When Surrender Isn't Good Enough
New London Day, April 25, 2002
Knight-Ridder/Tribune Information Services - April 22, 2002
WASHINGTON, DC -- The world's two most powerful financial institutions, the IMF and World Bank, have just concluded their annual spring meetings here. Their officials committed themselves to such niceties as "a new partnership between developed and developing countries," "sustainable growth and poverty reduction," and "participatory processes."
Financier George Soros was the first to put in print what many in the financial world knew about Argentina's default on its debt. In contrast to corporate borrowers, writes Soros, "sovereign states do not provide any tangible security; the only security the lender has is the pain that the borrower will suffer if it defaults. That is why the private sector has been so strenuously opposed to any measure that would reduce the pain . . ." Argentina's international creditors are determined to get their pound of flesh. In the 19th century, this might have been accomplished through gunboat diplomacy. Today, the world is more civilized: we have the International Monetary Fund.
The Fund has been negotiating with the government of Argentina since President Eduardo Duhalde took office in January. It has demanded harsh austerity conditions, including cuts in public spending amounting to about 4 percent of Argentina's output. For comparison, imagine cutting public spending in the US by $400 billion in the
The Fund recently announced that it is only willing to lend Argentina enough money to service its debt to the IMF and other multilateral lenders such as the World Bank. This is the worst of all worlds: Argentina will be required to implement the Fund's destructive conditions, which will almost certainly prolong the depression; and they get no new money for their pain.
entire government budget deficit.
"The IMF led a whole series of mistakes, from exchange rate policy, to fiscal policy, to the privatizations, that culminated in disaster in Argentina," notes Nobel prize-winning economist Joseph Stiglitz. But the Fund's economists cannot
see the irony in punishing millions of poor and working Argentines in order to enforce market discipline, while the IMF expects to get back every dollar that it loaned -- with interest.
Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. and president of Just Foreign Policy. He is also the author of the forthcoming book Failed: What the "Experts" Got Wrong About the Global Economy (Oxford University Press, 2015).