- The Washington Times - Monday, January 7, 2002

With all of Argentina's economic illnesses, the worst medicine you could prescribe would be a zealous trade protectionist, anti-free market president.

But that is what happened last week with the installation of Eduardo Duhalde, a leader in the dominant Peronist party, who seems intent upon restoring the nationalist economic policies of Juan and Eva Peron in an attempt to rescue Argentina from its financial collapse.

Ridden with debt, bank closures and with money and investors fleeing the country, Latin America's third-largest economy has turned into an economic basket case. Taxes and trade barriers have been raised in the face of recession and privatization of state-owned enterprises has been abandoned.

Looming behind all of this is the International Monetary Fund, which has pushed higher taxes and austerity as a condition for more IMF bailouts.

Argentina, once the high-flying economy of Latin America in a deregulatory era of free trade and free markets, is entering the fifth year of its recession. Unemployment is nearly 20 percent and the poverty rate is at 40 percent.

Unfortunately, Mr. Duhalde, Argentina's fifth president in four weeks, appears to be the wrong man with the wrong economic philosophy to bring Argentina back from the brink.

Put into office by the Peronist Party, which controls the legislature, he is blaming all of Argentina's economic woes on what he says are the failings of the free market reforms that the country implemented in the 1990s at the urging of the United States. That was the time when Argentina began reducing its trade import barriers and selling off its inefficient state-run businesses.

Calling for a return to the leftist, state-regulated economic policies of old, Mr. Duhalde called the move to free market economics "a failed economic model that led to the desperation of millions of Argentines. We need a new model now," he said.

That leftist model will substantially increase state controls over the economy and raise government trade tariffs and quotas to protect its chief industries from foreign competition a disastrous step backward.

Mr. Duhalde's so-called new economic model is really one of the oldest in the world, and he cannot point to a country where it has worked.

The story of the growing global economy is all about free markets and free trade turning closed, failing economies into engines of growth and prosperity. It is where trade barriers have been lowered, tax rates reduced, state-run businesses sold off to private enterprise and access to the marketplace opened up to people with ambition and dreams of a better life.

Hong Kong, Singapore, Belgium, Germany, Great Britain, the Netherlands and the United States are among the most open economies in the world, according to Trade Openness Index produced by the Heritage Foundation. These and similarly open countries are among the most prosperous in the world.

On the other end of the spectrum, Myanmar, Bangladesh, Burundi, Iran, Sierra Leone, Syria and Algeria were the most protectionist and closed economies. And they are the poorest in the world.

The lessons from this are clear and obvious, Heritage said in its latest annual report, Economic Freedom of the World: The "more open economies will grow more rapidly and achieve higher living standards because openness stimulates (a) gains from specialization and trade, (b) innovation and efficient production, and (c) adoption of sound policies."

"Our findings are consistent with this view: persistently open economies had higher levels of per-capita income and grew more rapidly than those that were more closed," it reported.

Countries that were hopeless economic backwaters have shown what trade openness, deregulation and privatization can do for them.

For example, throughout the past two decades, Mexico, China, Ireland and the Philippines "were among the countries registering both a sizeable increase in [their] Trade Openness Index and a huge increase in trade as a share of GDP," Heritage reported.

One reason why free trade, denationalization, and economic deregulation have been the most important global economic reforms of the last several decades is because more and more failed economies have chosen to copy what works.

China looked at the United States and other open economies and decided that if free market capitalism worked for us, it would work for the Chinese people, too. And it has.

But the new Duhalde government prefers to look inward instead of beyond its borders. Its economy grew significantly over the past two decades by opening itself up. Now, with its crushing debt and a series of other disastrous economic mistakes, it is in danger of falling backward into statism and further economic decline.

Argentina still has too many state-owned industries, tariff rates running close to 14 percent twice the average rate too much of its economy operating in the black market to avoid bureaucratic obstacles and corruption, and tax rates that have held back growth, increased joblessness and poverty.

This is a country that is in need of a strong dose of free market capitalism, but, instead, it is retreating into the past.

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