« Paul Blustein on David Mulford and Company | Main | The Second Coming of Norman Angell »

March 09, 2005

Blustein's "And the Money Kept Rolling in (and Out)": Other Notes

Blustein: Other Notes

Paul Blustein (2005), And the Money Came Rolling in (and Out): Wall Street, the IMF, and the Bankrupting of Argentina (New York: Public Affairs: 15486482459).

When are two copies of And the Money Kept Rolling in (and Out) not perfect substitutes? When one has my marginal notes in it and the other does not.

Paul Blustein believes (and I agree) that the IMF in the 1990s should have demanded that Argentina run budget surpluses:

p. 43: The big question facing the IMF [in 1997] was what it should demand of Argentina in return for the Good Housekeeping Seal. Among the Fund staff, plenty of nervousness lingered about how long the convertibility system could last.... But the Fund was not going to insist that Argentina unshackle its economy from convertibility.... [U]nder the IMF's articles of agreement, member countries are allowed to choose [their]... foreign exchange regime...

pp. 46-7: Argentina had a special reason to exercise extraordinary prudence in its budgetary policy... the cherished convertibility system.... Argentina needed to be ultradisciplined.... There were two reasons for this. First, Argentina was borrowing mainly in dollars.... If the government's debt started to look excessive, markets would worry that the government lacked the dollars required not only to pay its creditors but also to exchange pesos with all comers at $1 each.... Argentina needed to keep its debt ratios in check.... The second... reason... was that Argentina... had forsworn use of the monetary printing press... [and] had to be sure it could respond to slumps... by cutting taxes or boosting spending. The only way it could prepare itself... ws by adopting a highly responsible budget policy, preferably sizeable surpluses, during boom times...

Blustein believes that Wall Street financiers danced to the edge of misrepresentation. I have somewhat more sympathy for them: the needed "fiscal adjustment" was small; the consequences of failing to make the fiscal adjustment were so dire; only a country whose political class was truly irresponsible could fail. Indeed, I still find Argentina's failure to make the needed "fiscal adjustment" to be almost totally unbelievable:

p. 66: J.P. Morgan's September 2000 report, "Argentina's Debt Dynamics: Much Ado About Not So Much," was an example. The basic thrust... was that fixing the fiscal problem was essential but that a modest adjustment would enable the country to avert default. In March 2001 anohter Morgan report... said "The government's capacity to service its debt this year is not in question.... We believe that the fears of abandoning convertibility are overdone and point out that devaluation is not a polic option due to the limited benefits..."

Paul Blustein likes Nouriel Roubini. So do I:

p. 104: Born in Turkey to Iranian Jewish parents, raised in Italy, and educated at Bocconi University and Milan and at Harvard, Nouriel Roubini was something of a celebrity in the community of international financial-crisis experts.... [He] had created a website... where he posted important documents, news articles, and academic papers--and for people interested in the subject, the site became a cyberspace version of the place to see and be seen.

Ted Truman talks about decision-making in the Clinton administration:

p. 105: "People knew it was high risk," said Ted Truman... Assistant Secretary of the Treasury for International Affairs. "We managed to convince ourselves that the debt dynamics were sustainable. That was probably a mistake, but it was a serious effort. We looked at a number of analyses and did some of our own." A more serious error, truman added, was that "there should have been a clearer message that the next step would be Plan B..." If the IMF program ailed to improve Argentina's economic situation fairly quickly, the country would have no choice but to restructure its debt and, if necessary, change its currency policy.... A concrete plan for pulliing the plug should have been devised and agreed with...

Posted by DeLong at March 9, 2005 06:04 PM