MercoPress. South Atlantic News Agency

Who's to blame?

An in depth United States Congressional paper from the Joint Economic Committee argues that some of the main reasons for the Argentine political crisis and the collapse of the economy lie in the fact that the country faced adverse international circumstances and its governments failed in the measures to confront them, “making things even worse”.

"Argentina's crisis: causes and cures" is the title of the paper signed by New Jersey Republican Jim Saxton that is also critical of International Monetary Fund, IMF, actions towards Argentina, but the brunt of the blame concentrates in the administrations of presidents Carlos Menem, Fernando De la Rúa, Eduardo Duhalde and Adolfo Rodríguez Sáa.

The position is contrary to the current belief in Argentina, and promoted from the Executive, that the fixed exchange rate, corruption, indiscriminate opening of the Argentine economy, an overvalued local currency, poor fiscal and budgetary discipline are the culprits of the inherited situation.

However the US Congress paper points out that Mr. Menem in his second mandate was more concerned with a third re-election and wooed special interest groups forgetting to continue with the still incomplete (but very successful) structural reforms. In 1999 his administration dismally failed in accepting lower budget revenue.

Incoming president De la Rúa raised taxes and by early 2000 had killed a timid recovery. In March 2001 his administration was split over economic policy and a rupture occurred when Mr. Cavallo became Minister of Economy. His actions caused lack of confidence, higher interest rates, prolonged the recession and Mr. Cavallo finally fell in the "debt trap", forced to pay higher and higher rates. In December deposits were frozen and this was followed by riots, Mr. De la Rúa's office resignation and his interim successor's decision to default on the country's debt. President Duhalde devalued the currency and decreed emergency measures ignoring private contracts, all of which made the Argentine economy drop 28% between its highest point in 1998 and lowest in 2002.

Looking ahead the paper points out that in the short term monetary policy, taxes, banking system and foreign debt are crucial issues but in the long run some of the obstacles to overcome are: rule of the law (respect for private property and contracts, and a strong, transparent, independent Judicial branch); taxing strategy (reduce VAT and eliminate the financial transactions levy); health system; relations with provincial governments (more fiscal discipline); cutting public expenditure; making labour regulations more flexible.

Without ignoring the fact that the recession in Argentina was triggered by the 1998 Russian and Brazilian exchange rate crisis, Mr. Saxton, considered a hardliner in financial affairs and very close to IMF number two Anne Krueger, insists in the erroneous reactions of the Argentine governments to the challenges that drove the country to depression and impoverishment.

Mr. Saxton has passionately condemned in the US Congress IMF bailouts of "spendthrift countries" with "US taxpayers' money".

The Congressional paper openly supports the reforms of Mr. Menem's first government and the monetary and exchange rate policies of the nineties, and stresses that if Argentina wrongly interprets the causes of its current ruin, "nothing guarantees this will not occur again".

The message is particularly strong for the current Argentine administration that is following similar economic policies to those of former caretaker president Duhalde, arguing that most of the nineties reforms and effects (corruption), are the real culprits. The Saxton report can be reached at: www.house.gov./jec/imf/06-13-03.pdf.