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Desde mi conocimiento 'amateur' de economia y finanzas. 
SOVEREIGNS AND VASSALS
In the past ten years the struggle between the International Monetary Fund and the developing nations has intensified. Many of the industrial nations blame the corrupt governments of the developing world for squandering aid monies and for lacking economically sustainable plans. In the developing world, creditors are considered the arch nemesis of development, claiming that economic imperialism has begun, blaming the creditors for exploitative interest rates and continued demands to meet payments.
Their constant finger pointing solves nothing. For one, it widens the gap between the debtors and creditors creating a hostile climate of negotiation and renegotiation of the outstanding debts.
Initially, the “loan craze” began in the 1970’s with the oil crisis. The influx of large quantities o “petrodollars” into the financial system caused banks to slash interest rates to liquefy their surplus funds. However, the crisis led to a collapse in prices and a drop in commerce and to a deficitary balance of payments in the developing world. This forced many governments to obtain loans from international creditors to foster nationalized industry as well as combating unemployment and decreased industrial output. However, in 1980, the US economic slump forced interest rates up as creditors hoarded their money prior to the collapse. The change in the interest rates were exorbitant, from the traditional 4-7% to over 20% in only a few months which made the situation unsustainable for the developing nation and, as such, affected also by the US recession, industrial output declined and inflation caused widespread misery in these countries as investor confidence plummeted and capital began to flee the countries, further indebting them as more loans were acquired to pay the existing loans, and interests were made unpayable.
From the Argentine perspective, it can be argued that ill policies resulted in a deepening economic crisis as early as the mid 1970’s: a policy of overpricing of the peso was established. This, whilst strengthening the financial sector, destabilized the industrial sector, decreasing the competitivity of the local goods over imported ones, decreasing the purchase power of the population and increased the cost of credit. This led to a deficitary balance of payments and the need for more loans which increased cost dramatically, effectively impoverishing the government, worsened by the decrease in revenues as well as increased social expenditure. All this caused inflation to escalate. To control the inflation, the Plan Austral was adopted in 1985 and the economy began to stabilize: confidence increased once again. Inflation decreased and creditors were calmed.
But in 1986, one year after the Plan Austral was implemented, the price of cereals collapsed, destabilizing the Argentine economy. Inflation ran rampant once more and the situation became untenable, the recession more profound. Because of these recessions, the IMF and World Bank were forced to enter the scene as regulatory bodies imposing demands on the debtors to comply with debt and interest payments on time. Here the opinion of John Stiglitz, formerly chief economist of the World Bank and winner of the 2001 Nobel Prize for Economics, is considered. He refers to the IMF policy for “ending recession” as a four-step plan.
Step 1 includes the privatization of all state owned assets, usually under dubious conditions. Stiglitz has accused the IMF of actively following US friendly policy to conduct these sales including corruption and “inducement” in a process he has termed “Bribarisation”.
Step 2 has been termed “Capital Market Liberalisation”. In theory, capital market deregulation allows the free flow of capital boosting investor confidence. But Stiglitz has termed this the “hot money” cycle: cash flows into a nation, but vanishes at the first sign of trouble, draining a nation’s reserves in a matter of days.
Stiglitz defines Step 3 as the emblematic problem and includes Market Based Pricing. This leads to an increase in the price of foodstuffs and energy. Complete liberalization of the market leads to increased costs of life and to step 3 ½, the “IMF riot” which occurs when an over-pressured nation explodes into social unrest and widespread rioting which, acting together with the “hot money” cycle causes a collapse in confidence and, as such, the “evacuation” of capital.
At this point the arrival at step 4 takes place, what the IMF and World Bank term “poverty reduction strategy”: Free trade. But free trade according to World Trade Organization, Stiglitz compares to the Opium Wars in the XIX century: Stiglitz argues that whilst the EU and US today insist on kicking down the barriers to sales in Asia, Latin America and Africa, while barricading their own markets against Third World agriculture and raw materials. “The so-called Poverty Reduction Programs undermine democracy” Stiglitz states, “and they don’t work”.
When compared to the Argentine situation, Stiglitz’s 4-step plan fits in completely. In the early 1990’s all state owned enterprises were privatized under the direction of President Carlos Menem and a secretary, María Julia Alsogaray. The conditions of sale are at present still under review and many times harshly criticized. A case of briberisation perhaps? It is what many are inclined to believe.
Step 2 was also seemingly enforced and the increase of debt and decreased ability to pay it led to the “Hot Money” flow out of Argentina as confidence plummeted coupled with the overpreciation of the peso and trade treaties of Mercosur. Again, the industrial sector was sacrificed for the financial as in the 1970’s, and the financial was quickly running dry.
