15 - 21 August 2002
Issue No. 599
|Published in Cairo by AL-AHRAM established in 1875||Recommend this page|
Somebody caresThe rescue packages the IMF approved for Brazil and Uruguay suggest an important change of policy. Not only at the IMF, but also in US government circles, Hisham El-Naggar reports from Buenos Aires
It had to happen sometime. Latin America's deepening crisis compelled the International Monetary Fund (IMF) to soften its attitude and extend "emergency" financial aid to Uruguay and Brazil. But that is not all: the United State's Republican government seems to have undergone a change of heart; not only did it tolerate the rescue packages, but it actually provided Uruguay with a bridge loan of $1.5 billion.
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A demonstrator shows an anti-US Treasury Secretary Paul O'Neil placard. In a bid to rescue the Argentine economy, O'Neil arrived in Argentina on Tuesday amid heightened security measures, wrapping up a tour of financially-troubled South American countries
Implicit in this dramatic change is a belated realisation that despite brave words about Argentina being "quarantined", contagion had broken out and was in fact wreaking havoc in the region. This, in turn, not only embarrassed international orthodoxy, but also put foreign investors' interests -- not a few of them North American -- on the line.
As often happens when principle clashes with practical considerations, principle suddenly seems rather less important. The Republican administration had been adamant about opposing rescue packages to countries facing the prospect of default. In part, that was because Bill Clinton had been a champion of just such packages, and anything Clinton did, from Oval Office peccadilloes to foreign policy initiatives, is anathema to Republican moralists. But it also had something to do with the Republicans' horror of anything that dares to second-guess the sacrosanct markets.
Arguably the most eloquent, if least diplomatic, spokesman for this philosophy is Treasury Secretary Paul O'Neill. He never tired of asserting that Argentines have only themselves to blame for the financial catastrophe that had befallen them. He was emphatic about the need for irresponsible lenders to bear part of the cost of debtor countries' insolvency. And he even had a go at offending the Brazilians' sensibilities by stating that helping them out would be throwing money away and may end up in a Swiss bank account.
There is no need to question Mr O'Neill's sincerity; a psychologist might convincingly attribute his ferocious discourse to an industrialist's contempt for financiers. The fact remains, his statements were often directly responsible for the markets' nervous attacks, sending country risk soaring and embarrassing the upright free marketeers who run most of Latin America.
Now this is serious. The roller coaster atmosphere was not only destabilising countries, a minor inconvenience in a globalised scheme of things, but also threatening foreign interests. For the first time in more than a decade, privatisation has become a dirty word in Latin America; Peruvians and Paraguayans reacted violently to attempts to privatise enterprises in their country recently, compelling their governments to retract.
And while an exemplary collapse may be all to the good for didactic purposes and all that, a possible Brazilian meltdown would be more than just didactic; that Latin American giant is the repository of substantial amounts of the Free World's investments. And quite a bit of that money is even North American.
And so it was decided that something had to give. For starters, Mr O'Neill announced he would visit the countries about which he had spoken so freely. A lightning tour was organised for him in Brazil, Uruguay and, yes, even Argentina. At first, it seemed to be more or less of a PR exercise. But it soon became clear that there was more to his visit than PR.
A change of policy, nothing less; these appear to be the good tidings O'Neill has brought to the region. His visit coincided with the announcement of huge IMF rescue packages to Brazil and Uruguay, with US blessings. And even Argentina, whose aging schools and hospitals O'Neill touchingly inspected during his one-day visit, received the thrilling news: he -- and presumably the government he represents -- see no reason why an agreement with the IMF may not be imminent.
Editorialists were quick to note that something had, indeed, changed. It was clear that Washington, home to the IMF and the Republican administration, had finally caught on to the fact that a Latin American free fall could prove costly even to people who aren't Latin Americans. And, most important, it had quite understood that averting international shock waves emanating from Latin America required a considerable amount of cool cash. If that means pledging "American plumbers' and carpenters' tax money" -- a phrase O'Neill patented earlier -- then so be it.
There is, of course, a catch. In all three countries likely to receive this bounty, strict fiscal programs are de rigueur. This is likely to deepen the recessions all are suffering in varying degrees, but you can't expect pundits to learn too many lessons all at once. In the case of Uruguay, the government was "advised" to impose a partial freeze on savings, effecting a major part of deposits at publicly- owned banks. The idea: leave more room for foreign- owned banks, many of whom are owned by... well, let's not dwell on that.
Brazil, on the other hand, is to get a whopping $30 billion package, but only $6 billion is forthcoming immediately. However, the government will be "allowed" to run down Central Bank reserves from $15 billion to $5 billion. The idea: to make sure that the president who wins the election later this year finds himself sorely in need of IMF money, and so is inclined to heed IMF advice.
In Argentina's case, it is clear that an IMF agreement will include no fresh money. Meanwhile, President Eduardo Duhalde's transitional government is expected to solve the banking sector mess, presumably by decreeing a compulsory conversion of frozen deposits into government bonds: a boon for the banks -- mostly foreign owned -- and a blow to savers' hopes. But then the new president would be able to start with a -- relatively -- clean slate.
For the governments concerned, it is better than nothing. For the usual losers, locals every one of them, nothing may have been better after all.
Letter from the Editor
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