spoiler alert!!!

Since the invasion of Iraq, international news has been increasingly shoddy, and Argentina seemed to also drop off the map. Can anyone recommend a good English language source for news on Argentina?

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Reformers over the last 15 years debated whether change would come about through the IMF altering its policies, or through the Fund losing influence. That debate has now been settled by history. The IMF has not been reformed, but its power to shape economic policy in developing countries has been enormously reduced.

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For a while some of us thought that an institution like the IMF had real power and its reform or abolition would create real social change. The best writing (aka The Stuff I Understood) about the IMF pointed to its role in creating models or mediating relations between indebted nations and larger private investors through the SAPs (Structural Adjustment Program).

The World Bank puts together and helps countries implement reform packages, and the like, not the IMF.

[ 14 October 2005: Message edited by: Andrew_Jay ]

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Mostly because the International Monetary Fund's role is pretty limited compared to the World Bank

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That doesn't sound right to me. It's my understanding that the IMF "helps" dirt-poor, bankrupt countries to "reform" their entire gamut of macroeconomic policies.

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In what areas does the IMF provide technical assistance?
The IMF provides technical assistance in its areas of expertise, namely: macroeconomic policy, tax policy and revenue administration, expenditure management, monetary policy, the exchange rate system, financial sector sustainability, and macroeconomic and financial statistics. Since demand for technical assistance far exceeds supply, the IMF gives priority to providing assistance where it complements and enhances the IMF’s other key forms of assistance, surveillance and lending.

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from: http://www.imf.org/external/np/exr/facts/tech.htm

A funny page on the IMF website:

[whine] Common Criticisms of the IMF [/whine]

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The World Bank puts together and helps countries implement reform packages, and the like, not the IMF.

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Countries don't seek IMF loans when their economies are in good shape. They come to the IMF when, through some combination of bad luck and bad policies, they have already run into deep financial difficulties.

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Mostly because the International Monetary Fund's role is pretty limited compared to the World Bank. All the IMF does is stabilise exchange rates and distribute loans to shore-up a country's balance of payments.

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The IMF is far more important than the World Bank.

The IMF has historically demanded that, if it is going to offer a loan "to shore up a country's balance of payments", the recipient MUST change its internal policies to reflect IMF preferences.

The whole worldwide swing to the privatization of the state sector has occurred, not because people think it is smart, but because they cannot get IMF funds otherwise.

it looks like we cross-posted my answer to you and your answer to Jeff.

unfortunately, i'm soon off to www.homestarrunner.com .

have i told you that i like your site yet?

i like your site.

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Isn't it sensible to tell countries that are in a debt hole to stop digging before before lending them money?

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It WOULD be sensible, if the IMF had policies which work.

I had been led to believe that with all the talk about Argentina being the IMF's "star pupil," that fixing the exchange rate between the Argentinian peso and the US dollar had been an IMF commandment.

But this Washington Post book review says otherwise:

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Argentina's main problem, however, was that it became -- or always was -- a serial and serious violator of two of the fundamental tenets of the "Consensus": the need to have a low fiscal deficit and the need to maintain the value of its currency at a level that would stimulate exports. Instead, President Carlos Menem and his powerful, larger-than-life finance minister, Domingo Cavallo, pushed through a law in 1991 that promised that each Argentine peso would be equivalent to one U.S. dollar -- forever. At first, this rule worked well, helping stamp out the high inflation that had long crippled the nation. Eventually, however, it became an asphyxiating economic straitjacket.

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It was Argentina that cunningly manipulated the IMF into giving it large financial rescue packages that the IMF knew would probably not save it from crashing. Drawing on hundreds of interviews with all the major decision-makers in Washington, New York and elsewhere, Blustein demonstrates that this crash was made in Buenos Aires and on Wall Street, not in Washington. The policies that led to Argentina's crash were not imposed by the IMF and did not follow a rigid standard recipe. In this case, the IMF showed extraordinary flexibility. At the end, it became a feeble enabler that lacked the political leverage, the money or the ideas to make a difference. In this context, the fund's leaders opted not to add to the damage by making any move that would precipitate a crisis that many inside the IMF and elsewhere thought inevitable.

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... That is the most coherent thing i've found on the subject.

My eyes are sore, so i'm simply not going to bother trying to prove that post-peso collapse austerity policies were misguided and inhuman.

