March 30, 2004
Kamloops Daily News



Don’t cry for Steve, Argentina.  He survived the little
experiment with your economy just fine.  You, however,
continue to bleed. 

Steve Hanke and his pal Kurt Schuler decided to try out
their right-wing theories in a real live setting.  Hanke, an
economist at Johns Hopkins University, told his story to the
U.S. House of Representatives (March 5, 2002).

"I  first became seriously interested in economic reform in
Argentina shortly after meeting Argentina's newly elected
President, Carlos Menem, in 1989.   I developed a blueprint
for monetary stability during 1990 with a fellow economist,
Kurt Schuler. In 1991, our proposal for an orthodox currency
board was published."

An orthodox currency board is like an emasculated bank.  It
can’t set interest rates or control currency.   The one
thing the board did turned out to be a big mistake - - it
pegged Argentina’s peso to the U.S. Dollar.

Argentina president, Carlos Menem bought Steve and Kurt’s
radical right-wing scheme.  The president abolished exchange
controls, privatized large chunks of Argentina's state-owned
firms and banks,  and opened up the country to the full
blast of foreign competition.

At first it worked.  With the peso pegged to the U.S.
dollar, Argentina couldn’t fall into old habits of printing
money when times got tough.  Things looked rosy when
inflation fell from 5,000% a year in the late 1980s to
virtually zero in the early 90s.

The plan worked as  long as the U.S. dollar was falling in
world markets.   As the peso fell with it, Argentina had a
trading advantage because exports were relatively cheap. 
But when the U.S. dollar began to strengthen in the late
1990s, Argentina lost its export advantage.

Then the Asian crisis of  1997 caused the rapid flight of
investment from countries around the world to the safe haven
of  the U.S.   Suddenly, lenders were calling in the massive
loans to Argentina that they couldn’t repay.

The International Money Fund insisted that Argentina come up
with the money by  privatizing public services such as water
distribution, and reducing workers’ wages.   Argentina was
forced to withhold spending that would have stimulated the
economy.

"Even the half-baked economists at the IMF should have know
that holding back government spending in a contracting
economy is like turning off the engines on an airplane in
stall,"  says Guardian newspaper journalist Greg Palast.

Meanwhile Steve Hanke, as president of Toronto Trust
Argentina, bought up Argentinean bonds.  He was essentially
gambling that the IMF plan would fail - - that Argentina
couldn’t come up with the money.  The bonds ended up being
very valuable.   Caught in a squeeze for American dollars,
Argentina borrowed dollars at exorbitant rates.

Argentina was in free fall.  Loans to the country became
very risky and interest rates matched the risk, up to 90 per
cent for the cash-strapped country.  Toronto Trust Argentina
posted earnings of  79 per cent in 1995.

Argentina’s industry collapsed and mass layoffs occurred. 
The IMF stepped in to help Argentina with loans but all the
money went to pay U.S. banks and speculators, not
Argentineans.  

Argentina has to hope that they don’t get more help like
this.  After selling its public utilities, giving away its
monetary control, freezing bank accounts,  reducing the
wages and pensions of worker to pay debt; Argentina is
drowning in good will - - IMF style.

"IMF officials--like medieval doctors who insisted on
bleeding their patients, and repeated the procedure when the
bleeding made them sicker--prescribed austerity and still
more austerity, right to the end," wrote economist Paul
Krugman in the New York Times.

Foreign-owned banks transferred billions dollars belonging
to middle-class Argentineans out of the country.  This
amounted to the overnight loss of savings accounts and
pensions.

Hundreds of thousands of impoverished middle-class,
pensioners and the unemployed demonstrated in the streets by
banging pots and pans.

Unemployment is 25%, the economy is contracting at a rate of
15% a year, the central bank is running out of money to
defend the currency.   One-half of all infants are suffering
from anemia, and a quarter of children are suffering from
malnutrition in a country so rich in farmland that it
produces enough to feed 10 times its own population.

In 2002, capitalists "helped" Argentina by removing $19
billion U.S. from the economy when they needed it most.

Steve’s misadventure went a little astray, but don’t worry,
he’s OK.

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