July 07, 2003

Neoliberalism Rides Again?

The Wall Street Journal says to watch what the new government's economic policy is, not what it says that it's policy is:


WSJ.com - Argentina's Rebound Shows IMF's Principles Still Thrive: ...New Argentine President Nestor Kirchner agrees with the latter assessment, arguing that the "neoliberal model" had failed his country. Yet his economic team promises an agenda that Washington Consensus advocates would applaud: inflation-targeting, fiscal restraint, tax overhaul, financial restructuring and market-driven infrastructure solutions. Utilities, trapped in a postcrisis rate freeze and facing contract renegotiations, can be forgiven for doubts. But, at the same time, there is no great movement to renationalize their businesses, especially after the most left-leaning candidates did poorly in recent elections.

What is emerging is a distinction between the image of the Washington Consensus as a whipping boy and the continued, if less dogmatically applied, implementation of its principles. Argentine policy makers seem conscious of the good things privatization brought -- healthier water, lower electricity rates, functioning telephones -- they don't really want to turn back the clock. What they are doing is selling the idea differently: They are bashing the 1990s "model" but still embracing the language of the market. Economy Minister Roberto Lavagna argued in a recent interview that his government's model is actually more pro-market than was Mr. Menem's, whose "problem wasn't one of generic definition," but of "horrible implementation."

Posted by DeLong at July 7, 2003 10:25 AM | TrackBack

Comments

"Yet his economic team promises an agenda that Washington Consensus advocates would applaud: inflation-targeting, fiscal restraint, tax overhaul, financial restructuring and market-driven infrastructure solutions."

The WSJ has, as usual, its head up its ***. No sensible economist denies that the above measures are necessary for the macroeconomic health of a developing economy, but these measures are only a small subset of the neoliberal/Washington Consensus agenda, the most important elements of which are the completely free flow of capital combined with take-no-prisoners privatization (i.e., the kind which replaces public monopolies with private monopolies, which often happened in Argentina), and with a ruinous degree of financial deregulation (_not_ restructuring, as the WSJ says).

Perhaps the WSJ should point out that the developing countries which did best in the 1990's in terms of reducing poverty and inequality, India and China, were precisely the countries which did not implement the full neoliberal agenda, as compared to Argentina, which accepted the faith wholeheartedly and even threw in a suicidal currency board arrangement.

Posted by: andres on July 7, 2003 12:12 PM

Thank you, Andres.

The Wall Street Journal was last crowing about the wonder of the Argentine dollar peg as Argentina allowed its economy to depress as the dollar appreciated in value and exports markets were lost. The Wall Street Journal thought it was fine if 15% of Argentines were out of work, as long as the dollar peg was kept intact.

Posted by: jd on July 7, 2003 12:55 PM

"Perhaps the WSJ should point out that the developing countries which did best in the 1990's in terms of reducing poverty and inequality, India and China, were precisely the countries which did not implement the full neoliberal agenda, as compared to Argentina, which accepted the faith wholeheartedly and even threw in a suicidal currency board arrangement."

Well, it's easier to do better at "reducing poverty" when your population is as poor as those of China and India still are; even a pauperized Argentina enjoys a level of affluence out of the reach of most citizens of those two countries. As for the inequality bit, I'd say that the data don't back up your assertion - inequality in both countries has tended to increase rather than the reverse.

Where you DO have a point is in your criticism of privatization that leaves monopolies intact, as well as poorly thought out financial deregulation. It is too easy to criticize currency pegs with 20/20 hindsight, IMHO. Wasn't the entire point that they would impose financial discipline on spendthrift governments? That Carlos Menem spent borrowed money like water is as much the fault of the Argentinian electorate as of anyone else.

Posted by: Abiola Lapite on July 7, 2003 04:17 PM

So many people that I have talked to who are from Argentina or worked there have told me that the problem was not that Argentina followed the neoliberal party line, it's that they pretended to while maintaining their absolutely corrupt way of doing things. Unfortunately in many latin american countries nepotism and doleing money to friends are more important still than running an efficient administration. Kirchner has a chance to change some things since he's an outsider, not one of the Menem mafia who sucked away the nation's wealth. Argentina's politics seems not to have evolved much since the Peron era, all of the recent presidential candidates were 'Peronistas'. Maybe the tragic events of the last few years will wake them up to reality a little bit and they will realize that cronyism and economic growth don't go together.

Posted by: non economist on July 7, 2003 06:43 PM

"What is emerging is a distinction between the image of the Washington Consensus as a whipping boy and the continued, if less dogmatically applied, implementation of its principles. Argentine policy makers seem conscious of the good things privatization brought -- healthier water, lower electricity rates, functioning telephones -- they don't really want to turn back the clock."

This is so unintentionally funny that one should cry.

Posted by: Ian Welsh on July 7, 2003 08:12 PM

Andres, so now a currency board is part of the Washington Consensus? DD once argued on this same blog that Chile couldn't be a better representative of the Washington Consensus than other South American economies since it had currency restrictions.

Perhaps we are too loose with the meaning of the term. The World Bank's Poverty Report in 2000/2001 summarized the ten objectives of the Washington Consensus as:

1. Fiscal discipline;
2. Redirection of public expenditure toward education, health and infrastructure investment;
3. Tax reform - broadening the tax base and cutting marginal tax rates;
4. Interest rates that are market determined and positive (but moderate) in real terms;
5. Competitive exchange rates;
6. Trade liberalization - replacement of quantitative restrictions with low and uniform tariffs;
7. Openness to foreign direct investment;
8. Privatization of state enterprises;
9. Deregulation - abolition of regulations that impede entry or restrict competition, except or those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions;
10. Legal security for property rights.

(Box 4.1: http://www.worldbank.org/poverty/wdrpoverty/report/ch4.pdf Citing Williamson 1993)

Posted by: Stan on July 8, 2003 08:38 AM
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