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Warner, Lisa A.
The reaction to economic globalization in Latin America :
b a case study of Argentina
h [electronic resource] /
by Lisa A. Warner.
[Tampa, Fla] :
University of South Florida,
ABSTRACT: Since Washington Consensus policies became predominant in the 1980s, two sides of the economic globalization debate have developed: advocates claim that trade liberalization, deregulation, privatization and reduced state spending increase growth and therefore reduce poverty, while critics claim that levels of poverty and income disparity have worsened at the same time that social welfare and education programs have suffered budget cuts. Over the past decade, as many Latin Americans have failed to see promised results to alleviate poverty stemming from the "lost decade" of the 1980s (and beyond), they have elected "leftist" presidents that campaigned on anti-economic globalization (or anti-neoliberal) platforms in Venezuela, Brazil, Ecuador, Argentina, Uruguay and most recently, Bolivia. In order to examine whether policies pursued by these leftward-leaning presidents present a potential development alternative to the policies of economic globalization, my methodology is a case study of Argentina. The study is longitudinal; it first examines the Washington Consensus policies as Argentine President Carlos Menem applied them in the 1990s. It then investigates the policies of the current president, Nstor Kirchner, in an effort to determine if his policies constitute an alternative model of development for Argentina after the economic crash of December 2001/January 2002. The study finds that, while President Kirchner has taken a firm stance with the IMF and creditors, his polices do not represent a clear break with economic globalization. Kirchner has instituted new policies to ameliorate poverty and the effects of globalization, but he has renegotiated and paid external debt (rather than directing that money to domestic programs) and continues to work with companies privatized by Menem. President Kirchner more aptly presents a model that walks a fine line between economic globalization and national development.
Thesis (M.A.)--University of South Florida, 2006.
Includes bibliographical references.
Text (Electronic thesis) in PDF format.
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Document formatted into pages; contains 81 pages.
Adviser: Harry E. Vanden, Ph.D.
x Political Science
t USF Electronic Theses and Dissertations.
The Reaction to Economic Globa lization in Latin America: A Case Study of Argentina by Lisa A. Warner A thesis submitted in partial fulfillment of the requirements for the degree of Master of Arts Department of Political Science College of Arts and Sciences University of South Florida Major Professor: Harry E. Vanden, Ph.D. Steven C. Tauber, Ph.D. Jorge Nef, Ph.D Date of Approval: July 11, 2006 Keywords: economic liberalism, neoliberalism, development, economic crisis, nstor kirchner Copyright 2006 Lisa A. Warner
i Table of Contents Abstract ii Chapter One Introduction 1 Chapter Two Literature Review and Methodology 7 Advocates of Globalization 7 Opponents of Globalization 15 Alternative Theories of Development 18 Methodology 21 Chapter Three Economic Liberalism 24 Intergovernmental Organizations 26 Transnational Corporations 29 Conclusion on Economic Liberalism 30 Chapter Four Economic Liberalism within Latin America 32 Chapter Five Argentina 36 Historical Background 36 Argentina under President Menem 40 The Economic Crisis of December 2001/January 2002 and Aftermath 43 Chapter Six The Kirchner Years 48 Background to Nstor Kirchner 48 President Kirchners Policies 51 Results of Kirchners Policies 59 Chapter Seven Conclusion 64 References 76
ii The Reaction to Economic Globa lization in Latin America: A Case Study of Argentina Lisa A. Warner ABSTRACT Since Washington Consensus policies became predominant in the 1980s, two sides of the economic globalization debate ha ve developed: advocat es claim that trade liberalization, deregulation, priv atization and reduced state sp ending increase growth and therefore reduce poverty, while critics claim th at levels of poverty and income disparity have worsened at the same time that social welfare and education programs have suffered budget cuts. Over the past decade, as many La tin Americans have failed to see promised results to alleviate poverty stemming from the lost decade of the 1980s (and beyond), they have elected leftist presidents that campaigned on anti-economic globalization (or anti-neoliberal) platforms in Venezuela, Br azil, Ecuador, Argentina, Uruguay and most recently, Bolivia. In order to examine whether policies pur sued by these leftward-leaning presidents present a potential development alternative to the policies of economic globalization, my methodology is a case study of Argentina. The st udy is longitudinal; it first examines the Washington Consensus policies as Argentine President Carlos Menem applied them in the 1990s. It then investigates the policies of the current presid ent, Nstor Kirchner, in an effort to determine if his policies constitute an alternative model of development for Argentina after the economic crash of December 2001/January 2002. The study finds
iii that, while President Kirchner has taken a fi rm stance with the IMF and creditors, his polices do not represent a clear break w ith economic globalization. Kirchner has instituted new policies to am eliorate poverty and the effect s of globalization, but he has renegotiated and paid external debt (rather than direc ting that money to domestic programs) and continues to work with companies privatized by Menem. President Kirchner more aptly presents a model th at walks a fine line between economic globalization and national development.
1 Chapter One: Introduction Globalization: the word evokes diverse id eas and reactions. According to various arguments, globalization has created a st ronger sense of connectedness among the worlds nations and cultures and improved li ving standards in some poor, developing countries as workers have access to new jobs provided by multinational corporations. Other accounts claim globalization has advanc ed environmental degradation as these same transnational corporations (TNCs) move from one country to another in search of lax regulations, leaving poor countries to suffer the consequences, or that globalization has diminished sovereignty in many na tions as TNCs and intergovernmental organizations (IGOs) dictate requirements for a ttracting capital or obtaining international loans. Advocates and opponents of globali zation can argue each of the preceding statements and none would be completely wrong, as the benefits and repercussions stemming from globalization continue to cause widespread debate. Jan Aart Scholte (2000) o ffers five broad definitions of globalization: internationalization, liberalization, universalizat ion, modernization/westernization and deterritorialization (15-16). Internationalization refers to increased international exchange and interdependence, while lib eralization includes removing government restrictions on movement betw een countries in order to create an open world economy. Universalization concerns diffusing objects and experiences to people in all parts of the world. Within modernization/westernization, the structures of modernity (capitalism, bureaucracy, etc.) are spread worldwide, wh ereas deterritorialization encompasses the
2 idea that social space is no longer confined to territorial space, and includes the use of telecommunications to compress time and sp ace. Clearly the five definitions are interconnected and interrelated. People worldwide have reacted both positively and negatively to the effects of globalization as it is embodied in these definitions, be it westernization, liberalization or deterritorial ization. However, the consequences of liberalization, or economic gl obalization, have been some of the most profound. Many governments, intellectuals and IGOs laud the advantages of trade and economic liberalization, while other acad emics, nongovernmental organizations and workers decry what they see as a steep decline in living standards and sovereignty. Globalization advocate Jagdish Bhagwati ( 2004) defines economi c globalization as various forms of internationa l integration, including foreig n trade, multinational direct foreign investment, cross-border migration and technological dissemination (ix). These ideas are embodied in the policies of various world governments as well as international financial institutions (such as the World Ba nk and the International Monetary Fund) and the World Trade Organization (WTO). Trade agreements like the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico, in addition to the increased number and size of multinati onal corporations, also exemplify economic globalization. Based on economic growth and freer trade through globalization, Kemal Dervis (2005) stresses that since the 1980s, more people throughout the world have been able to escape poverty than at any other time in history (xx). Ho wever, other authors (Nef & Robles 2000; Peet 2003) argue that living standards have deteriorated, poverty rates have increased and sovereignty has been undermined by policies propagated by international financial institutions.
3 It is crucial to examine the effects of economic globalization and the claim that it exacerbates poverty. Continued widespr ead poverty plays a profound role in transnational problems such as the drug trade, the spread of infecti ous disease, illegal immigration, international human trafficking, terrorism and a growing number of refugees fleeing failed states The spread of technology to less developed countries has made these threats even more intense as th e division between the haves and the havenots becomes starkly more evident when displayed on television or accessed over the Internet. Without sufficient development of social welfare programs, government regulation and policy coordination, changes wrought by globalization have the potential to cause greater crisis and increase transn ational problems, subsequently diminishing stability and growth in all nations. In concert with the assert ion of higher rates of poverty resulting from economic globalization are claims of environmental degradation, diminished worker rights and loss of sovereignty. As a result, a backlash against globalization has developed, with nongovernmental organizations (NGOs), workers, students, environmentalists and human rights organizations, among others, demandi ng a more humane globalization. While this backlash is evident in the protests at WTO trade rounds, G-7 meetings, etc., it has also seen extensive development within Latin America in the form of greater numbers of states electing leftward-leaning presidents. Over the past decade, Venezuela, Brazil, Ecuador, Argentina, Uruguay and most recent ly, Bolivia, have elected presidents who campaign against policies of economic globa lization. How are these new presidents directing their countries? Do they provi de a substantial chan ge from policies of economic globalization? The research questi on proposed herein is to determine if the
4 policies pursued by leftward-leaning presiden ts in Latin America suggest a potential development alternative to th e policies of economic globaliza tion, as seen through a case study of Argentina. The hypothesis is that the new president of Argentina, Nstor Kirchner, while not completely rejecting trad e liberalization or gl obalization, is pursuing policies of stronger state inte rvention and government contro l in order to direct the economy to provide greater stability within Argentina following the economic collapse of December 2001/January 2002. Stability in this context signifies sustained economic growth, declining or low poverty rates (below 20%; poverty in Argentina in 1992 stood at 15%), low or stable rates of unemployment (his torically at less than 10% in Argentina, until the 1990s), and a low rate of inflation (10% per year, which is the rate that Kirchner has proposed to Congress). There is much debate concerning the shift to the left in Latin America. Some scholars argue that there are currently two lefts within Latin America (Valenzuela 2005): the anti-American populists (such as H ugo Chvez of Venezuela) and the socialdemocratic left that has not completely br oken with policies of economic liberalism (such as Luiz Incio Lula de Silva of Brazil). In order to operationalize the left, or leftwardleaning presidents, within this paper, it will include presidents who advocate redistribution of income to support social welfare programs, such as health care, education and housing for the poor, a social safety net for the unemployed/underemployed, and pension for th e elderly. Additiona lly, leftist policies incorporate strong state government, suppor t of some nationalized industries and regulations to protect worker s (and possibly the natural envi ronment). Support of local industry is also important. This definition is termed leftward-leaning or leftist to
5 distinguish it from the classi c socialist or communist left that promotes abolition of private property, equal distribution of in come, a classless society, and revolution. Within the debate regardi ng current movements in Latin America, populism is yet another important component. Populism ga ined prominence in Latin America after World War I and remained prevalent until the early 1960s (especially as governments fell prey to military coups dtat). While it is of ten described specifically as irresponsible use of public money to win mass support, populism has several defining characteristics: (1) a charismatic leader who uses mass communicat ion to create a personal bond with the public, at times to the point of demagoguery; (2) popular sovereignty that cuts across classes for support; (3) a sense of nationalism or cultural pride; (4) a program that rarely fits one existing doctrine but is flexible a nd draws from several sociopolitical models such as socialism, democratic capitalism or corporatism; and (5) a promise of a higher standard of living for the masses, especia lly through patronage (a policy which often leads to high inflation and i ndebtedness, as well as corrup tion or misconduct by officials) (Conniff 1999). The current le ftist governments of Latin Am erica clearly utilize some aspects and policies of populism; however, to varying degrees, they also campaigned against privatization an d support nationalization of some industries, as well as a stronger central government that can direct and mitig ate the effects of economic development and globalization. Moreover, while support of wealth redist ribution is prevalent on the continent with the greatest rates of income disparity worldwide (Sherman 2000), most of the new leftists are trying to strike a ba lance between social development spending and some tenets of economic globalization (such as trade liberalizati on, reduction of tariffs, etc.). It would thus be wrong to categorize the current changes on the continent solely as
6 the resurgence of populism. Moreover, as stated above, policies and practices vary throughout the region, making it difficult to generalize from one country to another. The term economic globalization is variously called ec onomic liberalism, market fundamentalism, trade liberalism, and neoliberalism. While the latter may have a negative connotation within Western nations, it remains the preferred title within Latin America and is thus used in this paper. While these terms build on some of the same ideas as classic liberalism (discussed in chapter three), they refer to the economic development theory that gained prominen ce in the 1980s under U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher (and remains current today).
