Krugman in NYT: IMF to blame for Argentina

Well-known mainstream economist Paul Krugman, notable for criticizing
the IMF during the East Asian financial crisis and for being awarded a
column in the New York Times afterwards, has been a frequent critic of
the anti-corporate-globalization movement (albeit more temperate than
his colleague Thomas Friedman).  In what we can hope is evidence of a
healthy New Years resolution, his first column of 2002 rips into the IMF
("which much of the world, with considerable justification, views as a
branch of the U.S. Treasury Department"), comparing its officials to
"medieval doctors who insisted on bleeding their patients, and repeated
the procedure when the bleeding made them sicker."

Close reading will demonstrate that Krugman has by no means shifted to
our camp.  But that he is using his prominent position to call on people
in the U.S. to oppose the IMF is still very good news.

Soren Ambrose
50 Years Is Enough Network


New York Times
January 1, 2002

Crying With Argentina
By Paul Krugman

Although images of the riots in Argentina have flickered across our
television screens, hardly anyone in the U.S. cares. It's just another
disaster in a small, faraway country of which we know nothing - a
country as remote and unlikely to affect our lives as, say, Afghanistan.

I don't make that comparison lightly. Most people here may think that
this is just another run-of-the-mill Latin American crisis - hey, those
people have them all the time, don't they? - but in the eyes of much of
the world, Argentina's economic policies had "made in Washington"
stamped all over them. The catastrophic failure of those policies is
first and foremost a disaster for Argentines, but it is also a disaster
for U.S. foreign policy.

Here's how the story looks to Latin Americans: Argentina, more than any
other developing country, bought into the promises of U.S.-promoted
"neoliberalism" (that's liberal as in free markets, not as in Ted
Kennedy). Tariffs were slashed, state enterprises were privatized,
multinational corporations were welcomed, and the peso was pegged to the
dollar. Wall Street cheered, and money poured in; for a while,
free-market economics seemed vindicated, and its advocates weren't shy
about claiming credit.

Then things began to fall apart. It wasn't surprising that the 1997
Asian financial crisis had repercussions in Latin America, and at first
Argentina seemed less affected than its neighbors. But while Brazil
bounced back, Argentina's recession just went on and on.

I could explain at length the causes of Argentina's slump: it had more
to do with monetary policy than with free markets. But Argentines,
understandably, can't be bothered with such fine distinctions -
especially because Wall Street and Washington told them that free
markets and hard money were inseparable.

Moreover, when the economy went sour, the International Monetary Fund -
which much of the world, with considerable justification, views as a
branch of the U.S. Treasury Department - was utterly unhelpful. I.M.F.
staffers have known for months, perhaps years, that the
one-peso-one-dollar policy could not be sustained. And the I.M.F. could
have offered Argentina guidance on how to escape from its monetary trap,
as well as political cover for Argentina's leaders as they did what had
to be done. Instead, however, I.M.F. officials - like medieval doctors
who insisted on bleeding their patients, and repeated the procedure when
the bleeding made them sicker - prescribed austerity and still more
austerity, right to the end.

Now Argentina is in utter chaos - some observers are even likening it to
the Weimar Republic. And Latin Americans do not regard the United States
as an innocent bystander.

I'm not sure how many Americans, even among the policy elite, understand
this. The people who encouraged Argentina in its disastrous policy
course are now busily rewriting history, blaming the victims. Anyway, we
are notoriously bad at seeing ourselves as others see us. A recent Pew
survey of "opinion leaders" found that 52 percent of the Americans think
that our country is liked because it "does a lot of good"; only 21
percent of foreigners, and 12 percent of Latin Americans, agreed.

What happens next? The best hope for an Argentine turnaround was an
orderly devaluation, in which the government reduced the dollar value of
the peso and at the same time converted many dollar debts into pesos.
But that now seems a remote prospect.

Instead, Argentina's new government - once it has one - will probably
turn back the clock. It will impose exchange controls and import quotas,
turning its back on world markets; don't be surprised if it also returns
to old-fashioned anti-American rhetoric.

And let me make a prediction: these retrograde policies will work, in
the sense that they will produce a temporary improvement in the economic
situation - just as similar policies did back in the 1930's. Turning
your back on the world market is bad for long-run growth; Argentina's
own history is the best proof. But as John Maynard Keynes said, in the
long run we are all dead.

Back in April, George W. Bush touted the proposed Free Trade Area of the
Americas as a major foreign policy goal, one that would "build an age of
prosperity in a hemisphere of liberty." If that goal really was
important, we have just suffered a major setback. Don't cry for
Argentina; cry with it.

Argentina | www.agp.org