A World Bank affiliate, the International Finance Corporation, held a conference in Washington to discuss a range of issues concerning developing countries. Meeting participants are deeply worried about what some privately call the hopeless financial situation in Argentina.
Michael Pomerleano, a World Bank financial sector specialist, says the economic crisis in Argentina is a homegrown calamity with, as yet, unknown implications. He told the IFC meeting that the rigid one to one dollar to peso exchange system that lasted ten years until last December masked several structural problems. Among these, says Mr. Pomerleano, was a chronic lack of fiscal discipline, corruption, and stagnating productivity growth in all sectors of the Argentine economy.
Mr. Pomerleano believes the currency peg could have been sustained if Argentina had overcome its structural deficiencies. Instead, the fixed-rate system continued longer than it should have, even when the dollar and peso were rising while the currencies of Argentina's principal trading partners were falling. "There were three elements: One was the dollar appreciation which appreciated against the euro over that period [1997-2001]; The Real devaluation in Brazil; As well as insufficient growth in domestic productivity, which led to the real effective exchange rate overvaluation that ultimately was about 55%," he said.
Argentina has been in recession for four years. Living standards are low and have fallen further since the currency was devalued at the beginning of this year.
A participant in the IFC forum, Credit Lyonnais banker Jared Serfaty, says even more than an overvalued currency, other factors are to blame for Argentina's financial crisis. "Too much government regulation," he said. "And not enough transparency in the legal system."
Corruption is also blamed for much of Argentina's problems.
The new government in Buenos Aires is calling on the International Monetary Fund to resume the lending it cut off in December. The IMF is planning to again send its experts to Argentina. Some speakers at the conference say Argentina has become insolvent and would be a candidate for bankruptcy if countries, like corporations, could be declared insolvent. Argentina's large, $155billion foreign debt is likely to be written down with banks taking major losses.