7 Chapter Two: Literature Review and Methodology Advocates of Globalization In Globalization and Its Discontents (2003), Joseph E. Stig litz delivers a strong criticism of the Intern ational Monetary Fund (IMF) and its current role in globalization. Stiglitz, a former member of the Council of Economic Advisors under President Bill Clinton and former chief economist at the World Bank, believes globalization can be a positive force with the potential to enrich everyone, including the poor. However, the Washington Consensus policies (or market fundamentalism, as Stiglitz terms it) currently advocated by the IMF, the WTO and the World Bank have damaged developing economies and subsequently increased poverty and income disparity. While Stiglitz briefly discusses policies of the World Bank and the WTO, he focuses primarily on the IMF, with the perspective he gleaned through thr ee years at its sister organization, the World Bank. One of his principal criticisms is that the organization lacks transparency (although it is a public institution, it is not accoun table to the public). Neither debate nor alternative policies are presented to a count ry that requests IMF funds; every country receives the same prescription for lowering inflation and promoting growth. However, when the policies falter (as they most freque ntly do, according to the author), the citizens who had no voice in debating or selecting the failed policies must ultimately pay for them through higher taxes, decreased subsidies, and a lower standard of living. While a strong proponent of trade liberaliza tion, Stiglitzs writing also presents a potential alternative model for development. He proposes that rather than presenting an
8 economically troubled country with a standard recipe for growth (lower trade barriers, higher interest rates and redu ced subsidies), the IMF must allow countries the time to implement reforms in a strategic, controlled manner. Additionally, he stresses not only the importance of having government regulati ons in place well before enacting policy changes, but also the necessity of a stronger role for state governments as they implement change. As historical examples, he discusse s both the U.S. and Europe in their initial years of growth and development: both utilized a gradual, state-c ontrolled approach to growth to mitigate economic downturns. As contemporary examples of the importance of sequencing regulations and changes as well as pacing reform, he presents two contrasting examples: East Asia and Russi a. East Asia, until the crisis of 1997, experienced unprecedented levels of growth, whic h the author partly attributes to reforms implemented at a government-controlled pace. Even after the crisis of 1997 (for which the author feels the IMF was partially to blame), those countries that followed IMF prescriptions (Thailand and Indone sia) were mired in crisis fa r longer than those that did not (South Korea and Malaysia). In contra st, when Russia and the former Socialist countries in Eastern Europe turned from communism to a mark et economy, the IMF advised rapid privatization (a tenet of market fundamentalism), leading to the sale of state assets at minimal prices before the necessary regulatory and legal infrastructure was in place. Without restrictions on their action, the new owners and managers stripped the privatized companies of their assets and invested the money overseas, leaving Russia with a dearth of capital for investment, gr eater income disparity and a distrust of capitalism among its many impoverished citizens. Based on these examples and others, the author therefore advocates a stronger role for government than that proposed by the
9 IMF, while at the same time supporting market forces and trade liberalization. While the market fundamentalism ideology of the inte rgovernmental organizations (IGOs) posits that government is part of the problem in increasing growth, Stiglitz maintains that it is part of the solution. Governments can and should mitigate the potential downturns inherent in the change to a market economy, especially in less developed countries, in order to provide sequencing and pacing of re forms as well as regulatory infrastructure, job development, and a safety net for thos e who fall below the pove rty line. He thus recommends that the IGOs change their governance to allow for transparency and debate on alternatives. For Stiglitz, these reform s will lead to positive changes and success within globalization. Jagdish Bhagwatis In Defense of Globalization (2004) attempts to address many of the arguments advanced by opponents of economic globalization: threats to sovereignty, diminishing labor standards (or upholding the lack of labor standards in developing countries), and in creased poverty and income di sparity within developing nations. Bhagwati asserts that globalization, with its inherent component of increased trade liberalization, increases growth and therefore decreases poverty; however, he affirms that appropriate policies must be instated in order to allow the benefits of trade liberalization to aid the poor. For example, microfinancing and access to credit for the impoverished, as well as job retraining for those displaced by foreign competition, need to be part of a successful globa lization effort. With respect to labor standards, the author feels that problems with enforcement of be tter labor regulations lie within the host country, rather than in policies propagat ed by multinational corporations; for these multinationals to compel changes in labor standards would infringe on the sovereignty of
10 the host country. The author stresses that as multinationals increase the demand for labor in a host country, wages and government tax income rise, thus decreasing overall poverty. Finally, domestic firms learn productivity-enhancing techniques from multinationals, as well as increasing their level of technological expertise. Bhagwati also addresses criticism direct ed at policies of the World Bank, IMF and WTO. He feels that there is ample r oom for compromise within the conditionality policies of the World Bank and IMF regarding tr ade liberalization (for example, countries can propose a tax increase or privatize a public-sector industr y in place of rapid trade liberalization), and he affirms that developi ng countries would greatly benefit from such liberalization. With respect to the conclusion that both international financial institutions offer a standard recipe for growth and reform within liberalization, th e author states that only two options actually exist: a country can move toward trade liberalization or against it (i.e., toward greater protectionism); theref ore, the standardized liberalization policies are warranted. Finally, while Bhagwati finds no inherent problem with rapid trade liberalization, he strongly advocates well paced rather than rapid changes toward capital account liberalization with government regulati ons in place prior to policy change (a view similarly expressed by Joseph Stiglitz in Globalization and Its Discontents ). The author concludes with several recommenda tions that he believes will augment globalizations force for economic growth and positive social transition: stronger civil society in the form of NGOs (nongovernmental organizations) to assist low-income or underrepresented groups; institutions and policies that mitigate downturns when they occur (such as unemployment insurance); and strengthened review and monitoring functions of the appropriat e international agencies.
