> Mussa: "I shall argue that the Fund did make at least two important
> mistakes in Argentina: (i) in failing to press the Argentine
> authorities much harder to have a more responsible fiscal policy,
> especially during the three high growth years following the tequila
> crisis of 1995; and (ii) in extending substantial additional
> financial support to Argentina during the summer of 2001, after it
> had become abundantly clear that the Argentine government's efforts
> to avoid default and maintain the exchange rate peg had no reasonable
> chance of success." So the whole problem was they didn't squeeze
> Argentina hard enough? This, after having praised their fiscal
> management throughout the 90s?
What Happened to Argentina?
By Mark Weisbrot and Dean Baker
January 31, 2002
[...]
Table 1 shows the Argentine government's revenues, spending, and interest payments for the years 1993-2000. If one looks only at the total budget balance, the numbers generally reported in the press, it looks as though there is a significant loosening of fiscal policy during this period. The budget goes from a surplus of $2.7 billion pesos[2] (1.2 percent of GDP) in 1993 to a deficit of $6.8 billion (2.4 percent of GDP) in 2000. This is a significant change in the government's fiscal position, although it is worth emphasizing that a deficit of 2.4 percent of GDP, the largest in this period[3], is still relatively modest for a nation in a deep recession, with more than 16 percent unemployment. For comparison, the United States ran a budget deficit amounting to 4.7 percent of our economy (or GDP) coming out of the last recession; 1983, at the end of a more serious downturn, the deficit was 6 percent of GDP.[4]
Nonetheless, even this modest deficit, and the shift from surplus at the beginning of the period, does not accurately represent the government's fiscal policy. To see this we must look at the primary balance-that is, the government's spending other than interest payments, subtracted from revenues. This appears in Table 1. The primary balance moves from a surplus of $5.6 billion (2.4 percent of GDP) in 1993 to $2.9 billion (about 1.0 percent of GDP) in 2000, a very modest deterioration.
Furthermore, none of this deterioration occurred on the spending side. Government spending, excluding interest, was essentially flat over the period. It was 19.1 percent of GDP in 1993, and 18.9 percent of GDP in 2000, despite the severe recession of the later years, as shown in figure 1. All of the deterioration occurred on the revenue side, as tax collections fell off during the recession, a normal and economically desirable development.
In light of this path of spending, it is difficult to argue that Argentina's government contributed to the economic crisis through overspending. Nor it is likely that, even if it were politically possible, the government could have averted the default and devaluation through further fiscal tightening throughout the recession.
[...]
Seth