policies were alright," he explains. "They kept saying that, 'the fundamentals are alright, make no mistake; you just have to make some minor revisions, but in the fundamentals you are on the right track'. This was the message, the message of [the first] President Bush and President Clinton."

Other analysts agree, but view the matter from a different angle. Economic consultant Jose Luis Espert says the Menem Administration never really fully implemented the free market model in Argentina. Instead, he says the Argentine economy remained relatively noncompetitive, with a bloated public sector, while growth was financed with international borrowing.

Mr. Espert says the IMF should be blamed for not forcing Argentina to take the necessary measures to reduce its fiscal deficit much earlier. "I think, of course, that Argentina is the most responsible for this crisis, and in the second place the IMF," says Mr. Espert. "Why? Because they [the IMF] tolerated fiscal deficits for 10 years, thinking that the pro-market reform Argentina was doing for the past 10 years would promote a sustainable growth rate that would pay for these deficits in the future."

IMF and U.S. officials have been quoted by some American newspapers as saying privately they attempted to steer Argentina in the right direction, but that the former Menem government refused to take their advice. These officials also note that the Fund did all it could to prevent the current crisis, by providing emergency standby loans over the past two years to President de la Rua's government, which fell late last month in the face of violent protests.

But some Argentines believe the IMF, and the Bush administration, were not paying enough attention to the growing crisis - and should have helped more.

The magazine The Economist published comments in July, by U.S. Treasury Secretary Paul O'Neill, distanced the Bush Administration from the Argentine situation and blamed the country for its problems. The remarks were viewed here as a blow to the struggling de la Rua government.

Analyst Atilio Boron says the Bush Administration now cannot afford to ignore the Argentine crisis. He says its potentially destabilizing effects on the rest of Latin America should be of great concern to Washington, especially in the wake of the September 11 terrorist attacks on the United States. "After September 11," says Mr. Boron, "the story is completely different, because if you are in this sort of crusade against terrorists you need to have your backyard more or less well ordered, and the problem is that the backyard is getting more and more disorderly in the last month, and Argentina was one of the first countries that tried the new liberal recipes…and it may be one of the first to proclaim the death of neoliberalism."

In apparent recognition of the dangers, President Bush has sent a letter to President Duhalde expressing confidence in continued close relations based on what the letter termed "shared values". A White House spokesman said the President and his advisors continue to closely monitor events in Argentina, and that Mr. Bush has spoken to other Latin American leaders about the situation.

Meanwhile, the Duhalde government is appealing for help and understanding from the United States and the rest of the international community. Cabinet Chief Jorge Capitanich told reporters Wednesday the world should realize that Argentina is undergoing a difficult crisis, and needs the solidarity of other nations as well as the Argentine people.