11 Kemal Dervis investigates legitimacy within global governance institutions in A Better Globalization: Legitimacy, Governance and Reform (2005). Dervis, who worked for the World Bank for 22 years, shares his optimism that greater globalization and trade liberalization can increase growth and help eliminate poverty, disease and suffering worldwide; however, he asserts that better globalization needs deliberate intervention coupled with a new institutional setting to govern its processes. Dervis defines legitimacy as acting with the consent of those who are gove rned, which for the author includes the global governance institutions in troduced at the end of World War II (the United Nations, the Bretton Woods institutions and the General Agreement on Tariff and Trade, later to become the World Trade Organization). However, these institutions still reflect the beliefs and divisions of the Cold War rather than the economic and political realities of the 21 st century, in which the competition between communism and democracy no longer plays a prominent role and countries have become further integrated through trade, communication and travel. He emphasizes the nearly universal acceptance of the idea of social-liberal synthesis, in which private property and competitive markets drive growth, but economic downturns are mitigated by a redistributive and regulatory role played by governments with in a democratic setting. Due to the sovereignty of nations, this role does not ex ist at the international level; therefore, resolutions made within the global governance and international financial institutions lack legitimacy for the populations for whom decisions are made. While stressing that he does not advocate a world government, Dervis presents a reformed system of global governance that could provide greater transpar ency and legitimacy, and thus ownership of reforms within affected countries (for ex ample, economic reforms that would allow for
12 greater trade liberalization while at the same time providing a social safety net, under the auspices of the IMF). Dervis proposes reforms within two sphere s: political (the UN) and economic (the World Bank, IMF and WTO). In the political arena, he recomme nds enlarging the UN Security Council to include greater world representation, as well as chan ging the voting structure to one of weight ed votes (with weights based on relative populations, GDP, financial contribution to funding global goods, and military capability). The author further advocates the creation of a UN Econo mic and Social Security Council (UNESC), on par with the UN Security Council, that would be a governance umbrella for all economic and social agencies within the UN, including, for example, the UN Development Program and the International Labor Office, as well as drawing in the World Bank, IMF and WTO. While the UNESC would not manage these three financial institutions, it would appoint their presidents (r ather than the current exclusive practice of U.S. and European leadership) and evaluate th e efficacy of their programs. With respect to the WTO, the author also suggests th at the UNESC (coupled with nongovernmental organizations) address issues such as labor or health, thus leaving the WTO free to negotiate trade issues in an expedited manner. The author feels that a reformed UN and the creation of the UNESC would substant ially increase the legitimacy of the organizations, and thus create domestic s upport and in-country ownership for needed reforms and programs. This support woul d subsequently allow for further trade liberalization, growth and development. In two articles (What Washington M eans by Policy Reform, published in 1990, and What Should the World Bank Think about the Washington Consensus?, published
13 as a follow-up in 2000), John Williamson summariz es the policies that have come to be known as the Washington Consensus, which in Latin America have become synonymous with the policies of economic gl obalization. Williamson coined this phrase in his discussion of the ten policies thought to comprise a desirable set of economic reforms agreed to in Washington with respect to Latin America after a decade of financial crisis in the 1980s (the lost decade). In his discussion, Washington is composed of the economic agencies, senior administra tion and members of Congress of the US government, the technocratic Washington of the international financial institutions, and the U.S. Federal Reserve (1). The original policies for which Williamson finds a consensus in Washington are: (1) fiscal discipline (espec ially in order to reduce the extraordinarily high rates of inflation in ma ny countries of the re gion and avoid further capital flight); (2) redirec tion of public expenditure toward primary education, primary health care and infrastructure; (3) tax reform (to create a broader tax base); (4) interest rate liberalization; (5) a competitive exch ange rate; (6) trade liberalization; (7) liberalization of foreign dire ct investment to bring capit al, technology and skills to the region; (8) privatization; (9) deregulation; a nd (10) secure property rights. (Williamson later recanted on the fifth policy, a competitive exchange rate, stating that no consensus existed on this policy) (2000). In 2000, Williamson revisited his examination of the Washington Consensus and found that the policies he presented as the lowest common denominator (or the ones for which a consensus existed) for growth and development in Latin America had come to signify neoliberal or economic liberalism po licies, often blamed for increasing poverty and income disparity within the region. W illiamson also admits that little progress has
14 been made in redirecting public expenditure toward priorities such as primary education, health and infrastructure, as these are areas that often suffer budge t reductions in the pursuit of fiscal responsibility. While Williamson emphasizes that the Washington Consensus advice remains valid for the region and promotes development and growth, he feels that further emphasis on anti-poverty and development policies is necessary. Editors Pedro-Pablo Kuczynski and John Williamson present a series of articles on policy reform in Latin America in After the Washington Consensus: Restarting Growth and Reform in Latin America (2003). One of the central ideas of the book is that globalization and liberalizati on have not been responsible for the renewed economic problems and increased poverty of the 1990s because growth stemming from these policies has the power to d ecrease poverty. However, as the authors examine the implementation of the Washington Consensus policies, they emphasize that poor growth rates coupled with a failure to diminish pove rty and income distribution disparity have allowed for a vicious cycle in which the low growth rates exacerbate poverty while at the same time, poverty intensifies low growth ra tes. The Washington Consensus policies, although they have diminished the high infla tion prevalent in the region, have failed to address the underlying structural problems that inhibit growth for the poor, such as basic infrastructure, primary education, primary hea lth care, lack of access to credit, and lack of property rights. Additionally, while trade liberalization promised to open new markets for unskilled labor (and subsequently decrea se unemployment rate s), the authors stress that this has not been the case due to labor market regulations, loss of jobs to competition from imports (from China, for example, wher e labor is less costly), and the lack of tertiary education that would enable employ ment within the higher-demand skilled labor
15 markets of finance, insurance and banking. The authors admit that unemployment rates in the 1990s were higher than those in the lost decade of the 1980s and stress that a large number of Latin Americans remains in the informal sector of the economy, without access to health care, pensions, long-term contracts or a minimum wage. In order to overcome some of the problems that continue to hold the region back from growth and greater income equity, the authors recomm end fiscal and monetary policy to reduce instability (boom and bust cycles and capital flight, for example); greater investment in the social agenda (education, health care and a social safety net) and infrastructure; and greater flexibility within la bor market regulations. Opponents of Globalization Unholy Trinity: The IMF, World Bank and WTO (2003) examines the history and development of these three global governance organizations fr om their post World War II creation to their current position as basti ons of economic liberalism (or neoliberal economic policy, as it is termed by the autho r). Author Richard P eet argues that, while globalization is not inherently negative fo r society, the undemocratic processes and neoliberal policies espoused by the International Monetary Fund, the World Bank and the World Trade Organization might destroy the potential of a globalized world. In his examination of the IMF and the World Bank, Peet discusses Structural Adjustment Programs (SAPs), originally devised to tack le the structural economic problems that cause high inflation and low growth rates in many countries, but which have become a recipe for greater wealth disparity. Coupled with enormous debt from IMF and World Bank loans, people in developing countries suffer from greater poverty as their governments attempt to comply with policies stipulated in SAPs. The WTO, according
16 to the author, presents itself as a neutra l meeting place where governments can amicably resolve disputes regarding trade policy; however, this organization also presents economic liberalization as the surest route to growth a nd prosperity, a prescription disputed by Peet due to the lack of transparen cy practiced by the organization as well as policy prescriptions that have increased w ealth disparity in developing nations. The author ends his analysis with an argument against the hegemony of the IMF, World Bank and WTO based on policies of the Washington Consensus and combined with the banking industry, and demands reform toward more open, democratic processes within these global governance institutions. System in Crisis: The Dynamic s of Free Market Capitalism (2003) by James Petras and Henry Veltmeyer offers an anti-imperial, revolutionary perspective of the current state of the capitalist system, as well as a sampling of the for ces that fight against it (primarily in Latin America). The authors assert that the capitalist system has been pushed beyond its functional limits economically, ecologically, financially and politically, especially given the unsustainable levels of external de bt and disparities in social conditions in many developing nations They further claim that these enduring problems are a result of neoliberal polic ies propagated by Western countries and international financial institutes (IFIs) such as the IMF and the World Bank. One of the authors central ideas is that the United States has been forced into in a new, post-9/11 phase of imperial pursuit via the military due to diminishi ng effectiveness of IFIs and neoliberal policy. The Right, led by the U.S., has consolidated its power through neoliberal policy and military force while the Le ft has taken to the streets in the form of protests, social movements, indigenous m ovements, etc. The authors present two
17 movements, in Argentina and Ecuador, to exem plify the reaction to ne oliberal policy that has failed to improve living standards in th e developing world. Coupled with movements against the U.S. military (the FARC and Hamas are two examples given by the authors), these social movements have the power to re sist further incursi on by the U.S. and the West. In closing, the author s argue that the neoliberal model of development and globalization is actually a dummy target for the anti-globalizat ion movement (AGM), as most governments and theorists acknowledge that the current system is unsustainable and in need of reform (224); they add that the persistent North-S outh gap will generate further social unrest that will cause politic al and economic upheaval within the entire capitalist system. In Global Backlash: Citizen Initiati ves for a Just World Economy (2002), editor Robin Broad explores the hi storical foundations of globa lization, arguments for and against continued economic integration, and th e current worldwide backlash against the phenomenon. She explains that participants in the citizens backlash include farmers, indigenous groups, womens or ganizations, workers, students, environmentalists, consumer advocates and human rights activists that are not strictly the radicals portrayed by the mainstream media. Although each gr oup has different objectives, they have unified in their opposition to co rporate control of the global economy. Broad presents the disparate groups attempts to alter the effects of globalization (the vast majority does not expect nor necessarily want to end it): so me groups have had success promoting social clauses that attach workers rights or environmental protec tion to trade and investment agreements and are regulated by governments. These clauses allow for trade sanctions in the case of noncompliance. Other groups have requested self-regulation and codes of
18 conduct to regulate corporations, which have been most successful in reducing child labor or other highly publicized cases like sw eatshops. Yet others promote alternative and fair trade programs that have helped sm all businesses, farmers and artisans overcome the effects of economic globalization. Broa d closes with the acknowledgement that it remains difficult to measure the effectivene ss of the backlash movement. Some groups have been effective in changi ng aspects of various industries, but the scope has thus far been limited. She does emphasize, however, that the citizens backlash is more sophisticated, powerful and organized than por trayed in the media and will remain more than solely a protest movement. Alternative Theories of Development Charles Gore examines a potential paradigm shift in development theory in The Rise and Fall of the Washington Consensus as a Paradigm for De veloping Countries, published in World Development (2000). Gore explores th e prevalence of neoliberal economic policy (or the Washington C onsensus) stemming from the 1980s (and manifested in the shift from state-led to market-led policies), as well as the fact that development policy analysis has concomitantly shifted from a national frame of reference for explanation and evaluation to a global one. This global perspect ive has avowed that conforming to the tenets of a liberal intern ational economic order (LIEO) will lead not only to greater economic outcomes for individual nations but also for the global community; however, this has not been the case for many developing nations. Thus, the author argues that a latent S outhern Consensus provides a potential paradigmatic shift in development theory, one that merges East Asian developmentalism with Latin American neostructuralism. The so-calle d Southern Consensus focuses on economic