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Originally posted by Stephen Gordon:
Um, no. The convertability law was adopted by the Argentines several months before the IMF got involved. The IMF was never that keen on convertability, since unless the govt's fiscal house was in order, it wouldn't survive any sort of crisis.

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The thing is, dollarization is sometimes offered as a panacea by economists who believe that a sound currency is part of a way to get a government's spending under control.

Besides, isn't the standard IMF prescription something like this (As I recall, Stiglitz exposed an embarrassing occasion where it turned out some flunky at the IMF used a Word document template and just used search and replace to change the name of the country):

1. Spending cuts.
2. Privatize everything.
3. Make sure the currency can be exchanged for US dollars.
4. Export everything.

Where in that prescription would currency nonconvertibility be a good idea? Now, if you're the Soviet Union and you dislike capitalist running dog lackeys, then yes, you suspend convertibility, but that's a whole different ball of wax.

The IMF should have been disbanded in 1973 when its primary purpose vanished as currencies started to float.

But it persists in order to make one-size-fits-all "templates" for economic recovery that appeals to an atavistic human need to undergo some kind of masochistic economic self-destruction on the order of the Great Depression in order to atone for past sins, or something.

If there were no IMF, what we do with countries that had debt/deficit problems? Let the market sort it out?

[ 14 October 2005: Message edited by: Stephen Gordon ]

In fact, the IMF began to underwrite the Menem-Cavallo government right after the link was established by law in April, 1991.

As far as I know, the IMF never made a peep about this being bad economics, until about ten years later, when it was obvious the whole country was going to fall apart.

That's why everyone thought Argentina was an IMF poster child. Because the IMF said so.

If anyy imf-ophile can provide us with a press release from the IMF, criticizing the dollar link, in say, 1991 or 1992, please do so. I don't think it exists.

For a handy timeline:

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Originally posted by Stephen Gordon:
Jeff, any public declaration by the IMF about its doubts about the convertability regime would have led to a speculative attack.

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On what? The US dollar?

Is it or is it not the desirable macroeconomic remedy in the IMF lens to achieve price stability? If it is, then why would the IMF have any reason to criticize the dollarization move?

If it isn't, then what the h e double hockey sticks is the IMF doing keeping mum about a regime that imposes price stability by effectively adopting the macroeconomic policy of a nation with a much lower inflation rate?

Re: Rogoff.

The first is an unwarranted personal attack on Stiglitz. I've read his book and while he may find fault with IMF practices and does name names, I don't think he's ever sunk so low as to use comments like "gamma quadrant" or misrepresent the macroeconomic remedy Stiglitz offers.

The second seems like it comes out of the twilight zone. Here's Rogoff, painting the IMF as the knight in shining armor coming to the rescue of the damsel in distress - never mind that in many cases the distress is inflicted on the poor and the workers, while the elites bugger off to parts unknown with a fat Swiss bank account, or the harrassed daddy-analog whose child berates him even though he is, supposedly, doing what "daddy knows best". (How unbelievably demeaning to those governments whose elites did not skim the cream, as it were, but which nevertheless ended up dealing with a full-blown economic crisis, such as the case of Botswana, which Stiglitz uses as an example of a government that did all the things right by the IMF cookbook, and yet was refused loans based on the word some bureaucrat in the IMF that never saw anything but a five-star hotel anywhere).

Rogoff claims that governments still have discretion as to where budget cuts take place. So why is it, again and again, across time and space, almost every country confronted with an IMF budget (and believe me, the policy prescriptions they come up with would warm a bean-counter's heart as to the level of nitpicky detail - read the one they put out for the United States back in 2002 or 2003) has uniformly hammered the education and social-services budget with a glee that would make Paul Martin appear the epitome of decency by comparison?

It can't be a coincidence that every government in every political culture every time they've gone to the IMF, has ended up hammering social services and privatizing a lot of stuff.

As much as Rogoff is to be admired for trying to beat back criticism of the IMF, he runs up against a persistent problem: the remedies the IMF seems to come up with appear to be ideologically motivated, rather than based on pragmatics.

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Originally posted by DrConway:

On what? The US dollar?

