PITY this country that has followed a lot of the current orthodoxy coming out of the Washington Consensus (i.e. the IMF/World Bank, the IDB and the US Govt.), but finds itself with worsening economic and social problems.
At the start of September, the Argentinean government was struggling to find an agreement with the IMF and its various other creditors to avoid further default and reach suitable fiscal reforms. While Argentina hopes to postpone all debt due through 2003 in order to get a breathing space, the IMF has cut off any additional inflows until Argentina agrees to a restructured plan that will meet scheduled debt payments, restructure its bank sector, create central bank independence, recreate a monetary anchor, and rein in its provincial governments on fiscal prudence.
Roll-overs apart, there is little likelihood of reaching a suitable agreement as with general elections around the corner, there is little that a tough government can do, if it expects to retain office or get ushered into office.
All of this for a government that less than one year ago was a poster child for economic right-wing reforms. It is a clear danger that the 'one-size-fits-all' model will not work, regardless of whether it is an East-Asian economy (as several went against the model and tightened capital controls when they had their troubles) or a Central and South American economy.
Argentina in 2002 faces a rapid rise in inflation, tremendous uncertainty, mass emigration and a worsening of those sinking into poverty. All of this for a country that felt it had turned the bad times by getting rid of its military juntas, adopting a Currency Board regime and was European-like in outlook.
Argentina does have a trade surplus to work with but its fiscal solutions (albeit what was done in the US in the 1930s and to some extent being done again in 2002) of running large deficits will not be tolerated, given its large external debt. It cannot keep postponing a run on its banks to take out whatever remaining sums still exist, without jeopardising its current currency.
What is clear is that more developing countries, big or small, will have to walk a higher economic tightrope in the future, with much less safety nets if they fall. Right-wing orthodoxy has not worked but neither will left-wing orthodoxy (ala Venezuela) since extreme solutions seem unlikely to work. Individual failures, like Argentina at this time, can be left 'dangling in the wind' where they cannot please external groups without hurting internal groups, or pleasing internal groups without hurting external groups. Unless there is a systemic failure, this situation will face more contries in the future but will not be resolved.