19 growth but allows for various policy stipula tions: (1) Greater state control in opening up to international markets is important, esp ecially with regard to timing, speed and sequence. Use of tariffs enables national enterprises to build production capabilities, while capital account liberalization should be gradual. (2) Macroeconomic policy is growth-oriented (described as productive development policy) that reduces inflation and deficits but also ensure s full production capacity. Aspects of this policy include human resource development, technology pol icy, infrastructure development and industrial organization. (3) The State is responsible for development in partnership with the business community, through pr ivate initiative whenever possible. However, State capacity is enhanced, especially when focu sing on overcoming specific problems such as missing markets or technology. (4) Wide a sset ownership and productive employment assist a production-oriented appr oach to growth, rather than redistributive transfers. (5) Regional integration and cooperation are im portant for integration into the global economy, particularly in order to develop regional production chains and markets. These five elements aim to enhance national capab ilities and long-term growth. Additionally, the author stresses the importance of stru ctural change stemming from partnership, participation and consensus rather than being externally imposed. In Globalism as Development Strategy: In Search of Alternatives, W.D. Lakshman (2004) argues that there are actu ally two modes in which to search for alternative models of devel opment to economic globalization: one is the search for alternatives to globalization (a s preferred by socialist thinkers and activists), while the other is to search for alternatives within globalization. Worki ng within the latter perspective, the author pres ents six policies for development: (1) Acknowledge that the
20 state has a significant role in development policy and that state-owned enterprises can pioneer industries in promisi ng fields and then hand them ov er to private enterprise. Infrastructure remains the respons ibility of the state, but it can benefit from private sector participation. A key concept is that the St ate has a wider role than that advocated by neoliberalism, but doesnt encroach on privat e enterprise. (2) Greater emphasis lies on a more balanced approach to internal and ex ternal economic processes in that infant industries are protected by tariffs, and timing of opening to imports and global influence is important. However, openness to the rest of world is necessary and beneficial due to gains in technology and market access. (3) It is important to accept the necessity of producing basic food items and manufacturing (rather than strict focus on exports) to alleviate poverty and provide jobs. (4) Rath er than focusing stri ctly on profits, it is necessary to recognize the benefits of wages th at enable workers to achieve and maintain a comfortable standard of living, which subsequently increa ses aggregate demand, reduces societal inequality, and improves wo rk incentives. (5) SAPs from above (the IMF, World Bank, etc.) need to be replaced by adjustment programs from below (with participation of the populace) because they can facilitate investment in education, research, health and productivity for su stained development purposes. (6) Tailor development policy to the conditions and culture of each particular nation, rather than providing one policy approach for all developing nations. Based on the above literature it is clear that there are many disparate beliefs and theories concerning economic gl obalization and its instruments, as well as the positive and negative effects of globalization policy. In addition, as problems have arisen, authors have examined and theorized possible alterna tives to this prevalent theory of economic
21 development. What is the most useful stra tegy for assessing the ideas discussed above? As stated in the introduction, the paper presents a case study of Argentina; it is thus important to delineate the methodology with which to do so. Methodology In order to examine whether policies pur sued by leftward-leaning presidents in Latin America present a potential developmen t alternative to the policies of economic globalization, my method will be a case st udy of Argentina. Although several Latin American countries have elected leftist presidents who campaign against policies of economic globalization, it is difficult to genera lize the policies that each of them has pursued and implemented. Each administra tion has its own priorities, problems and methods, from the populist approach utilized by Hugo Chvez in oil-rich Venezuela to an approach more in concert with neoliberal polic ies, such as that of Luiz Incio Lula de Silva of Brazil. Therefore, rather than pres enting a summary of th e disparate policies of the continent, I believe it will be more a dvantageous to examine the results of one countrys approach to the problems faced by se veral Latin American countries in order to discern whether the policies ar e truly different from those of economic liberalism. Argentina provides an excellent example. In order to present a case study of Ar gentina, I will employ a longitudinal approach. Carlos Menem, who was th e president of Argentina from 1989-1999, implemented many neoliberal policies during his two terms in office. In December 2001/January 2002, the Argentine economy collapsed and Argentina saw five presidents in less than one month. The current presid ent, Nstor Kirchner, was elected in 2003. Therefore, I will examine th e policies implemented under Menem before the crisis and
22 compare them to those that Kirchner has initiated. One source of comparison will be the actual policies that both administrations impl emented and the subse quent results. Another source of comparison will be aggregate statis tics of such indicators as growth, poverty rates, unemployment and inflation from sources such as the World Bank and the Economic Commission on Latin Americ a and the Caribbean (ECLAC) ( The Statistical Yearbook for Latin America and the Caribbean ), as well as the CIA World Factbook, the Latin American Weekly Review and the Instituto Nacina l de Estadstica y Censos (INDEC) of Argentina (National Statistics and Ce nsus Institute). (It is important to note that the selected primary sour ces are considered reliable; however, the potential for these sources to misrepresent data based on missing information or human error does exist). I will compare the statistics from the ten-year period of Menems presidency (1989-1999) to statistics on the same indicators during and after the economic crash, and then during Kirchners presidency (2003-2005, or the most recent data). An additional advantage stemming from a case study approach is the ability to examine in depth the causes of the rejecti on, at least partially, of economic globalization in a less developed country. With the promis e of increased growth and decreased poverty offered by economic liberalism that should appe al specifically to countries with low growth rates or high rates of poverty, what has happened to create an atmosphere of rejection and protest against economic globalization? While an examination of one Latin American country does not provide a description of the situation in every Latin American country that rejects neoliberalism, it can furnish a background to the phenomenon of leftist presidents winning elections on cam paigns that reject tenets of economic globalization. Moreover, a case study approach that require s broad investigation of a
23 country allows the writer to better understand potent ial problems and manage contingencies that may arise. Argentina provides an exceptional model for a case study approach within Latin America. In the 1990s under President Carl os Menem, Argentina adopted many of the reforms proposed under the Washington Consen sus and subsequently witnessed the end of decades of hyperinflation, increased government revenue from privatization, and growth from trade liberalization. However, the economy crashed at the end of the decade as Argentina defaulted on its debt and povert y rates increased greatly. Because Argentina implemented neoliberal reforms and subse quently suffered economic devastation, it provides an outstanding opportunity to examin e the effects of those reforms and may serve as a representative case for the re gion. Since the economic failure of 2001-2002, Argentina has not completely rejected polic ies of economic liberalism; it has, however, maintained greater control of policies under Pr esident Nstor Kirchne r (elected in 2003), and has recently renegotiated its bondholde r debt and paid off the IMF. Another important factor in choosing Argentina for the case study is the fact that data concerning Argentina are abundant due to the amount of time that has passed since Argentinas economy collapsed. The interven ing four years allow for examination of recent factors that remain relevant to Argen tines, but also provide time for analysis and publication of high quality and scholarly works.
24 Chapter Three: Economic Liberalism Economic liberalism builds on classic liberal ism, which argues that state borders or governments should not impose false barriers to the efficient allocation of goods and capital in the world economy. Current ec onomic globalization policy capitalizes on that idea through the elimination of state-imposed restrictions on the movement of money, capital and goods between countries; hence suppo rt for the reduction of tariffs and trade barriers is preeminent (i.e., trade liberalization). The polic ies favor an outward-oriented, export-based economy. According to J. Nef and W. Robles (2000), neoliberalism as a concept arose in the United States and Eur ope in the 1950s and 1960s but appeared in full force in the 1970s. Since that time, it has become the predominant economic policy with respect to globalization. John Williamson (1990) examines ten comm on policies associated with economic globalization, often termed the Washington Consensus. Williamson coined this phrase in his discussion of the ten policies thought to comprise a desirable set of economic reforms agreed to in Washington with respect to Latin America after a decade of financial crisis in the 1980s (the lost decade). The policies for which Williamson found a consensus in Washington are: (1) fiscal discipline (espec ially in order to reduce the extraordinarily high rates of inflation in ma ny countries of the re gion and avoid further capital flight); (2) redirec tion of public expenditure toward primary education, primary health care and infrastructure; (3) tax reform (to create a broader tax base); (4) interest rate liberalization; (5) a competitive exch ange rate; (6) trade liberalization; (7)
25 liberalization of foreign dire ct investment to bring capit al, technology and skills to the region; (8) privatization; (9) deregulation; a nd (10) secure property rights. (Williamson later recanted on the fifth policy, a competitive exchange rate, stating that no consensus existed on this policy) (2000). While not Williamsons intention, these policies have become synonymous with economic globali zation and continue to be promoted by international financial institutions as the best means to sound growth (although in his reexamination of the policies in 2000, Williamson found the least progress in the area of redirecting public expenditures toward primary education, health care and infrastructure). Richard Peet (2003) discusses the ascent of economic liberalism in the 1970s and 1980s, primarily as a reaction to Keynesian economic policy. As a result of the depression of the 1930s and World War II, econo mic policy shifted to include the right of the state to intervene in and to regulate the market econom y in order to redistribute wealth and promote the well being of the majority of citizens (within Western democracies). Social democratic polici es included welfare programs, unemployment compensation and the subsidization of educa tion and social services (6). Keynesian economists also advocated state deficit spendi ng to mitigate fluctuations in employment and reduce the likelihood of a nother devastating depression; consequently, growth and employment policies were to incorporate soci al policy. These beliefs remained at the forefront of economic policy until the 1970s and the rise of economic liberalism. Advanced in several intellectual centers worldwid e, economic liberalism is associated most prominently with the Ch icago School of Political Economy. Founded on principles contrary to those of Keynesian economic policy (and harkening back to classic liberalism), economic liberalism advocates fa ith in the market to regulate the world
26 economy, coupled with the freedom of individua ls to pursue their own financial interests outside the bounds of state intervention. As stated above, trade liberalization, privatization of state-owned entities, and deregulation, in addition to reduced state provisions of welfare guarantees, are the most prominent facets of economic liberalism. These policies earned respect when problems su ch as stagflation in the 1970s could not be solved by Keynesian economics (Peet 2003). In the 1980s, the Republicans under Ronald Reagan (in the U.S.) and the Conser vatives in Margaret Thatchers government (in the U.K.), supported by la rge corporations and banks, advocated the policies of economic liberalism as an unparalleled method to promote growth and development worldwide. Intergovernmental Organizations Intergovernmental organizations, or global governance institutions, play a prominent role in economic globalization. Ag encies such as the International Bank for Reconstruction and Development (the Worl d Bank), the International Monetary Fund (IMF) and the World Trade Organization (W TO) advance economic liberalism in the form of privatization of st ate-owned entities and reduction of subsidies (the World Bank and the IMF), as well as the elimination of trade barriers (the WTO). Originally founded as part of the Bretton Woods agreement of 1944, the World Bank was to spearhead the reconstruction and development of Europe af ter World War II, while the goal of the IMF was to promote stability fo r trade through exchange rate controls and balance of payments loans (Peet 2003). However, in the 1960s and 1970s, both organizations began to play a more instrumental role in Third World countries. The World Bank became involved in development projects, whereas the IMF shifted to granting loans to
27 developing nations. Both organizations increasingly employed policies of economic liberalism, particularly in making financia l aid and debt restructuring contingent upon conditionality, or Structur al Adjustment Programs. Structural Adjustment Programs (SAPs) became popular in the late 1970s as a means to urge reform in recipient countries (Welch 2001). Structural adjustment was enacted as a condition to loans with the goa l of promoting export -orientation and trade liberalization. Requirements of SAPs include potentially hi gher growth rates through an outward oriented trade strategy and lower deficits through reduced public spending, along with fewer price controls labor market regulations and investment regulations (Peet 2003). Countries are able to increase foreign reserves (and thereby service their debts) through capitalizing on comparative adva ntages of low labor costs, for example, and maintaining high export levels. Additiona lly, in order to integrate these countries into the world economy, SAPs advocate liberali zing trade, investment and finance, which includes a reduction in government spendi ng and employment, currency devaluation, higher interest rates, reduction of trade barr iers, and privatization of government-owned enterprises. Much controversy surrounds the implementation of Structural Adjustment Programs in developing nations. While SAPs have generally succeeded in decreasing government budget deficits and halting hyperinf lation, the policies ut ilized have also increased poverty and unemployment rates (W elch 2001). Moreover, policies advocated by SAPs can actually add to the structural causes of poverty because they advance reforms that deregulate labor, reduce the availability of social programs, weaken environmental standards and urge rapid priv atization that can increase unemployment.