Because of lax laws already in place, or a lack of them, step 3 and 4 happened on their own, further contributing to a collapse in industrial output, increased cost of life, decreased purchase power and no confidence in the policy. Prices of transport and energy went up since privatization, whilst salaries have stagnated or, in worse cases, shrunk. Free trade has thus further worsened the social conditions together with the inflation of energy and transport prices.
The problem with the debt had yet to be addressed but it can be deduced that the money obtained from briberisation went toward payments of draconian interests and the refinancing of debts, as well as major sums from reserves.
And although the IMF policies prove to be defunct, they insist on the free floating of the peso against the dollar as well as the repealing of laws that will further liberalize the capital market such as the Ley 20.840 (commonly referred to as “Economic Subversion” laws). And yet, it takes two to tango.
IMF policies alone cannot damage anyone unless they are implemented and a great responsibility falls upon the administrations of Alfonsín, Menem and De La Rua for following IMF policy blindly, perpetuating the recession that started in the early 1980’s.
At the moment, the government must face the option of continuing the follow IMF directories and “submit” to liberalization or face up to the IMF and solve the internal problems that sap the budget and damage the economy. For one, strict law enforcement coupled with judiciary and political reform to put an end to corruption, which causes the budget to deflate. Additionally, the restoration of confidence in order to ring back the capital that fled the country in the late 1990’s which will allow the beginning of reactivation if coupled with the devaluation of the Peso to reinforce the export and industrial sectors.
At educational levels a similar reform must be undertaken to reinforce the confidence of the population in their nation and currency, and strict regulatory legislation to hamper and prevent a hyperinflatory cycle. Whilst decreasing confidence, the default should be faced as such and continued foreign assistance in form to hard cash discouraged.
Many other policies and plans may be undertaken, but the acknowledgement of the damage that the IMF has done should automatically lead the government to the dismissal or partial, analyzed application of IMF directives as, followed blindly, they have proven to be a recipe for disaster.
At this moment, an agreement with the Fund is necessary. But the continued influx of aid is our prerogative and not theirs and should be treated as such. Whatever the future may hold, the governments must, regardless of their policy, remove their blinders and realize that IMF policies, when blindly applied, prove to be cataclysmic and, as such, end up compromising a country’s financial independence.
-Martin Carreras
SOVEREIGNS AND VASSALS
In the past ten years the struggle between the International Monetary Fund and the developing nations has intensified. Many of the industrial nations blame the corrupt governments of the developing world for squandering aid monies and for lacking economically sustainable plans. In the developing world, creditors are considered the arch nemesis of development, claiming that economic imperialism has begun, blaming the creditors for exploitative interest rates and continued demands to meet payments.
Their constant finger pointing solves nothing. For one, it widens the gap between the debtors and creditors creating a hostile climate of negotiation and renegotiation of the outstanding debts.
Initially, the “loan craze” began in the 1970’s with the oil crisis. The influx of large quantities o “petrodollars” into the financial system caused banks to slash interest rates to liquefy their surplus funds. However, the crisis led to a collapse in prices and a drop in commerce and to a deficitary balance of payments in the developing world. This forced many governments to obtain loans from international creditors to foster nationalized industry as well as combating unemployment and decreased industrial output. However, in 1980, the US economic slump forced interest rates up as creditors hoarded their money prior to the collapse. The change in the interest rates were exorbitant, from the traditional 4-7% to over 20% in only a few months which made the situation unsustainable for the developing nation and, as such, affected also by the US recession, industrial output declined and inflation caused widespread misery in these countries as investor confidence plummeted and capital began to flee the countries, further indebting them as more loans were acquired to pay the existing loans, and interests were made unpayable.
From the Argentine perspective, it can be argued that ill policies resulted in a deepening economic crisis as early as the mid 1970’s: a policy of overpricing of the peso was established. This, whilst strengthening the financial sector, destabilized the industrial sector, decreasing the competitivity of the local goods over imported ones, decreasing the purchase power of the population and increased the cost of credit. This led to a deficitary balance of payments and the need for more loans which increased cost dramatically, effectively impoverishing the government, worsened by the decrease in revenues as well as increased social expenditure. All this caused inflation to escalate. To control the inflation, the Plan Austral was adopted in 1985 and the economy began to stabilize: confidence increased once again. Inflation decreased and creditors were calmed.
