Argentina... A View

Argentina’s history to live beyond its means and to default on its

foreign obligations--a tradition that goes back to the early nineteenth

century--became the institutionalized ideology of the country under Juan

Domingo Perón, who first ruled the country from 1946 to 1955. In its

modernized version, this ideology has guided the transformation of

Argentina into a system of "techno-bureaucratic clientilism," which is

primarily oriented at providing privileges to those who are employed in

or linked to the public sector. At the top of the bureaucratic hierarchy

is a technocratic elite whose function is to take care of the funding of

its clientele, primarily by obtaining foreign loans.



In its relations with the bureaucrats of the International Monetary

Fund, Argentina’s power elite used to feel like brothers in mind. In

various respects, the ideology of "el peronismo" shares a number of

similarities with the IMF’s view of how economic policy should be

handled. Both are in agreement when assuming, first, that an economy

should be run by them, i.e., a bureaucratic elite; second, that an

economy must be stabilized, controlled, and managed by government

intervention; and third, that it is primarily the demand side which

matters. Both are in agreement by assuming that the attainment of

macroeconomic figures as given by some specific statistical aggregates

would imply sound economic policy.



It came as a profound shock to the Argentinean political establishment

when the government proved unable to get new loans from the IMF in

December 2001. An implicit contract between the IMF and Argentina had

fallen apart. Therefore, it came as no surprise that the economic and

financial crisis turned into a profound political crisis. In Argentina,

the legitimacy of a government is closely tied to its capability to

aliment its clientele. When the government of De la Rúa and Domingo

Cavallo had to admit that it could no longer fund the system, it became

certain that they would have to dismiss. The interventionist fury in the

second half of 2001 and, later on, the bloody turmoil in the streets--as

well as the confusion at the governmental level, with five presidents in

just about a month--demonstrated that Argentina’s system of legitimacy

was about to fall apart.



The collapse of Argentina signifies the breakdown of an economy as much

as\xa0the end of a political system. But the default of Argentina also

shows the failure of an economic model which presumes that economic

growth and development can be achieved by accumulating external debt.

Argentina represents another case in the long chain of economic

collapses brought about by excessive external credit accumulation. The

fall of Argentina is also a case in the long chain of the failures of

the doctrine which holds that economies should be managed, stabilized,

and controlled by bureaucrats.



By not paying out the credit tranche of $1.3 billion in U.S. dollars in

December 2001, the International Monetary Fund probably did the best

thing in decades. The alternative would have implied the continuation of

financing an inherently corrupt system. By not providing further loans,

the IMF may have triggered reconsideration and change, not only in

Argentina, but also in other highly indebted countries that suffer from

similar structures, as they exist in Argentina. In these countries, the

authorities have long given up serious efforts to strengthen their

productive systems, concentrating instead on getting funds from

abroad--or, more specifically, formally adhering to the IMF policy

targets as their intermediate economic policy goals. In these countries,

the national financial sector, the government, and those connected to

the public sector via a more or less subtle system of privileges have

formed a symbiosis in combination with the international creditors and

the International Monetary Fund, which, during the past two decades, has

degenerated its prime function into holding this wasteful system

together.



In its original meaning, "crisis" signifies a turning point that can

either lead to improvement and recovery or to more severe deterioration.

In the case of Argentina, with the future of the Argentinean people in

mind, one must hope for the abandonment of its interventionist economic

system with its reliance on a bureaucratic apparatus and its self-chosen

dependency on foreign credits. But there is always the risk that, due to

biased analysis, the wrong lessons will be drawn from a crisis. It would

be another tragedy in the making if opinion should prevail that it was

the currency board per se that lay at the basis of the default and that

a dismantling of this regime, along with a devaluation of the peso,

would be enough to put Argentina on the road to prosperity.



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Dr. Antony P. Mueller is a professor of economics at the University of

Erlangen-Nuremberg, Germany. He was a Fulbright Scholar in the U.S. and

currently serves as long-term visiting professor at the Universidade

Federal de Santa Catarina in Brazil under the German-Brazilian academic

exchange program.

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