28 Another argument against SAPs stems from th e fact that all countries, regardless of culture, historical background or financial requirements, are given the same economic dictates to solve their financial woes (P eet 2003; Welch 2001). What works in Mexico should work in Ghana, should work in Pakista n, etc. While one perspective states that there are only two options, toward greater lib eralization or toward greater protectionism, (Bhagwati 2004), other globalization advocates support an approach that considers the historical or cultural background of each c ountry in addition to specific financial requirements (Peet 2003; Stiglit z 2003; Lakshman 2004). Structural Adjustment Program policy requi rements can also weaken the hand of sovereign nations by demanding policy change s as a condition for access to much-needed funds, often to service already existing debts. If the str uggling government wants a loan or debt restructured, it must comply with ex ternally enforced austerity measures, often without input from its citizens. Joseph Stiglitz (2003) feels that these policies, particularly those stemming from the IMF, of ten fail and that when they do, the citizens who had no voice in debating or selecting the failed policies must ultimately pay for them through higher taxes, decreased subsidies a nd a lower standard of living. The policies can thus be very politically destabilizing, whic h can in turn affect the climate for foreign investment. Additionally, Victor Ferkiss (2000) emphasizes that these IFI prescriptions do not support democracy in weaker nations because citizens soon come to realize that regardless of whom they elect, their leader s are powerless before the demands of the global governance institutions. Another influential intergovernmental institution promoting economic globalization is the World Trade Organizati on. Established in 1995, the WTO is a more
29 formal version of the General Agreement on Tariffs and Trade (GATT) created in 1947. The purpose of the WTO is to promote trad e liberalization thr ough the belief that competition and free markets on the international level engender rapid economic growth that is beneficial for all. Jagdish Bhag wati (2004) confirms the idea that increased growth decreases poverty through higher demand for labor and subsequently higher wages. However, both Bhagwati and Jose ph Stiglitz (2003) argue that necessary regulations must be implemented in order to promote the diffusion of growth and to protect those workers displaced by new i ndustries or technological change. According to Richard Peet (2003), as of 2002, the WTO was comprised of 144 member states that accounted for 97 percent of world trade (157). He adds that the WTO promotes itself as a forum for trade negotia tions whose declared goal is to help trade flow smoothly, freely, fairly and predictabl y (158), but emphasizes that the WTO holds no public hearings and does not open its pr ocesses to the public. Moreover, the WTO does not adopt a neutral stance on trade policy bu t prescribes trade liberalization, even in the face of evidence that it ha s not decreased poverty in less developed countries (Peet 2003). Transnational Corporations The power and reach of transnationa l corporations (TNCs) is not a new phenomenon in world history, although the pr esence and strength of such corporations has greatly increased in the past few decad es with the prevalence of globalization. Companies such as General Motors, Unilever, Motorola, Panasonic and Nestle simultaneously maintain headquarters and f actories in different countries, employing local workers in various stages of production. These corpor ations supply foreign direct
30 investment to host countries and provid e new job opportunities. However, the corporations also have the ab ility to rapidly shift producti on and capital from one country to another, and thus subsequently benefit from lenient government regulations employed to maintain their operations within a host country. Consequently, the capacity of less developed countries to pursue national goals such as domestic production or human development is often restricted by the governments need to attract and maintain capital (Carty 2003). Current World Bank, IMF and WTO directives toward trade li beralization greatly aid transnational corporations. TNCs are able to maintain different stages of production in various nations (taking adva ntage of low wages or lack of environmental standards) and import or export manufactured goods in order to complete assembly of complex goods (such as automobiles) or sell finish ed products. Additionally, IMF and World Bank obligations that reduce st ate welfare provisions for citizens serve TNCs because they can capitalize on poverty conditions to force long wo rking hours or low wages. Sovereign nations must walk a fine line be tween state-directed de velopment policies and those that will maintain capital and devel opment from TNCs. Hen ce, along with global governance institutions, transnational corporations benefit from current economic globalization policies, while less developed countries struggle to develop and escape from their burden of debt. Conclusion on Economic Liberalism The worldwide trend toward economic globalization has tended to benefit a minority of actors. Wealthy industrialized c ountries, transnational co rporations and wellconnected elites in less develope d countries have realized ga ins from the policy shift.
31 However, the current development model has been less advantageous to those outside these groups; they have often suffered deteri orating living standards, increased income disparity, environmental degradation and unde rmined sovereignty (Nef & Robles 2000). Victor Ferkiss (2000) emphasizes that economic globalization policies are socially destabilizing as well, especially when consid ering uprooted farmers, migration to cities and the loss of community as pe ople change their lifestyle in order to seek employment. Structural Adjustment Programs advocated by the World Bank and the IMF are intended to increase growth that will benefit all citizens; however, greater underdevelopment and poverty, as well as weakened sovereignty, have often been the results. John Sherman (2000) adds that policies of the IMF and the World Bank, including SAPs, facilitate wealth extraction from devel oping nations, and he states th at since 1983 they have taken several hundred billion dollars more from less developed countries (in debt servicing payments) than they have contributed in loans (159). Therefore, while some groups clearly benefit from economic globalization, many citizens of developing nations believe the policies have not fulfilled the promise of poverty reduction. What has been the reaction to economic globaliza tion in less developed count ries of the world?
32 Chapter Four: Economic Liberalism within Latin America High levels of debt in Latin Ameri ca have been instrumental in allowing neoliberal policies to dictate economic (and by extension, political) control in the region. During the Cold War, and especially with the onset of high inflation in the U.S. in the 1970s, cheap credit became available to Latin American countries in order to promote development and fend off communist influen ce in the region, while at the same time allowing U.S. banks to increase their ear nings (Sherman 2000). After 1970, Latin American countries began to borrow from private First World banks in addition to servicing loans from internati onal financial institutions. Jo hn Sherman (2000) states that the region began the decade with relatively low public and private debt, but ended it owing $250 billion (155). However, when R onald Reagans administration changed U.S. fiscal policy in 1981 in order to reign in inflat ion, the region saw intere st rates jump at the same time that prices for oil and othe r commodities exported by the region dropped precipitously. The result was the lost decad e in Latin America, a name given to the 1980s as a decade lost to development and mired in shrinking growth rates, per capita income and investment, and hyperinflation. In the early 1980s, the U.S., the IMF and international banks negotiated with Latin American countries to arrange new cond itions for repayment of the regions debt. During these negotiations, the IMF moved to ce nter stage within the debt management program and began to cooperate with th e World Bank in the implementation of conditionality policies to address underlying st ructural deficiencies within each country
33 (Structural Adjustment Programs) (Sherman 20 00). Privatization followed, as did foreign influence and capital. Many state-owned entitie s were sold below their value, enriching domestic elites and foreign corporations. Additionally, in order to combat hyperinflation, high interest rates and reduced spendi ng on public services were advocated. Hyperinflation ended, but many countries fell into recession (Sherman 2000). During the 1990s, the international financia l institutes pushed for further austerity measures, including cutting government expenditures and increasi ng revenues (i.e., the Washington Consensus policies). Export-orie nted policies were promoted, along with free trade and reduction of tari ffs. NAFTA (the North American Free Trade Agreement) began in 1994 between the U.S, Canada a nd Mexico, and the WTO was founded in 1995. All the countries of Latin America joined the WTO in 1995, except Ecuador and Panama, which joined in 1996 and 1997, respectively (The World Trade Organization 2006). Therefore, the free trade policies advocated by the IGOs have had profound influence in the region. However, since these Washington Consensus policies have been advanced in Latin America, wealth has increasingly concentrated upward. The income disparity between rich and poor, already one of the highe st worldwide, has grown, while the region ended the millenium with over $700 billion in debt (Sherman 2000). Nancy Birdsall and Miguel Szkely (2003) emphasize the fact that low growth rates in the region, coupled w ith high rates of inequality stemming from the era of colonization, have also contributed to the pe rsistence of poverty and income disparity in Latin America. However, they stress that co ntinued poverty is part of a vicious cycle in which poverty and inequality in turn perpet uate low growth rates, keeping the region underdeveloped and exacerbating the problems of the poor. The poor are in want of
34 access to credit due to lack of collateral (especially access to land or housing deeds). In addition, they cannot afford to keep their child ren in school, so the family is cut off from future earning potential that an education would provide. Economic reforms in the past two decades have thus failed to address the underlying struct ural problems that inhibit growth for the poor. Labor issues are yet another source of persistent poverty in Latin America. According to Jaime Saavedra (2003), low quality jobs and the prevalence of the informal sector within Latin America are the two key problems facing workers. The informal sector consists of employment without so cial benefits, unemployment protection or compliance with occupational sa fety regulations, and it accounts for more than 50 percent of jobs in urban areas, as well as the vast majority of rural jobs (214). Trade liberalization and foreign dire ct investment that can incr ease labor opportunities have seen the biggest demand for skilled workers in the areas of service, finance and insurance; however, poor quality educati on due to decreased government funding and lack of tertiary education have provided mostly unskilled workers who do not meet these needs. Due to globalization, demand for unsk illed labor has also flourished in countries with lower labor costs, such as China or Southeast Asia, thus decreasing demand for unskilled labor in Latin America. Additio nally, privatization of state enterprises supported by economic globalization also de mands skilled employees, rather than unskilled workers, to prosper in a competitiv e environment. Further exacerbating these problems is the lack of a social safety net for those who become or remain unemployed. Thus poverty persists despite growth provided by globalization and trade liberalization,
35 while decreased government spending cannot mitigate the effects of unemployment and poverty. How has the region responded to increas ed poverty and social upheaval? In several countries in the region, there has b een a decided shift ag ainst proponents of market reform as the only route to solvi ng Latin Americas economic problems. In Venezuela, Ecuador, Brazil, Argentina, Ur uguay and Bolivia, presidents campaigning on progressive policies contrary to economic gl obalization have won elections in the past decade: Hugo Chvez of Venezuela in 1998, Lucio Gutirrez of Ecuador in 2002 (forced from office in 2005), Luiz Incio Lula da Silva of Brazil in 2003, Nstor Kirchner of Argentina in 2003, Tabar Vzquez of Urugua y in 2005, and Evo Morales of Bolivia in 2006 (although it is quite early to discern whether the viewpoints of Vzquez and Morales will change in office, as happened in the 1990s in Argentina (Menem)and in Ecuador after Gutirrez took office). None of these officials has bucked the prescriptions of the IFIs completely, as all remain memb ers of the WTO and have continued to pay international loans. But all have claimed to be working to benefit their citizens more and reduce poverty, rather than worki ng strictly for elite or foreig n interests. This paper will now explore one of these presidents, Nstor Kirchner, and his role in Argentinas response to economic globalization.
