10 - 16 January 2002
Issue No.568
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Al-Ahram Weekly Online 10 - 16 January 2002 Issue No.568 |
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Demise of an ideology
For the first time in over a month Argentines are hopeful that a solution is in sight. And almost everybody agrees that a devaluation, however painful, is the first step towards such a solution, Hisham El-Naggar writes from Buenos Aires
Argentines marked the New Year in the midst of what is probably the worst crisis their country has experienced since the restoration of democracy in 1983. On January 1, parliament overwhelmingly elected president the Peronist Party's Eduardo Duhalde. He will remain in this post until the end of 2003 when former President De la Rua's mandate would have ended.
People wait in line to enter a Buenos Aires bank.Despite the concerns of foreign investors, Argentine lawmakers on Sunday granted President Eduardo Duhalde emergency powers to devalue the peso and set the shattered economy on a new less market-friendly course (photo:AP)
"At least we didn't quite have five Presidents in one year," Pablo, a young computer analyst, commented to Al-Ahram Weekly. In fact, the election of Duhalde is reassuring for reasons that transcend the date on which he was elected. Unlike his predecessor, Adolfo Rodriguez Saa, Duhalde was elected with a resounding majority and this gives him greater legitimacy. Furthermore, he was elected for the better part of two years, and not, like Rodriguez Saa, for just three months, thus placing him in a position to address the country's pressing problems right away.
Sure enough, Duhalde has wasted no time. As the Weekly went to press, the law he sent to Parliament, which renders possible the long-postponed devaluation of the peso, was on the verge of being approved. After a decade of the peso being pegged to the dollar, Argentina's currency was devalued this week by 30 per cent of its value, rising to 1.4 pesos to the dollar. A parallel market is set to coexist with the official one; the official rate will be used to finance "essential imports" and to pay exporters for their dollars. Meanwhile, the parallel rate will apply to everything else, from Barbie dolls to Caribbean package tours.
An outsider might be forgiven for wondering why parliament should debate something which in most countries the government would decide on its own, often without giving advance warning. The reason has to do with Argentina's notorious convertibility law. The constitution dictates that it takes a new law to abrogate an old one and, in this case it was the convertibility law which pegged the peso to the dollar, thus pricing Argentina out of most markets and condemning its economy to absorbing foreign shocks. Of these there have been quite a few, not least of which is mounting unemployment, 18 per cent at the last count.
The convertibility law has defined the Argentinean economy over the past decade. Top executives, high-ranking government officials and some middle class professionals exploited an over-priced currency to finance their holiday junkets and luxury accessories. For the average citizen, the growing availability of cheap -- mostly Asian -- imports was scant consolation as de-industrialisation gathered pace and millions of jobs disappeared.
What allowed this state of affairs to persist for so long was the willingness of international creditors to finance the country's ever growing government and balance-of-payment deficits -- the former due to the shrinkage in economic activity and the latter because of the increasingly uncompetitive state of the economy. Creditors might have been more reticent had the IMF not been quite so effusive in praising Argentina's "reforms," which made it a shining example of the minimal state model which espouses free market policies.
Now that this scheme has proven unsustainable everybody has become aware of the desperate need for strong government. Greater centralisation, backed by broad public support, is needed to negotiate with the IMF and foreign creditors in order to prop up the banks whose dollar reserves have been severely depleted. It is hoped that devaluation will protect borrowers from the oppressive burden of dollar-denominated debts. In addition, it will give hope, to those savers who have had a partial deposit-freeze imposed on them, that in the near future they will be able to re-access those dollars which they once deposited in the banks.
The apparently excessive disruption caused by the process of disengaging from the convertibility law was done on purpose. Domingo Cavallo, the mastermind of the convertibility model, designed it with the intention of making its abandonment highly costly, his reasoning being that such a financial straight jacket would condemn Argentina to "monetary discipline."
Such a world view views inflation as the major threat facing any economy and considers high levels of unemployment to be tolerable in the pursuit of a sound monetary policy. Until recently this has been the majority view in the post-Berlin Wall Brave New World. The debate about the validity, not to say moral justification, of such ideological myopia, is now likely to intensify in many parts of the world.
In Argentina, however, the issue is largely settled. There is a small minority, mostly composed of paid lobbyists, who refuse to abandon the old model. However, the near-consensus which has emerged from the debris of the relatively brief violence that took place in Buenos Aires's beautiful Plaza de Mayo, unequivocally favours a more inward-looking and less ideologically motivated economic program.
Critics are already pointing out that the new Argentina is likely to be a replica of the closed economies of another era. They are mistaken for a number of reasons. First, the collapse in the demand for imports, coupled with the temporary suspension in foreign debt payment, is likely to generate a significant surplus in foreign currency through exploiting the country's export potential -- mostly agricultural commodities and oil revenues. If the Central Bank, after years of paralysis, loosens monetary policy moderately, and the government avoids indulging in a spending spree, Argentina need not fall prey to spiralling inflation. In a not too distant future, this country of immensely talented, highly educated people could well be in a position to renegotiate its re-entry to the global economy.
Meanwhile, the hard times which beckon in the immediate future should not detract from two important achievements for which Argentines can take full credit. First, in the aftermath of the violence, which featured on TV screens the world over, Argentina attempted, with encouraging success so far, to function peacefully within the strict bounds of constitutional legitimacy. The army, which on other occasions may have attempted to seize power, has acted with admirable restraint.
Second, Argentines of all classes have disproved the oft-repeated allegations that they are indifferent to the endless machinations of the political caste. This was a point which the politicians finally grasped and hence the swift termination in the political vacuum which might, otherwise, have led to anarchy. The people who took to the streets refused to identify themselves with any political banner and rejected any ideological affiliation. The only flag on display was the national one.
"Tonight they will love her; there is a soccer game." In these words, a foreign poet living in Buenos Aires once bemoaned what he perceived to be a disheartening apathy and lack of nationalist feeling which abated only when the national team was competing. But the crowds who have made their voices heard over the past few days were cheering no team, chanting no empty slogans and indulging in no display of xenophobia.
The poet stands corrected. One can only hope that the politicians' new-found maturity will endure long enough to give Argentina another go at the economic prosperity it once enjoyed and, now more than ever, richly deserves.
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