From: [EMAIL PROTECTED]
Subject: [R-G] Argentina a warning to Canada
The Toronto Star January 8, 2002
Argentina a warning to Canada
By Thomas Walkom
The Argentine economic meltdown is treated here as an exotic story. It is
not.
Rather, it is a warning - a lesson to all as to what can happen when a
country embraces too wholeheartedly the panaceas of the economic
fundamentalists, when it listens too much to the entreaties of its
self-interested business class.
For most Canadians, Argentina is a far-off place where governments are
corrupt and the military brutal. It is Latin America (most Canadians would
say) and has nothing to do with us. In fact, for much of the last century,
Argentina was the Canada of South America. Its wheat competed in world
markets with ours; its cattle were exported around the globe.
British investors financed great railways in Argentina just as they did in
Canada. European emigrants were drawn equally to these two new countries.
Like Montreal and later Toronto, Buenos Aires became one of the most
cosmopolitan cities in the world.
By 1930s Argentina had more telephones than France, more cars than Japan. It
was the richest country in South America; its literacy rates were higher
than in many parts of the United States. Like Canada, Argentina was
devastated by the Depression of the 1930s. Unlike Canada, it didn't bounce
back. In the post-1945 world, it was left on the margins.
With wide class divisions, it was socially and politically unstable. Its
post-war governments - modelled sometimes on Franco's fascist Spain,
sometimes on Stalinist Russia - dug the country deeper into debt. Inflation
soared; military coups were not unknown.
And then, in 1991, Argentina discovered religion. Free market religion.
Economists from the U.S.-dominated International Monetary Fund explained to
Argentines that they had been on the wrong track. Prosperity, they were
told, could be achieved only through deregulation, privatization and foreign
investment.
The linchpin was to be the currency.
Like Canadians today, Argentines were told their peso was a disaster. Each
year, its value went down against the U.S. dollar. Why keep such an
albatross? Why not accept the inevitable logic of global integration and peg
the peso against the U.S. dollar at a fixed rate of one to one. In effect,
why not adopt the U.S. dollar?
By doing this simple thing, they were told, inflation would be licked,
productivity would rise and investor confidence would be restored.
Argentina went for what was called dollarization. And for a few years, the
new scheme worked. Investors were enthusiastic. Inflation was eliminated.
Then a funny thing happened. Like Canada, Argentina exports mainly raw
materials - commodities. And, over time, commodity prices began to fall, as
they do periodically in capitalist economies.
When these prices fell, other commodity-exporting nations, like Canada,
merely allowed their currencies to float downward against the U.S. dollar.
In effect, these countries lowered the U.S. dollar prices of their goods,
allowing them to compete in world markets.
With a fixed currency, Argentina could not make use of this safety valve.
Instead, it began to go more into debt, borrowing money to bolster the peso.
To pay for these increased debt charges, it slashed social spending.
Meanwhile, with exports priced out of foreign markets, unemployment soared,
reducing government tax revenues. As tax revenues fell further, the
government cut social spending more in order to meet the demands of the IMF
and its other creditors.
At the same time, privatization of electricity, health and water put an even
greater dent into the middle class. These basic services were now eating up
twice as much of the average Argentine family's income.
Last winter, the Wall Street Journal reported that privatization and
dollarization were destroying Argentina's middle class. An estimated 4
million people -10 per cent of the population - had fallen into poverty.
"The middle class has embarked on its great leap backward," the paper
reported.
Finally, last month, Argentines indicated they had had enough. Some rioted.
Some looted. The president fled his palace in a helicopter. Replacement
presidents were installed in dizzying succession. The country is bankrupt.
The significance for Canada is that an increasing number of influential
economists, politicians and business leaders want this country to follow
Argentina's path, to adopt the American dollar. The Canadian Council of
Chief Executives, a business lobby formerly known as the Business Council on
National Issues, is warm to the idea. So are some in the Canadian Alliance,
including Stockwell Day. More disturbingly, so are some in the Liberal
government. All point to the euro, the new single currency in Europe, as the
model.
They should point to Argentina. It is the real example for Canada. Its
experience demonstrates what awaits us, as a minor commodity-producing
country, should we align our currency irrevocably with that of the U.S.
Argentina shows us what could be our future.
Thomas Walkom's column appears on Tuesday.
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