36 Chapter Five: Argentina Historical Background Argentina is a country with abundant land and natural resources that has historically exported commodity goods such as grains and beef. The country was long one of the most prosperous in Latin Ameri ca, with a large, educated middle-class and opportunity for upward mobility (especially through education). However, from 1930 to 1983, Argentina experienced great political inst ability due to numerous military coups and dictatorships, along with financial crises and high inflation. After the return to democracy in 1983, crippling rates of hyperinflation (until 1990), ec onomic problems and corruption were common, culminating in the economic collapse of December 2001/January 2002. What led to the collapse, and how have Argentinas political and economic prospects chan ged since that time? One of the most defining aspects of Argentine politics (and consequently, economic policy) is its history concerni ng former president General Juan Domingo Pern. Pern was president from 1946-1955, and again from 1973 until his death in 1974, and gave his name to arguably the strong est political movement within the country, Peronism (also known by its formal name, the Partido Justicialista or the Justicialist Party). Peronism, the Argentine rendition of populism, was an ideological union of socialism, fascism and Keynesian economics (Nef 2002). Pern gleaned much of his political strength from the working class, and augmented his power by promoting trade unions (especially under the General Labor Conf ederation, or CGT) and their bargaining
37 power, along with workers ri ghts and benefits. Pern em ployed strong state government in order to ensure full employment and a h ealthy domestic market and was inspired by Keynsian ideas popular in many parts of the world after World War II (Romero 2002). In the post-World War II world in which Europe was greatly weakened, Pern and the state stepped in to nationalize ma ny industries formerly owned by Europeans, including the railroads, utilities, telephone and gas companies. Additionally he began a national airline and nationalized the central ba nk. He also supported Import-Substitution Industrialization in order to reduce relianc e on foreign imports and expand Argentinas domestic market. (Import-Substitution Industrialization, or ISI, attempted to produce previously imported goods domestically, aided by protective tariffs, and fell out of favor throughout Latin America in the early 1980s). At the same time that Pern increased st ate power via the afor mentioned policies, he sought greater control of the state through authoritarian measures His administration controlled the judiciary and ma nipulated the radio and press, often disbursing Peronist propaganda through the media (Vacs 2006). A dditionally, Pern consolidated all power in the hands of the executive, no t only in the position of presiden t, but also in the role of governor and mayor of each province and city (ostensibly to fill each with a Peronist) (Romero 2002). Pern also instituted 5-year pl ans in which he increased worker benefits (including paid vacations, pensions and health care), as well as incr easing state regulation and protectionism of state industries. While strong state government by means of the above policies is associated with the Peronist party, its doctrine also includes the idea of soci al justice. Pern sought to
38 strengthen class identity thr ough integration with the state, and promoted the recognition of working people along with social mobility (through education) and a welfare state. A second historical aspect relevant to the proposed examination of Argentina under Nstor Kirchner is the brutal milita ry dictatorship of 1976-1983. The military government promised to establish order within yet another era of financial crisis in Argentinas history, this time stemming from Is abel Perns presidency after the death of her husband in 1974; however, economic problems continued while the government simultaneously executed a period of terror and genocide that culminated in the loss of 30,000 people ( los desaparecidos or disappeared persons) and a pervasive climate of fear (Vacs 2006). During this six-year pe riod, political party activity was prohibited, as were labor movement and trade union activities. At the same time, the Peronist party was divided into several factions that included the Montoneros, a socialist-inclined branch of the party that engaged in gue rrilla activities against the gov ernment, and the labor and rights groups that upheld Perns principles within Peronism. According to Luis Alberto Romero ( 2002), the military government destroyed Argentinas economy. In what can be seen as the beginning of reforms continued under presidents Alfonsn (elected in 1983) and Menem (elected in 1989), the military government eliminated state controls and di smantled the mechanisms for protecting local industry in what it hoped would be a panacea for the economic problems of the previous decades. Believing the failing economy stemmed from interventionist state policy and a semi-closed market, the military leaders and th eir economic advisors attempted to replace state intervention with the market. At th e same time, they hoped to reduce the contentious influence of political groups that tried to dictate public policy because
39 forthwith the market, rather than the st ate, would allocate resources (Vacs 2006). However, the rapid changes, c oupled with the overva luation of the Argentine peso, led to a flood of cheap imports, loss of jobs in loca l industry, and reduced buying power for the Argentine population. High infl ation persisted, at rates of up to 100 percent per year, while the government instituted a policy guaranteeing all bank deposits in the event of bankruptcy. Thus, when several large banks collapsed, the state acquired the burden of the guaranteed deposits; additi onally, in 1982, the state nation alized the private debt of many failed companies. Due to the flaili ng economy, all of thes e changes occurred during an era of decreasing tax receipts, making it incr easingly difficult for the government to fund its policies and responsibilities. An additional strain on the system was the influx of petrodollars that followed high interest rates th roughout Latin America, especially with the onset of high inflation in the U.S. in the 1970s. Cheap credit became available to promote development and fend of f communist influence in the region, while at the same time U.S. banks tried to incr ease their earnings via high interest rates (Sherman 2000). Partially as a result of these policies, La tin America suffered the lost decade in the 1980s. Argentina thus suffered fr om the combination of the lost decade and its own, homegrown economic problems under the dictatorship. The unstable economy, in conjunction with a war with Great Britain over the Falk land Islands in 1982, ultimately led to the end of the dictatorship, and the govern ment returned to democracy with the 1983 election of Raul Alfonsn of the Unin Cvica Radical (the Radical Party, or UCR). The economy continued to suffer under Al fonsn, with high inflation, increased foreign debt and payment demands, and insuffi cient resources for state employee salaries
40 and social needs such as education and health care (Vacs 2006). Th e foreign debt under Alfonsn nearly doubled from $35 billion in 1981 to $63 billion in 1989, due at least in part to accumulated interest ( Statistical Yearbook 1982-1990). Alfonsn had plans for deeper reforms, including privatization of state industry and deregulation; however, he faced enormous oppostion to those ideas due to ideas rooted in society, Peronism and even his own party, UCR (Romero 2002). In July 1989, inflation reached 200 percent and people began looting supermarkets, promp ting Alfonsn to hand the presidency over to newly-elected Carlos Sa ul Menem six months early. Argentina under President Menem The election of Carlos Menem restored the Peronist party to presidential power. During the election campaign, Menem promised the return of the welfare state (Romero 2002), but once in office, he fully embraced economic liberalism. While attempts at liberal reform had been tried under the milita ry government and Alfonsn, it wasnt until the population was so mired in the economic cr isis of 1989, when inflation rates reached 3,000 percent ( Statistical Yearbook 1990) that it was ready to accept additional reform. Menem and his Economy Minister Domingo Ca vallo implemented numerous policies to halt hyperinflation and spur the economy, one of the most important being the Convertibility Law. Passed in 1991, the Covertibility Law pegged the peso to the U.S. dollar at a one-to-one ratio. Additiona lly, under the new law, the president was prohibited from either modifying exchange ra tes or printing money above the countrys dollar reserves. At the same time, the govern ment reduced trade barriers by 33 percent to increase the level of cheap, imported goods. Both policies helped stabilize the economy
41 and end high inflation, which dropped to 25 percent in 1992 and 10 percent in 1993 ( Statistical Yearbook 1996). In addition to the Covertibility Law, Menem also implemented two further policies between 1989 and 1991: the Law of Ec onomic Emergency and the Law of State Reform (Romero 2002). The former elimin ated government subsidies and special privileges, and authorized the laying off of state employees; the latter declared the necessity of privatizing stateowned entities, giving the presid ent the authority to do so as he deemed necessary. In order to demonstrat e his ability to obtain funds to pay down the foreign debt, Menem authorized the sale of ENTEL (the state te lephone company) and Aerolineas Argentinas. The highway system, TV networks, railroads and parts of the state oil industry (Yacimientos Petrolferos Fiscales, or YPF) followed at a rapid pace, often benefitting those with personal ties to the presiden t (Romero 2002). One further policy instituted by Menem at this time was to raise the sales tax to provide additional income for the government. After 1991, Cavallo continued with the privatization measures begun by Menem, albeit more carefully. The government privatiz ed the electric, gas a nd water utilities and, stemming from the culmination of its polic ies, saw economic gains from 1991-1994, with annual growth rates of 9.5 percent, 8.4 percen t, 5.3 percent and 6.7 percent respectively ( Statistical Yearbook 1996), and higher rates of fore ign investment. However, high unemployment accompanied privatization as ma ny state workers were laid off in the name of productivity. Additionally, the peso became overvalued due to higher inflation in Argentina than the U.S. (the currency to which the peso was pegged). The overvalued peso kept salaries high, which not only fact ored into unemployment from privatization,
42 but also played a role in reducing the work force as increasingly uncompetitive local industries declined. As a result of cheap im ports from trade liberalization and high labor costs due to overvaluation of the pes o, much local industry was wiped out. Unemployment in 1994 stood at 11.5 percent, passing the long-established ceiling of 10 percent ( Statistical Yearbook 1996). In 1994, Argentina revised its constitu tion to allow Menem to run for an unprecedented second consecutive term in office, which he easily won in 1995. However, 1995 also saw the beginning of an economic downturn. Devaluation of the peso that might have made Argentine goods more competitive (and thus eased unemployment) was unthinkable, as the faith in the markets and trust of foreign investors lay in the Convertibility La w (Romero 2002). The economy survived the downturn of 1995 and returned to strong levels of growth, reaching 8 percent in 1997 ( Statistical Yearbook 2000), while unemployment remained at 15 percent ( Statistical Yearbook 2004). At this point, Cavallo instituted furthe r privatization (until he was removed from office in 1996 for attempting to fight the corr uption endemic to Menems administration). He was replaced by Central Bank president Roque Fernndez. 1998 began a new, more serious economic crisis that evolved into a recession. GDP declined 4 percent, while interest ra tes on the foreign debt increased and export prices fell (Vacs 2006). Protests mounted against not only expa nding economic problems but also the corruption within the administration. While Menems policies reigned in inflation and expanded faith in Argentinas markets, internationa l debt obligations jumped from $63 billion in 1989 to $145 billi on when Menems presidential term ended in 1999 ( Statistical Yearbook 1990-2000).
