1. Convertibility produced a change in relative prices (i.e overvaluation of the peso) the consequence of which was increased production of non-traded goods hurting production of traded (i.e exportables) goods. There is some evidence that this has had at least two effects: a) increased unemployment because the jobs lost on the traded-goods sectors have not been replaced by the jobs created in the non-traded sector, b) lower real wages because either you are unemployed (no wage) or the job you have gotten on the non-traded sector pays you less than the job you used to have in the traded-good sector;
2. Since the Govt. can not issue domestic currency which is not backed by dollars, the country becomes heavily dependent on capital inflows. Both external deficit and increased govt. spending during the last years of the Menem administration left no other alternative to the govt. than increased indebtness (to locals and foreigners); Money from privatization was used to finance govt. spending spree and on corruption "fees";
3. Regressive income distribution over the last decade or so and tight fiscal policy during the last 3 years further depressed economic activity. Argentina is still a relatively closed economy, so if you take money out of the hands of those who consume and put it into the hands of those who either not consume or take the money out of the country, you will probably create the conditions for a recession at home;
4. Worse, High real interest rates and international financial crises complicated the scenario because or lack of credibility;
6. In sum, lower real purchasing power to low and middle classes, destroyed industrial structure due to exchange rate overvaluation together with depressed internal conditions and high real interest rates favored those at the top decile of the income distribution and hurt investors and consumers.
7. One fact: in 1973, population was 22b, of which less than 2b were poor....In 2001, the figures are 36b and 15b!!!.
Now, what are the political implicatios of this? hard to tell. It is not clear how politicians will react to this revolt. One would hope that a time of more transparency and honesty is the likely outcome of this mess. First indications are disputable: there will be a "visiting" President for 90 or 120 days who will prepare the conditions for elections on March 3rd.2002. Now, what can you expect a 90 day President to do? Do you think people would understand a 90 day "grace" period??
Argentina has de-developed, it has lost physical and human capital, maybe 2 to 3 generations. It requires great leadership to turn things around, one thing Argentina is lacking right now.....maybe Brad could write a good article about this.:-))))
juan
Thomas Seay wrote:
> In Empire, Negri and Hardt posit that there is no
> outside to Empire...we are all embedded in the nexus
> of global capital and there is no longer an escape
> route through a struggle known as "national
> liberation".
>
> Now we have seen a heroic revolt in Argentina this
> week, but one has to wonder how even the best
> intentioned group that came to power could free the
> country from the clamps of the IMF and World Bank. Is
> it possible or impossible...and what are the political
> implications of this? I would like to hear from
> everyone but am especially interested in the
> economists perspectives.
>
> Thomas
>
> Thomas
>
> =====
> "The tradition of all the dead generations
> weighs like a nightmare on the brain of the living"
>
> -Karl Marx
>
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