The wrong turn Argentina took

By Lee Chia-tung aP

Since Sept. 11, US newspapers have covered only one piece of news: the war on terrorism. The US president has used this opportunity to blame everything on Osama bin Laden. The problems posed by Abu Sayyaf Muslim separatists in the Philippines and ethnic conflicts in Indonesia, which have complex cultural and social backgrounds, all boil down to one thing: it's bin Laden's fault.

Recently, mainstream newspapers in the US and UK ran front-page stories about the turmoil in Argentina. The country's economy has been deteriorating for a long time, but it's difficult to find news about Argentina on Web sites. With 80 percent of the news focussing on bin Laden, who wants to know about this South American country?

Before World War II, Argentina was one of the world's seven major industrialized countries. During the war, the country remained neutral. After the war ended, Japan's economy quickly overtook that of Argentina, which has grown poorer since.

Argentina's foreign debt totals US$132 billion and the unemployment rate has reached 18.3 percent. It has long adopted a free economy in a bid to attract Western financial aid. Since 1990, the US has repeatedly commended Argentina's economic policies and cited them as examples of how a country can become prosperous after adopting a free economy.

It is deplorable that the measures implemented by Argentina at that time -- such as selling state-run enterprises and tying its currency, the peso, to the US dollar -- only temporarily stimulated its economy. It failed to lay a solid foundation for its industrial sector. The policy of pegging the peso to the dollar eventually weakened the competitiveness of the country's exports. Agricultural products have been the mainstay of Argentina's exports. But with the abundance of food in the world, and with Western countries continuing to subsidize their agricultural sectors, how can Argentina compete?

If Argentina had also tried to boost its industrial competitiveness while implementing a free economy, it would not be in the situation it is in now.

Western countries have suggested that Argentina's social-welfare policies helped ruin the nation's economy. But I believe this interpretation is driven by ideology. All northern European countries are rich and they have expansive welfare states. Welfare policies per se are not to blame, but a country lacking well-developed industries is unqualified to implement policies that can bankrupt its economy.

Argentina's plight is closely linked to its government's corruption and incompetence. Former president Carlos Saul Menem, who used to be lauded by the US, was fond of driving his red Ferrari and hanging around with belles. His only contribution was to implement free markets. It is no surprise that such a dandy has been involved in a bunch of corruption cases. Fernando de la Rua, the recently ousted president, beat Menem in a presidential election vowing to crack down on corruption. But corruption remained rampant during his administration. Even worse, he was only receptive to the opinions of a handful of his relatives and friends, disregarding those of professionals and scholars.

Did he ever ask for assistance from outside? Well, he appointed an economics minister who hails from Harvard University and believes in capitalism -- cutting down government spending and the subsidies for underprivileged groups.

And he got help from the IMF. The IMF, based in Washington, has always opposed welfare policies and demanded that countries cut spending before lending them money. Belt-tightening may generate advantages in the long term, but it will inflict extreme pain on the poor in the short term.

As the situation worsened, 5,000 Argentines from all walks of life beat pots and pans outside the economics minister's mansion on the outskirts of Buenos Aires, the capital. The minister had no choice but to step down. Before this incident, many big Argentine cities had been ravaged by riots started by impoverished people.

The IMF has been fiercely criticized for its handling of Argentina. But let's calm down and consider the situation. Theoretically, there is nothing wrong with the IMF's demand that Argentina curtail its expenses, but it should have foreseen that the policy would hit destitute people the hardest. Once people are forced to live in dire poverty, social unrest is bound to follow.

Argentina's riots should give the rest of the world an opportunity to reflect. Freedom and democracy, free trade and globalization are not panaceas. Belt-tightening aimed at balancing budgets is wrong when it brings immediate and unbearable suffering to poor people. On the other hand, implementing irresponsible welfare policies is like drinking poison to quench a thirst.

Enriching a country requires a clean government and the production of high-value-added products. Argentina has been devastated by corruption under military and democratic rule alike. This is the real problem.

There is nothing wrong with former president Menem's fondness for Ferraris. Deplorably, he was unable to make his country design this type of high-tech sports car. This also demonstrates that many Central and South American countries have learned European life styles, but they failed to realize that cutting-edge technology is a must for maintaining the good life.

If technological development is not emphasized and corruption is left to fester, Argentina will never recover.

Lee Chia-tung is a professor at National Chi-nan University.

Translated by Jackie Lin