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Mark Weisbrot, a University of Michigan-educated economist, heads the Washington, DC-based Center for Economic Policy Research. In recent years he has earned a reputation as one of the principal critics of the series of economic policies commonly known as globalization. The following interview was conducted over the Internet, after Argentina's economic crisis threw that country's political system into a deep crisis.


Q: You have stated elsewhere that the IMF policies harmed Argentina. Do you think that the IMF caused the basic problems, or merely kept Argentina from pursuing proper solutions?

MW: Who "caused" the problems is probably not an answerable question, since economic problems, like political problems, have histories. But the IMF certainly made the problems worse and prevented solutions.

The first and overwhelmingly most important cause of the country's economic troubles was the government's decision to maintain its fixed rate of exchange: one peso for one US dollar. Adopted in 1991, this policy worked for awhile. But over the past few years, the US dollar has been overvalued. This made the Argentine peso overvalued as well.

Contrary to popular belief, a "strong" currency is not like a strong body. It is very easy to have too much of a good thing. An overvalued currency makes a country's exports too expensive and its imports artificially cheap.

To maintain an overvalued currency, a country needs large reserves of dollars: The government has to guarantee that everyone who wants to exchange a peso for a dollar can get one. The IMF's role here was crucial: It arranged massive loans to support the Argentine peso. This was the IMF's second fatal error.

To make things worse, the Fund made its loans conditional on a "zero-deficit" policy for the Argentine government. But it is neither necessary nor desirable for a government to balance its budget during a recession, when tax revenues typically fall and social spending rises.


Q: As an economist, what do you think about the policy of "dollarization" in Latin America generally, given that it has been Panama's policy since 1904 and is now being tried in Ecuador and El Salvador?

MW:. I think the peg was the major cause of the disaster in Argentina. Dollarization is not quite the same, but has many of the same problems; still, the question of a fixed versus flexible exchange rate depends on country-specific institutions --- for example, China has managed a pegged exchange rate and has had the highest growth rate in history over the last 20 years.


Q: Does free trade as advocated in the standard model of "globalization" make sense for Argentina?

MW: The standard model of "globalization" does not make sense for almost any developing country. When the United States and other now-rich countries were developing, they used heavy tariffs (44 percent average tariff on manufactured goods in the US as late as 1913) and other restrictions on imports and exports, state support for key industries, and many other interventions that Washington now seeks to prohibit on the part of today's developing countries. This does not mean that "protectionism" should be a goal, but it does mean that the proper mix of policies will vary by country, and no country has ever escaped from poverty by following the "globalization" agenda put forth by Washington.


Q: Do you give Duhalde's policies much chance of working?

MW: He's doing the right things so far: default, devaluation, protecting borrowers with less than $100,000 in dollar loans from the effect of the devaluation, forcing the banks to absorb some of the cost, taxing the oil companies, etc. I think they have a very good chance of succeeding, but a lot will depend on whether, and how much, Washington decides to sabotage the new government for not making the "economically correct" choices. I would bet there is going to be some confrontation at least.


Q: In past crises of major Latin American economies, foreign investors have tended to treat the whole region in the light of one country's specific problem --- the so-called "Tequila effect" being a case in point. Do you expect Argentina's crisis to spread to the rest of the region?

MW: No, not in that sense, partly because foreign investors all saw this coming for a while. The "contagion" effect is basically irrational --- when it spread from Asia to Russia to Brazil in 1997-98, it was just investors fleeing whatever "emerging market" they thought other investors might flee next. But there may a political contagion if Argentina succeeds in reversing its fortunes, in that other governments will begin to abandon the neo-liberal model that has failed so miserably in Latin America over the last 20 years


Q: Do you think that this crisis in Argentina is likely to affect the ways that international financial institutions operate in the future?

MW: It's too early to tell.


Q: Now that the World Trade Organization and so-called globalization have been adopted as official policies in most of the world, do you see the way to deal with the problems inherent in the situation as dismantling international economic structures, or in changing them? What kinds of alternatives would you favor?

MW: The WTO may well fall apart, or at least there is a very good chance that their agenda will not move forward for a long time. Since their agenda is a net loss for developing countries (intellectual property claims and other regressive rules outweigh any gains that might be had from increased access to rich countries' markets), this would be a good thing.

The IMF and World Bank are not going to be dismantled any time soon, but it is very possible that due to struggles such as those happening right now in Argentina, as well as legislation this year in the US Congress, their power to wreak havoc could be greatly reduced.

Argentina is surely a watershed event; this is the first time in decades that a government is so forcefully telling the bondholders, banks, and the IMF that the needs of the people and the recovery of the national economy must be taken into account before those of foreign creditors or ideologies.

The most important alternative is to allow governments to make their own economic policies, rather than having the IMF make many of the major decisions. This would not immediately change policy everywhere, but it would allow much greater possibilities for change in the near future, as people would have mainly their own governments to confront, and not the combined weight of their governments and an international creditors' cartel.

 

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