- The Washington Times - Monday, April 1, 2002

Argentina has entered a financial netherworld where familiar economic gauges have little bearing. The complete collapse of investor confidence has sent Argentina into alienation, and the trajectory towards solid ground seems inscrutable.
So just what will the International Monetary Fund's (IMF) "technical" team that arrives this week to Argentina report back to headquarters? Thanks to the fund's past contributions, Argentina has become an economic mission impossible. Mounted on its white horse, the IMF dragged Argentina over a financial precipice and later fled from the wreckage. Now, that the fund has distanced itself from the crisis to its satisfaction, it is getting ready to return.
The IMF's flair for hypocrisy and hubris is quite noteworthy. In December of last year, when the fund was coming under increasing criticism for contributing to Argentina's economic woes, the IMF's Thomas Dawson downplayed the fund's responsibility, saying: "the Argentine program is one that has had one of the highest degrees of national ownership."
But during the country's brighter years, the IMF's message was curiously different. In May 1996, during a trip to Buenos Aires, the fund's then-managing director, Michel Camdessus, mused that about one decade ago, "the term 'Fund orthodoxy' had a negative connotation in Argentina," adding, "Today, there is no longer any doctrinal divide." One year later, Mr. Camdessus said that the government's now-controversial "Convertibility Plan," which linked the local currency to the value of the dollar, was "a 'Credibility Plan' par excellence." While Argentina was flourishing, the fund was clearly willing to agree with and praise Argentina's policies.
A brief retrospective of IMF prescriptions for Argentina reveals the fund's appalling willingness to allow the country to amass unsustainable levels of debt. In February 1998, the IMF approved a three-year credit program for Argentina of $2.8 billion, which envisaged a "near balance" of the government's budget by the year 2000. Needless to say, Argentina failed to balance its budget by 2000 and that year the IMF moved the target date to 2003. By 2001, it further postponed the goal to 2005.
Last week, Mr. Dawson said, without irony, that the IMF team that travels to Argentina will focus on the fiscal policies of the provinces, or local governments. Interestingly, the fund has long goaded the provinces into profligacy by keeping the bailouts rolling in the face of overspending. In January 1999, the IMF said the provinces racked up a deficit in 1998 that exceeded the ceiling set by the IMF itself. But the IMF was loath to be a naysayer to Argentina in those days.
In May 1999, Mr. Camdessus said that, "as a result of spending restraint," the fund expected the provincial deficit to fall to 0.5 percent of gross domestic product (GDP). But this "restraint" occurred only in the fund's alternate reality. Argentina finished the year with a provincial deficit sharply higher than the year before, equivalent to about 1.3 percent of GDP, and with the total debt of the provinces rising to more than 7 percent of GDP. Since 1996, the fund targeted a reduction in the province's deficit, and every year the fund allowed the government to miss this goal without comment.
Despite Argentina's growing debt load, in March 2000, the fund approved a three-year, $7.2-billion stand by credit. In January 2001, it raised that credit line to $14 billion, hailing the government for embarking on a "comprehensive and ambitious [economic] program." But the IMF quickly changed its tone. In September, the IMF said "doubts about the sustainability of the country's public debt [had] resurfaced." Amazingly, it addressed these doubts by increasing the government's line of credit by another $8 billion to over $21 billion. Only months later, after the country entered a full-blown crisis, the IMF froze that line of credit.
The fund had long been keen to keep the dollars flowing to Argentina despite the country's glaring fiscal problems. After all, the fund is in the billion-dollar bailout business. That's what keeps its bureaucrats employed. And while the IMF credit flowed, the Argentine government postponed making crucial reforms.
And then, of course, the free-wheeling investors that stand to profit most from IMF bailouts applied pressure to keep the dollars moving. These high rollers place risky bets and receive their pay-offs even after economic crises hit, thanks to taxpayer-financed IMF rescue packages. And since the IMF insulates investors from risk, capital tends to move erratically from one gamble to another, rather than flowing to the countries that practice sound economic policies.
The Argentine government is banking on another IMF rescue to come soon. And though a bailout may appear to promise a way out of the abyss, Argentina should stay clear of policy shortcuts. An IMF loan will go directly to the country's deep-pocketed creditors, like the IMF itself, and will do nothing to assuage the escalating suffering of Argentines. The international community should instead put together a grant that goes directly to humanitarian relief and microlending, without making any stops in government coffers.
Argentina can no longer take half-measures to gain financial footing. It must now rebuild its democratic institutions from the ground up to bolster transparency and accountability. IMF money gave the government the false sense this undertaking was optional, but it has proved to be imperative. While other policy reforms are also important, they are not nearly as critical as halting the impunity of the powerful in Argentina. An honest reckoning of Argentina's deeply rooted weaknesses can point the way towards recovery. For the sake of the Argentines, let this be sooner rather than later.

Ximena Ortiz is an editorial writer for The Washington Times.


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