But in 1986, one year after the Plan Austral was implemented, the price of cereals collapsed, destabilizing the Argentine economy. Inflation ran rampant once more and the situation became untenable, the recession more profound. Because of these recessions, the IMF and World Bank were forced to enter the scene as regulatory bodies imposing demands on the debtors to comply with debt and interest payments on time. Here the opinion of John Stiglitz, formerly chief economist of the World Bank and winner of the 2001 Nobel Prize for Economics, is considered. He refers to the IMF policy for “ending recession” as a four-step plan.
Step 1 includes the privatization of all state owned assets, usually under dubious conditions. Stiglitz has accused the IMF of actively following US friendly policy to conduct these sales including corruption and “inducement” in a process he has termed “Bribarisation”.
Step 2 has been termed “Capital Market Liberalisation”. In theory, capital market deregulation allows the free flow of capital boosting investor confidence. But Stiglitz has termed this the “hot money” cycle: cash flows into a nation, but vanishes at the first sign of trouble, draining a nation’s reserves in a matter of days.
Stiglitz defines Step 3 as the emblematic problem and includes Market Based Pricing. This leads to an increase in the price of foodstuffs and energy. Complete liberalization of the market leads to increased costs of life and to step 3 ½, the “IMF riot” which occurs when an over-pressured nation explodes into social unrest and widespread rioting which, acting together with the “hot money” cycle causes a collapse in confidence and, as such, the “evacuation” of capital.
At this point the arrival at step 4 takes place, what the IMF and World Bank term “poverty reduction strategy”: Free trade. But free trade according to World Trade Organization, Stiglitz compares to the Opium Wars in the XIX century: Stiglitz argues that whilst the EU and US today insist on kicking down the barriers to sales in Asia, Latin America and Africa, while barricading their own markets against Third World agriculture and raw materials. “The so-called Poverty Reduction Programs undermine democracy” Stiglitz states, “and they don’t work”.
When compared to the Argentine situation, Stiglitz’s 4-step plan fits in completely. In the early 1990’s all state owned enterprises were privatized under the direction of President Carlos Menem and a secretary, María Julia Alsogaray. The conditions of sale are at present still under review and many times harshly criticized. A case of briberisation perhaps? It is what many are inclined to believe.
Step 2 was also seemingly enforced and the increase of debt and decreased ability to pay it led to the “Hot Money” flow out of Argentina as confidence plummeted coupled with the overpreciation of the peso and trade treaties of Mercosur. Again, the industrial sector was sacrificed for the financial as in the 1970’s, and the financial was quickly running dry.
Because of lax laws already in place, or a lack of them, step 3 and 4 happened on their own, further contributing to a collapse in industrial output, increased cost of life, decreased purchase power and no confidence in the policy. Prices of transport and energy went up since privatization, whilst salaries have stagnated or, in worse cases, shrunk. Free trade has thus further worsened the social conditions together with the inflation of energy and transport prices.
The problem with the debt had yet to be addressed but it can be deduced that the money obtained from briberisation went toward payments of draconian interests and the refinancing of debts, as well as major sums from reserves.
And although the IMF policies prove to be defunct, they insist on the free floating of the peso against the dollar as well as the repealing of laws that will further liberalize the capital market such as the Ley 20.840 (commonly referred to as “Economic Subversion” laws). And yet, it takes two to tango.
IMF policies alone cannot damage anyone unless they are implemented and a great responsibility falls upon the administrations of Alfonsín, Menem and De La Rua for following IMF policy blindly, perpetuating the recession that started in the early 1980’s.
At the moment, the government must face the option of continuing the follow IMF directories and “submit” to liberalization or face up to the IMF and solve the internal problems that sap the budget and damage the economy. For one, strict law enforcement coupled with judiciary and political reform to put an end to corruption, which causes the budget to deflate. Additionally, the restoration of confidence in order to ring back the capital that fled the country in the late 1990’s which will allow the beginning of reactivation if coupled with the devaluation of the Peso to reinforce the export and industrial sectors.
At educational levels a similar reform must be undertaken to reinforce the confidence of the population in their nation and currency, and strict regulatory legislation to hamper and prevent a hyperinflatory cycle. Whilst decreasing confidence, the default should be faced as such and continued foreign assistance in form to hard cash discouraged.
Many other policies and plans may be undertaken, but the acknowledgement of the damage that the IMF has done should automatically lead the government to the dismissal or partial, analyzed application of IMF directives as, followed blindly, they have proven to be a recipe for disaster.
At this moment, an agreement with the Fund is necessary. But the continued influx of aid is our prerogative and not theirs and should be treated as such. Whatever the future may hold, the governments must, regardless of their policy, remove their blinders and realize that IMF policies, when blindly applied, prove to be cataclysmic and, as such, end up compromising a country’s financial independence.
-Martin Carreras
(yo pregunto de curioso nomás 
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