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March 09, 2005

The Economist on Paul Blustein

The Economist on Blustein

I don't think that this is a fair reading of Paul Blustein's book. More to come...

Economist.com | Argentina: IN THE 1990s, Argentina was held up as an exemplar of the ‘Washington consensus’ of free-market reforms. In December 2001, after three years of slump and amid political and financial chaos, it declared the biggest sovereign-debt default in history. Following a traumatic devaluation, its economy is now recovering, but income per head is still below its 1998 level. As Paul Blustein, a financial reporter with the Washington Post, notes in his new book, Argentina has become ‘Exhibit A’ for critics of globalisation and free markets.

Wrongly so. The author stresses that those chiefly to blame were Argentina's own politicians and officials, who pursued an insufficiently rigorous fiscal policy to sustain a fixed exchange rate. He also explores the extent to which they were abetted by outsiders. In addition to Argentine officials, Mr Blustein also interviewed officers at the International Monetary Fund and its political master, the United States' Treasury.

The result is an engrossing inside account of how, despite the best of intentions, the Fund's two loans to Argentina in 2001 ended up merely prolonging the country's agony and increasing its debt burden. Wall Street investment banks raked in fees for issuing yet more Argentine bonds even as some of their analysts were privately gloomy about the country. Although he goes as far as calling one of his chapters ‘Enronization’, the author does not believe that the investment banks' efforts amounted to fraud.

Mr Blustein rightly notes that the decisions facing policymakers were extremely difficult. The IMF was worried that it would be blamed for the recession that would follow if it withheld assistance. Argentines, who have a tendency to self-pity, duly blamed it both for doing this—and for not doing it earlier. The Fund has since admitted that it erred in its second 2001 loan (though the US Treasury continues to defend this) and, above all, in failing to be tougher on Argentina's fiscal laxity in the late 1990s...

Posted by DeLong at March 9, 2005 05:56 PM