Great Covid-19 Argentine Miracle

Covid-19 was a big deal for everyone, but it wasn’t an “equal opportunity” illness. This virus poses a great threat to people who are already in poor health. Many are concentrated in poor countries with weak public health systems. Moreover, not all countries, like the United States, can spend a quarter of their GDP to protect their economies.
Developing and emerging economies face severe financial and financial constraints. And because of the nationalism of the vaccine, they had to look around for whatever dose they could get.
When countries suffer from such serious pain, officers tend to receive more criticism than they deserve. In many cases, the result is a more laborious politics that makes it even more difficult to deal with real problems. However, stacking decks has made a strong recovery in some countries.
Consider Argentina, which was already in recession when the pandemic broke out, due to most of the economic scandals of former President Mauricio Macri. Everyone has seen this movie before. The right-wing, business-friendly government has won the trust of the well-funded international financial markets. However, it turns out that the administration’s policies are more idealistic than practical and serve the rich rather than the general public.
When these policies inevitably failed, the Argentines elected a centre-left government that spent most of its energy purifying the turmoil rather than pursuing its own agenda. The resulting disappointment will then prepare for another right-wing government election. Unfortunately, the pattern was repeated many times.
However, there are important differences in the current cycle. The Makuri administration, elected in 2015, inherited relatively low external debt due to the restructuring that had already taken place. Therefore, the international financial markets were even more enthusiastic than usual, lending tens of billions of dollars to the government, despite the lack of a reliable economic program.
Then, when things got worse, the International Monetary Fund intervened with the largest bailout package in history, as many observers expected. The $ 57 billion program, of which $ 44 billion, was rapidly dispersed into what many considered a naked attempt by the IMF. To maintain the right-wing government under pressure from US President Donald Trump’s government.
Following that is typical of such political lending (detailed in the 2002 book Globalization and Its Dissatisfaction). Domestic and foreign financiers were given time for Argentine taxpayers to take their money out of the country with their bags. Again, the country has been greatly taken care of by the fact that there is nothing to show it. And again, the IMF’s “program” failed, the economy fell into a serious recession, and a new government was elected.
Fortunately, the IMF is currently aware that the program failed to meet its set economic goals. The fund’s “ex-post evaluation” is a significant part of the Makuri administration’s responsibilities. “The redline of certain policies may have ruled out potentially significant measures in the program, including the use of debt management and capital flow management measures.”
The IMF’s usual apologists attribute program failures to lack of communication or clumsy implementation. However, improving communication is not the solution to poorly designed programs. The market understood this, even if the US Treasury and some of the IMF did not.
Given the turmoil that Argentina’s President Alberto Fernandez’s government inherited in late 2019, it looks like it has achieved an economic miracle. From the third quarter of 2020 to the third quarter of 2021, GDP growth reached 11.9% and is currently estimated to be 10% in 2021. That’s almost double the US forecast, but employment and investment are above levels at the time. Fernandez took office. Strong economic growth, higher and more progressive tax rates on wealth and corporate income, and debt restructuring in 2020 have improved the country’s finances, despite anti-circular recovery policies.
Following the implementation of development policies designed to promote the growth of the trade sector, exports have increased significantly not only in value but also in quantity. These include credit policy reforms. Reduction of export tariffs to zero in the value-added sector and higher tax rates on commodities. Investing in public infrastructure and R & D (the kind of policy that Bruce Greenwald and I advocate in Creating a Learning Society).
Despite this significant advance in the real economy, the financial media has chosen to focus entirely on issues such as country risk and exchange rate gaps. But these problems are not surprising. Financial markets are seeing a heap of debt provided by the IMF coming. Given the very large size of loans that need to be refinanced, an agreement to extend the amortization period from 4.5 to 10 years is not sufficient to alleviate Argentina’s debt problems.
In addition, Argentina is still experiencing the effects of speculative portfolio capital that flowed in during President Macri’s time. Much of this was trapped by the government’s capital controls, putting constant pressure on parallel exchange rates.
It will take years to clear the financial turmoil of the previous administration. The next big challenge is to reach an agreement with the IMF on debt during the Makuri era. The Fernandez government has shown that it is open to any program that does not impair economic recovery and does not increase poverty. Everyone knows that austerity is counterproductive, but some influential IMF members may still be promoting austerity. Ironically, the same country, which constantly insists on the need for “confidence,” can undermine Argentina’s confidence in its recovery. Are they willing to pursue a program without austerity? In a world still fighting Covid-19, democratic governments cannot or should not accept such conditions.
Over the past few years, the IMF has gained new respect for its effective response to global crises, from pandemics and climate change to inequality and debt. If we go against the old-fashioned austerity demands on Argentina, the impact on the fund itself will be severe, including less willingness to engage in austerity in other countries. As a result, it can threaten the financial and political stability of the world. After all, everyone will lose. — Project Syndicate

* Nobel Prize in Economics Joseph E. Stiglitz is a university professor at Columbia University and a member of the Independent Committee for International Corporate Tax Reform.