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On the peso. The way convertability worked was that people could exchange pesos for the dollars in the central bank's reserves - a bit stronger than a fixed exchange rate, but not full dollarisation. If people start believing that convertability will be abandoned (and the IMF saying publicly that it's unsustainable would be a pretty good reason for believing it), then there would be a rush of people trying to exchange their pesos while they can. As the central bank's reserves run out, they have to call in the reserves held by the private banks, who in turn have to call in in their loans, and you get what happened in Argentina in 2001.

About currency stability. The reason why the IMF suggests low inflation is based on the simple arithmetic of debt accumulation. You've probably seen the Fisher relationship:

nominal interest rate = real rate + (expected) inflation

If you're having difficulty financing your debt, an easy way of reducing your debt payments is to try to reduce the interest rate you're paying. There's nothing you can do about the real rate, but you can control inflation.

I know where to start.

Here's an interesting (pdf) link to an UNCTAD report on Malaysia's response to the currency crisis.

I think it's possible to point to possibly good macroeconomic policies from Mahathir without having to agree with his stupid anti-Jewish beliefs, just as it's possible to agree with a lot of Keynes while acknowledging his statements that maybe totalitarian Nazi Germany was a better place to try out his theories than a liberal democracy. (And Keynes's own not-so-latent anti-semetism.)

Anyway: The long and the short of the UNCTAD report is that Malaysia's rejection of IMF advice during the Asian financial crisis was not the sterling success that its proponents claim it was. Malaysia did recover without this advice though. The paper mentions the influence of previous banking and financial-sector reforms and Malaysia's oil production as being contributing factors.

The paper mentions that Thailand and Indonesia recovered faster than Malaysia, but that Malaysia's subsequent recovery was much stronger and second only to South Korea's. Personally, I wonder if it wasn't the case that Thailand and Indonesia fell farther, earlier, so that greater GDP growth isn't all that much to crow about. I also think Indonesia's own economic reporting has serious credibility problems in any case.

Regarding the IMF's "enabling" of Argentina's dollarization of the peso. This seems to me to have been a gross dereliction of duty. And furthermore, this seems sadly systematic for the IMF and international capitalism in general. Meekly shrug one's shoulders and fail to protest the policies of corrupt 3rd world elites when there's a chance to benefit from it, but when the ride is over bring the hammer down upon the poor.

If the IMF knew that dollarization wasn't sustainable and was going to lead to disaster, it should have put pressure on the Argentinian government from the get-go. The IMF seems to have had a chance to have proven its concern for the poor by at least privately expressing its strongest disapproval to the Menem government. If IMF economists knew that dollarization would be disastrous, then a series of strongly-worded warnings to Menem could have been pulled-out later, after the collapse. Then, the IMF's enabling of this policy could have been explained in the way you're describing. As a sad attempt to stave off disaster. Other warnings could have been given to the Wall Street bandits who took advantage of the ride.

Regarding Rogoff's response to Stiglitz, I was struck by this statement:

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We at the IMF—no, make that we on the Planet Earth—have considerable experience suggesting otherwise. We earthlings have found that when a country in fiscal distress tries to escape by printing more money, inflation rises, often uncontrollably. Uncontrolled inflation strangles growth, hurting the entire populace but, especially the indigent. The laws of economics may be different in your part of the gamma quadrant, but around here we find that when an almost bankrupt government fails to credibly constrain the time profile of its fiscal deficits, things generally get worse instead of better.

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Rogoff attempts a more comprehensive defence of this aspect of the IMF tool-box, in the longer Foreign Affairs piece, but it doesn't really accomplish much more.

"Uncontrolled inflation strangles growth" he says. Presumably that's a bad thing for Rogoff. So raising interest rates and laying-off much of the public sector and raising taxes and slashing social spending must also "strangle growth," and must therefore be a bad thing? What?

What Rogoff is trying to say is that mitigating recessions is uniformly bad, while enforcing austerity and selling-off of national assets is always the best policy prescription.

It is a choice that once again proves extremely convenient to the creditor nations.

One thing neither Rogoff piece dealt with was Stiglitz's new-found appreciation of the importance of institution building. Rogoff and others at the IMF claim that while they did advocate financial liberalization ("pressed for unnecessary liberalization" is how critics describe it) they did not approve of the way that it was done; without developing non-bank financial markets, without eliminating "cronyism," etc., ... and Stiglitz says that if you're going to pressure a government to do something, and you know that the institutional groundwork hasn't been put down, then it is a poor excuse to say that this should have been done by these governments before they succumbed to your pressure.