43 The Economic Crisis of December 2001/January 2002 and Aftermath Fernando De la Ra of the newly created Alianza para la Justicia, el Trabajo, y la Educacin (Alliance for Justice, Work and Education) won the presidential election of 1999 and inherited an economy in the midst of the recession that had begun in 1998. De la Ra, who returned Domingo Cavallo to the Economy Minister position once again, maintained the policies of economic liber alism and the Covertibility Law begun under Menem, and the economy worsened. Unempl oyment increased from 13 percent in 1998 to nearly 18 percent three years later ( Statistical Yearbook 2004). At the same time, funds for social services were limited due to high levels of debt servicing (Nef 2002). Throughout the country, members of the middl e class resorted to bartering as an alternative social safety ne t (Krauss 2001), while at the sa me time payment in scrip became widespread in the provinces (Hor nbeck 2002). In July 2001, the government passed a law cutting government salaries a nd pensions by 13% in order to attempt compliance with debt payments. In N ovember 2001, the government froze all bank deposits in order to end a r un on the banks (known as the corralito ). On December 13, 2001, the Confederacin General del Trabajo (General Confederation of Labor, or CGT) called a general strike against current conditions and several days late r protests spread as people looted supermarkets and participated in demonstrations. Middle-class families protested as well, banging pots in the Plaza de Mayo in Buenos Aires to demonstrate their lack of food (and their anger at the in accessible bank deposits). The overwhelming anti-government sentiment curr ent at the time was epitomized in the often-expressed, Que se vayan todos! (Everyone must go!) (Llanos 2004). The government then
44 attempted to supress the protests, and 32 peopl e were killed (Burbach 2002). De la Ra resigned on December 20. Between December 20, 2001, and January 2, 2002, five different presidents succeeded one another. After the third president, Adolfo Rodrguez Sa, was appointed by the Senate, he suspended all payments on the foreign debt (Nef 2002). Protests continued and Sa was forced from office. On January 2, the Congress chose Peronist Eduardo Duhalde to serve the remaini ng two years of De la Ras term. As one of his first presid ential acts, Duhalde ended the practice of covertibility and devalued the peso. This act made Argentine products more competitive in international markets, but it also wiped out the savings of middle-class families. The devaluation caused the recessi on that had begun in 1998 to b ecome a depression, and fear of hyperinflation increased. It did not mate rialize, however, and the economy began to expand in the second half of 2002 (Llanos 2004). Theories of what caused the economic collapse in Argentina abound. Argentina followed all the prescriptions for growth prom oted by institutions of economic liberalism, or the policies of the Washington Consensus. However, while Gross Domestic Product (GDP) expanded from 1990-1994 and again from 1996-1997, and hyperinflation ended, unemployment and poverty levels grew. A dditionally, due to (among other factors) corruption and interest, the national debt doubl ed from $63 billion in 1989 to $145 billion in 1999 ( Statistical Yearbook 1990-2000) in a time of incr eased government income from privatization. Michael Mussa (2002) of the IMF sees th e economic collapse stemming primarily from Argentinas inab ility to maintain a responsib le fiscal policy (although he admits to two grave errors on the part of the IMF, as well), while James Petras and Henry
45 Veltmeyer (2003) view the economic collapse as a direct result of economic liberalism. Many Argentines (politicians a nd citizenry) also fault the policies of the international financial institutions. However, other authors and experts fall between these two extremes, with many overlapping ideas stemming from the policies implemented by Menem and his successors. The Convertibility Plan that Menem ins tituted in 1991 clearly had both beneficial and detrimental aspects. The Plan aide d economic stabilization and eliminated hyperinflation (from over 3,000 percent in 1989 to 10 percent in 1993) ( Statistical Yearbook 1996). After decades of instability, the population (including the middle class) supported the Covertibility Plan (Hershberg 2002; Mussa 2002), while at the same time, the Plan helped maintain investor confid ence and access to funds from international sources. However, it also allowed for overv aluation of the peso that led to greater unemployment and, after the currency was devalu ed, decimation of middle-class savings. Additionally, the price of Arge ntine goods was higher than what could be justified by productivity. Prices rose steadily fr om 1991 until 1994, thus making goods more expensive in export markets (Llach 2004). The high level of external debt in 1998 ($142 billion) fueled expectations of an impending de valuation as well, causing capital flight to begin that same year (Llach 2004). When De la Ra finally took the necessary step of ending the plan in order to make Argentine goods more competitive, depression ensued. Michael Mussa (2002) addr esses two additional factor s leading to the economic crisis: failure to maintain a responsible fisc al policy and fiscal i rresponsibility in the provinces, which the central government funded. Essentially, Argentina spent more than it collected in taxes and revenue, even as Menem privatized numerous state industries
46 (corruption thus played a role as well, as state industries were sold below market value, decreasing the governments potential income). Debt escalated from $63 billion in 1989 to $145 billion when Menems pres idential term e nded in 1999 ( Statistical Yearbook 1990-2000). Due to the Covertibility Plan and increased financial stability, creditors were very willing to fund Argentinas burgeoning debt, which only facilitated the problem. However, when Argentina experi enced a period of strong economic growth from 1991-1994, it neglected to implement more responsible fiscal policies that might have reduced debt levels and diminished the likelihood of economic collapse (Mussa 2002). Additionally, as the recession of the late 1990s set in and the expectation of devaluation grew, creditors de manded higher interest rates for new loans; at the same time, the IMF required further austerity m easures as a condition for granting loans loans that were destined to ensure Argentin as ability to cover debt payments, not help Argentines (Hershberg 2002). This factor only increased the Argentine populations animosity toward IFIs and the gove rnment during and after the crash. Argentinas history (as well as the histor y of the region) also plays an important role in the economic collapse. Jorge Nef ( 2002) asserts that four factors (political, economic, social and cultural aspects), coupled with economic globalization, led to economic crisis. Endemic poverty in the region was exacerbated by developmental failure and high debt levels stemming from the lost decade and the pre-existing conditions of high income disparity and underdevelopment. St abilization policies instituted by Menem, while ending hyperinf lation, diminished the social safety net available to the poor. Additionally, as addres sed above, privatization led to widespread unemployment. Thus, when De la Ras policies culminated in cutting government
47 salaries and pensions and instituting the corralito in order to service the foreign debt and avoid capital flight, the populace saw no othe r choice but to protest to change the unbearable economic and political situation that th ey attributed to government policies.
48 Chapter Six: The Kirchner Years Background to Nstor Kirchner Peronist Nstor Carlos Kirchner beca me president of Argentina on May 25, 2003, succeeding Eduardo Duhalde. Prior to bei ng elected president, Kirchner served as governor of the southern province of Santa Cruz for three consecutive terms. Kirchner is married to Cristina Fernndez, a senator in Buenos Aires, with whom he painstakingly planned his political ascension from lawyer to mayor of Ro Gallegos, then to governor, and finally president. Kirchner was elected on an anti-neoliberal platform and currently maintains a 75 percent approval rating in Ar gentina (Argentina s Nstor Kirchner 2006). Nstor Kirchner is a strong-willed man who prefers to maintain negotiating and decision-making power in his own hands. Ar gentines have named his approach to governing and negotiation the K Style, wh ich has included a confrontational stance toward creditors (albeit mitigated by m oderate action) (Gastaldi 2005), as well as challenging the powerful and prestigious of Argentine society, such as the military (Rohter 2003). He frequently shuns prot ocol, exemplified by his ignoring security concerns to join the crowds that cheered him after his inaugeration because he was one of them (Garrone & Rocha 2003, p. 21). As president, he remains obsessed with the economy, as was the case in his posit ions as both mayor and governor. In law school, Kirchner was a member of the Federacin Universitaria de la Revolucin Nacional (the University Federation of Na tional Revolution, or FURN), part
49 of the Young Peronists movement that sought the return of Pern (this movement also spawned the Montoneros, a militant guerrilla group; however, Kirchner denies being part of the Montoneros). Nevertheless, he was briefly jailed by the military government that ruled from 1976 until 1983 (Garrone & Rocha 2003). After one term as mayor of Ro Gallegos Kirchner was elected governor of Santa Cruz in 1991. During his three consecutive terms in this post, Kirchner bolstered the economy of the province (whi ch had suffered a deficit), lowered unemployment, and invested in education, health care and housing for the poor. He also focused on infrastructure, including roads, ports and airport construction. With Domingo Cavallo (the Economy Minister under President Menem) he attempted to create a duty-free zone in Santa Cruz to promote industry and im prove the economy; however, after problems developed between Kirchner and Menem, Mene m annulled the project (Garrone & Rocha 2003). Kirchner further distan ced himself from Menem when he sided with striking coalminers who were protesting privatization of their mine in Ro Tu rbio, Santa Cruz, in 1994 (Garrone & Rocha 2003). The presidential election of 2003 provided a battleground betw een the two most prominent forces within Peronism: Carlos Menem and Eduardo Duhalde. Menem wanted to be reelected, while Duhalde preferred that the Peronists of fer the public a new candidate, one which he could ostensibly control while at the same time preventing Menem from gaining the presiden cy (Gaudin 2005). In this respect, Kirchner was widely thought to be Duhaldes puppet, a belief Kirchner soon corrected by instituting his own policies (Garrone & Rocha 2003). This election was also the first time in its history that the Partido Justicialista (PJ) presented more than one candidate. In the election of April
50 2003, Menem gained 24 percent of the vote, while Kirchner won 22 percent. After numerous polls predicted that Kirchner w ould win the scheduled run-off election in a landslide victory, Menem withdrew from the race. The withdrawal made Kirchner president; however, after winning with with only 22 percent of the votes, he was left without a strong mandate. In order to establish a positive image and distinguish himself before the populace, Kirchner confronted two influential groups dur ing his first 100 days in office: the military and the Supreme Court. First, he propelled the retirement of 19 generals, 13 admirals and 12 brigadier genera ls, essentially purging the mili tary of high-level actors from the military regime of 1976-1983 (Garrone & Rocha 2003). Additionally, in order to enhance the rule of law and rid the cour t of corrupt judges from the Menem era who might oppose his reforms, Kirchner urge d Congress to expedite impeachment proceedings against the Supreme Court justi ces (a process they had initiated several weeks before). Availing himself of res earch completed by six NGOs (nongovernmental organizations), he then established a more tr ansparent selection process for new justices that included publishing their qualifications and allowing organizati ons to register an opinion prior to thei r selection (Farmelo & Cibils 2003). In addition to the steps discussed above, Kirchner also advanced the human rights situation within Argentina s oon after becoming president. He met with human rights groups (including the Mothers of the Plaza de Mayo who seek justice for the 30,000 disappeared people from the era of the military dictatorship), and then reversed an executive order that prohibited extradition of military officers to countries whose citizens had disappeared under the military regime. Fi nally, he exhorted Congress to repeal the
