Washington Consensus - Argentina

Argentina

The Argentine economic crisis of 1999–2002 is often held out as an example of the economic devastation said by some to have been wrought by application of the Washington Consensus. Argentina's Deputy Foreign Minister Jorge Taiana, in an interview with the state news agency Télam on August 16, 2005, attacked the Washington Consensus. There never was a real consensus for such policies, he said, and today "a good number of governments of the hemisphere are reviewing the assumptions with which they applied those policies in the 1990s", adding that governments are looking for a development model to guarantee productive employment and the generation of real wealth.

Many economists, however, challenge the view that Argentina's failure can be attributed to close adherence to the Washington Consensus. The country's adoption of an idiosyncratic fixed exchange rate regime ("convertibility"), which became increasingly uncompetitive, together with its failure to achieve effective control over its fiscal accounts, both ran counter to central provisions of the Consensus, and paved the way directly for the ultimate macroeconomic collapse. The market-oriented policies of the early Menem-Cavallo years, meanwhile, soon petered out in the face of domestic political constraints (including Menem's preoccupation with securing re-election).

In October 1998 the IMF invited Argentine President Carlos Menem, to talk about the successful Argentine experience, at the Annual Meeting of the Board of Governors. President Menem's Minister of Economy (1991–1996), Domingo Cavallo, the architect of the Menem administration's economic policies, specifically including "convertibility", made the claim that Argentina was at that moment, "considered as the best pupil of the IMF, the World Bank and the USA government":

On the second semester of 1998 Argentina was considered in Washington the most successful economy among the ones that had restructurated its debt within the Brady's Plan framework. None of the Washington Consensus' sponsors were interested in pointing out that the Argentine economic reforms had differences with its 10 recommendations. On the contrary, Argentina was considered the best pupil of the IMF, the World Bank and the USA government. —Domingo Cavallo, former Argentine Minister of Economy (1991–1996).,

The problems which arise with reliance on a fixed exchange rate mechanism (above) are discussed in the World Bank report Economic Growth in the 1990s: Learning from a Decade of Reform, which questions whether expectations can be "positively affected by tying a government's hands". In the early 1990s there was a point of view that countries should move to either fixed or completely flexible exchange rates to reassure market participants of the complete removal of government discretion in foreign exchange matters. After the Argentina collapse, some observers believe that removing government discretion by creating mechanisms that impose large penalties may, on the contrary, actually itself undermine expectations. Velasco and Neut (2003) "argues that if the world is uncertain and there are situations in which the lack of discretion will cause large losses, a precommitment device can actually make things worse". In the chapter 7 of its report (Financial Liberalization: What Went Right,What Went Wrong?) the World Bank analyses what went wrong in Argentina, summarizes the lessons from the experience, and draws suggestions for its future policy.

The IMF's Independent Evaluation Office has issued a review of the lessons of Argentina for the institution, summarized in the following quotation:

The Argentine crisis yields a number of lessons for the IMF, some of which have already been learned and incorporated into revised policies and procedures. This evaluation suggests ten lessons, in the areas of surveillance and program design, crisis management, and the decision-making process.

Mark Weisbrot says that, in more recent years, Argentina under former President Néstor Kirchner made a break with the Consensus and that this led to a significant improvement in its economy; some add that Ecuador may soon follow suit. However, while Kirchner's reliance on price controls and similar administrative measures (often aimed primarily at foreign-invested firms such as utilities) clearly ran counter to the spirit of the Consensus, his administration in fact ran an extremely tight fiscal ship and maintained a highly competitive floating exchange rate; Argentina's immediate bounce-back from crisis, further aided by abrogating its debts and a fortuitous boom in prices of primary commodities, leaves open issues of longer-term sustainability. The Economist has argued that the Néstor Kirchner administration will end up as one more in Argentina's long history of populist governments. In October 2008, Kirchner's wife and successor as President, Cristina Kirchner, announced her government's intention to nationalize pension funds from the privatized system implemented by Menem-Cavallo. Accusations have emerged of the manipulation of official statistics under the Kirchners (most notoriously, for inflation) to create an inaccurately positive picture of economic performance.

In 2003, Argentina's then-President Néstor Kirchner and Brazilian President Lula da Silva signed the "Buenos Aires Consensus", a manifesto in opposition to the policies of the Washington Consensus. Skeptical political observers note, however, that Lula's rhetoric on such public occasions should be distinguished from the policies actually implemented by his administration. This said, Lula da Silva paid the whole of the Brazilian debt with the IMF two years in advance, freeing his government from IMF tutelage, as did Néstor Kirchner's government in 2005.