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Economists Worried Argentina Might Hurt Improved Global Econ Forecasts - 2002-04-26

Two multi-lateral organizations Thursday released updated forecasts for improved global economic performance. But economists in Washington worry that the financial crisis in Argentina might spin out of control and adversely impact those forecasts.

Both the United Nations and the Organization for Economic Cooperation and Development say economic conditions have improved significantly in recent months. The global slowdown that was accentuated by the September 11 terrorist attacks seems to have bottomed out. And key economies notably the United Statesare again growing.

The United Nations says global growth will reach one point eight percent this year and rise to three point two percent in 2003. The OECD says the U.S. economy will expand by 2.5 percent this year, rising to 3.5 percent in 2003.

But at a press conference in Washington Thursday, economic forecasters chose to emphasize the rapidly deteriorating situation in Argentina. David Hale, chief global economist at the Zurich Group(in Switzerland) said Argentina may be experiencing the world's worst economic crisis in 50 years. "What's happening right now in Argentina is really alarming. I think this is one of the worst economic crises to occur in any country in the last half century. And it really is spinning out of control. The payments system has been suspended," he said. The banks aren't functioning. The government does not have a coherent program. The finance minister resigned last night. It's really spinning out of control.

At the same (Washington) press conference where the OECD forecast was presented, economist David Malpass (of Bearn Stearns brokerage) said the Argentine crisis, contrary to the views of some, has already impacted financial markets in neighboring countries. "If you look at Brazil, their stock market has way under performed other emerging market stock markets such as Korea's or Taiwan's. In other words the lift of the global economy that has been occurring over the past six months has not been penetrating into foreign direct investment or capital inflows (into Brazil and other neighboring countries.) So I think there is a big challenge for Latin America, in particular for South America, from the Argentine meltdown," he said.

None of the economists present would predict what is likely to happen in Argentina or what the international community can do to help. Argentina in December abandoned its decade old fixed exchange system and let its currency float, its value being determined by the market. However, instead of pulling the country out of a three year long recesion, the economic situation has steadily worsened.