(I always got a kick out of Western complaints of crony capitalism and non-transparency of East-Asian banks. Supposedly Clinton's White House sleep-overs and Congress's Bar-B-Q's n' Influence parties weren't crony capitalism, and supposedly the Western banks that loaned millions on short-term to finance long-term speculative real-estate deals have no lessons to learn and nothing to explain to their customers and the world.)

It is a choice that once again proves extremely convenient to the creditor nations.

This is getting kinda long, so I'll leave off with this: Sophisticated critics of the world system (like Susan George) have never claimed that the IMF is the source of all that is wrong in the world. The IMF is merely the enforcer for the larger, private-sector and developed country bullies who have rigged the game against the poor of the world. The IMF, the developed country elites, and the criminal elites who likewise benefit are all to blame.

[ 15 October 2005: Message edited by: thwap ]

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Originally posted by DrConway:
Re: Rogoff.

The first is an unwarranted personal attack on Stiglitz. I've read his book and while he may find fault with IMF practices and does name names, I don't think he's ever sunk so low as to use comments like "gamma quadrant" or misrepresent the macroeconomic remedy Stiglitz offers.

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Each nation’s economy is individually analyzed, then, says Stiglitz, the Bank hands every minister the same exact four-step program.

Step One is Privatization - which Stiglitz said could more accurately be called, ‘Briberization.’ Rather than object to the sell-offs of state industries, he said national leaders - using the World Bank’s demands to silence local critics - happily flogged their electricity and water companies. "You could see their eyes widen" at the prospect of 10% commissions paid to Swiss bank accounts for simply shaving a few billion off the sale price of national assets.

And the US government knew it, charges Stiglitz, at least in the case of the biggest ‘briberization’ of all, the 1995 Russian sell-off. "The US Treasury view was this was great as we wanted Yeltsin re-elected. We don’t care if it’s a corrupt election. We want the money to go to Yeltzin" via kick-backs for his campaign.

Stiglitz is no conspiracy nutter ranting about Black Helicopters. The man was inside the game, a member of Bill Clinton’s cabinet as Chairman of the President’s council of economic advisors.

Most ill-making for Stiglitz is that the US-backed oligarchs stripped Russia’s industrial assets, with the effect that the corruption scheme cut national output nearly in half causing depression and starvation.

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That Malaysia was able to reflate its economy, impose capital controls, etc., was in direct contradiction to IMF predictions of disaster.

btw: I wasn't too moved by Brad deLong's discussion of the slanders between Fischer and Stiglitz. While all of Fischer's friends (unsuprisingly) reject the assertion that Fischer had a vested interest in using his IMF position to benefit Citigroup (and similiar institutions) this doesn't prove anything one way or the other.

The same thing appears to have happened in Argentina. It appears that the Menem government was the main culprit behind the doomed dollarization policy, but for the IMF, the plunge in prestige occurred after Argentina rejected IMF advice to pursue austerity once again, and the reality that there has been no significant fall-out.

Returning to Brad deLong's piece, it seems that he believes that it is an "either-or" question (One which the economists seem to be introducing the rather un-scientific factor of trying to buck-up their pal Fischer as an aspect of the equation).

Given the repeated examples of upheaval that has resulted from the near-absolue freedom of financial capital to slosh around the globe, it seems that some degree of restriction would be good for the world economy, as well as the poorer countries that are routinely devastated by these stampedes in and out of hot-money.

Attempting to restrict speculation and speculative "investment" doesn't mean isolating the developing countries from the developed countries.

In a big, sweeping way, the IMF and World Bank aren't really capable of assisting in "development" because the world system doesn't give poorer countries the minimum conditions for it.

Yours (Stephen) and Krugman's adherence to the wonders of free-trade notwithstanding; the "Bretton Woods System" of free trade and convertible currencies died in 1947, when Europe and Japan were allowed to protect their domestic markets while retaining access to the US market. This was done for political reasons.

Then there was the huge subsidies of the Marshall Plan.

Japan benefited from massive Korean War spending by the US. If globalization and modern technological abilities had existed back then, the US army would've set up US auto-firms to produce their jeeps, as it was, the stimulus went to Japanese-owned firms.

The IMF is only really interested in keeping nations limping along within the present inequitable system.