51 impunity laws that forbade prosecution of members of the military for crimes against humanity during the military dictatorship. Congress soon complied (Farmelo & Cibils 2003). In June 2005, the Supreme Court declared the impunity laws unconstitutional, opening the way for more than 500 potential prosecutions (Argentinas Supreme Court 2005). President Kirchners Policies When Kirchner took office in 2003, he faced two difficult government defaults from the economic crisis of 2001/2002: the IM F and private bondholders. Kirchner, who had campaigned for president on an anti-neolib eral platform, promised that he would neither allow the IMF to dictate Argentine po licy, nor further impoverish Argentines for the sake of paying back debt (especially to the IMF, which was widely viewed in Argentina as having played a role in th e economic crisis) (Rohter 2006). He thus assumed a confrontational, K Style stance with both entities, accompanied by his Economy Minister Roberto Lavagna. In September 2003, Kirchner refinanced $21.6 billion in debt with the IMF over three years, on terms largely s een as beneficial to Argentin a (Smith 2003). The primary advantage for Argentina was a commitment of only 3 percent GDP fiscal surplus to pay toward the debt (although this was equivale nt to the total annu al budget appropriations for health, science and technology, education, housing, water supply, energy and fuels, communications, environmental pr otection, transport, the judiciary, security and prisons) (Argentina: Dissecting IMF Deal 2003). Nevertheless, by comparison, the Fund-set fiscal surpluses at the time for Brazil and Ecuador were 4.25 percent and 5 percent, respectively (Smith 2003). In re turn, Argentina agreed to main tain inflation in the single
52 digits (a goal it has not managed to keep), enact tax and banking reform, renegotiate utility contracts to seek highe r rates, and restructure its de bt to bondholders (Argentina: Dissecting IMF Deal 2003). In order to comp ly with his vow not to allow the IMF to dictate policy to Argentina, Kirchner made th e countrys final paym ent of $9.8 billion to the IMF in January 2006; at the same time, he stated that he was liberating Argentina from an entity that made demands that c ontradict economic growth (Rohter 2006). (The government was able to pay this debt due pa rtly to the fact that Venezuela has bought Argentine debt and is now accepted as a lender of last resort for the country) (Populist Economic Policies? 2005). While Argentina maintains out standing debt to other sources, paying off the IMF has been an important sy mbol not only of Kirc hners power, but also for a country deeply suspicious of polic ies propagated by international financial institutions. President Kirchners second significant financial success was restructuring $100 billion of defaulted bondholder debt at a 75 pe rcent reduction of the market value. After three years of negotiations and court battles, the administra tion made a formal offer to bondholders in January 2005, with which it hoped to reach an acceptance level of at least 50 percent (Tracking Trends 2005, January 18) Two months later, in March 2005, 76 percent of creditors had accep ted the proposal, allowing Argentina to issue new bonds at no more than 30 cents on the dollar (Roht er 2005). While obviously an important financial achievement for Argentina, the pr esidents stance and success also created a potential new model for negotiations for othe r nations in debt, who typically pay 50-65 percent of debt under restru cturing (Rohter 2005). Mo reover, Kirchner linked the countrys loan payments to its economic perf ormance; thus, Argentina will make higher
53 payments when the country is doing well, a nd lower payments if it declines (Snchez 2006). This policy allows the government to fulfill its commitments to its citizenry without risking another default a potent plan that other nations could adopt that would benefit both the indebted nation and its citiz ens, as well as its creditors who avoid potential loss from defau lt. Through his negotiations with both the IMF and the bondholders, Kirchner fulfilled his promise of not further impoverishing Argentines, while also attempting to strengthen the country s sovereignty in the face of the fallout from the economic crisis four years before. Before investigating some of the specif ic policies that President Kirchner has implemented, it is important to examine Arge ntinas current economic status. Since the crisis of December 2001/January 2002, the count ry has experienced strong annual growth rates. Growth of Gross Domestic Product before and during the cris is was negative: -0.8 percent in 2000, -4.4 percent in 2001, and .8 percent in 2002 (the country experienced a recession beginning in 1998, which lasted until it developed in to the economic crisis of 2002) ( Statistical Yearbook 2004). Since that time, however, GDP has grown immensely: 8.8 percent in 2003, 9.0 percent in 2004, and 9.2 percen t in 2005 (Instituto Nacinal de Estadstica y Censos 2006), with projected growth for 2006 of 7.5 percent, the highest projection in the region (Snchez 2006). Continued high growth rates have allowed the country to satisfy its external debt commitments (even paying off its IMF debt) and expand social welfar e benefits. Nevertheless, th e increased growth does not appear to be a result of Kirchners policies, but a recovery based on devaluation of the peso due to the end of the Convertibility Plan and a positive international climate (Gastaldi 2005; Petras 2004). In recent year s, the dollar has weaken ed in value, China
54 joined the World Trade Organization (thus increasing demand) and markets opened in India, while interest rates dropped worldw ide (Gastaldi 2005). Additionally, Argentina saw strengthened demand and higher prices for its commodity goods (meat, grains and soybeans), at the same time that it increased utilization of unuse d, existing capacity in manufacturing (Petras 2004). However, grow th could be unsustain able without greater development of a domestic market and further in vestment in existing industry (as well as access to capital, which Argentinas debt restructuring in 2005 appears to have ameliorated; investment rose from $29 bill ion in 2004 to $41 billion in 2005) (Snchez 2006). In order to investigate Kirc hners policies with a view to determining whether he is providing Argentina with a potential ne w model of development, two areas of examination are imperative: nationalization of pr eviously privatized industries and social welfare policies. During Menems presid ency (1989-1999), the government privatized ENTEL (the state telephone company), the hi ghway system, TV networks, railroads, parts of the state oil industry (Yacimientos Petrolferos Fiscal es, or YPF) and the electric, gas and water utilities. Since Kirchner took office three years ago, he has renationalized the post office, a passenger rail line and most recently, the French water company Aguas Argentinas in March 2006 (Snchez 2006). A guas Argentinas, which was partly owned by Suez of France, had not fulfilled contractual obligations nor improved the quality of water that it provided to Buenos Aires, according to the government; however, Suez had also requested rate increases of 60 percent in 2005 to compensate for prices that had been frozen since 2002. The water utility will now be managed by Aysa, which is 90 percent state-owned and 10 percent employee-owned (Argentina Severs Suez Deal 2006).
55 Kirchner has not nationalized the ener gy or telecommunications industry; however, in 2004 the government created Energa Argentina Sociedad del Estado (ENARSA), of which 65 percent is government held and 35 percent is traded on the stock market (Tracking Trends 2004, May 18). The goal of ENARSA is to promote exploration and development of petroleum, gas, coal and electricty resources, and it works in conjunction with private enterp rises including Repsol-YPF of Spain and Petrobras of Brazil. ENARSA does not have the same status as state-owned oil companies such as Petrleos Mexicanos (PEMEX) or Petrleos de Venezuela SA (PDVSA); however, in 2005, it signed an agr eement with Aeropuertos Argentina 2000 to form a company to provide fuel to all the air ports in Argentina (Cantn 2005, June 4). In addition to forming ENARSA, the government ha s raised taxes on oil and gas exports (oil exporters now pay 25 percent, an increase of 5 percent, while gas exporters pay 20 percent instead of the former 5 percent) (Tracking Trends 2004, May 18). Argentina suffered a severe energy crisis in 2004, and energy has since become a primary government policy concern. Kirchner has accused the private oil companies of not fulfilling contractual obligations for investment, exploration and development, thus causing the energy crisis and fueling the founding of ENARSA (Cantn 2005, April 26; Tracking Trends 2004, May 18). While trying to ameliorate energy con cerns in Argentina through the above policies, Kirchner has also ta ken a confrontational stance wi th at least one foreign oil company: Shell. In March 2005, after Shell an nounced a 4.2 percent price increase in the price of fuel, Kirchner called for a boycott of the company, entreating the population not to buy anything from Shell, ni una lata de a ceite (not even a can of oil) (Cantn 2005,
56 March 11). Fear of increasi ng inflation played a part in the boycott demand; however, negotiations between Shell and Petrleos de Venezuela SA (PDVSA) that involved Shell selling its refineries and 900 se rvice stations to PDVSA had also recently failed, raising suspicion of an ulterior motive (Cantn 2005, March 11). The second area through which Kirchner has tried to further Argentinas national development is social welfare policy. After the economic crisis of 2002, then President Eduardo Duhalde instituted the Jefes y Jefas de Hogar (Heads of Households) work plan in which more than 2 million unem ployed heads of households with children received $50.00 (150 Argentine pesos) per mont h in exchange for small amounts of work (Petras 2004). Kirchner conti nued this program, which is th e governments largest social welfare plan and now serves 1.5 million benefi ciaries (the remainder having found work) (Ministerio de Trabajo, Empleo y Seguridad Social 2006). However, in February 2006, the government announced plans to restructure the Heads of Households work plan into two social programs that will target different groups: Capacity and Employment Insurance, whose beneficiaries will receive approximately $75.00 (225 Argentine pesos) per month, and Families (originally announced in 2004), whose beneficiaries will receive between $65.00-$75.00 (200-225 Argentine pesos) per month (Braslavsky 2006). The Capacity and Employment Insurance program dictates that beneficiaries fulfill training requirements and utilize an Employment Of fice to look for work; it provides higher subsidies than the Heads of Households work plan, but places stricter demands on participants in order to encourage a cultu re of work (Braslavsky 2006). Conversely, the Families program is designed specifically for families or single mothers whose primary responsibility is the health and e ducation of children; it provides a higher
57 payment than the Heads of Households, as we ll. In announcing the restructuring of the social welfare plan, Kirchner admitted to e nduring income disparity in the country and promised further redistributive measures to ameliorate pover ty (Braslavsky 2006). With respect to pensioners, Kirchner s administration raised their monthly payment from $65.00 (200 Argentine pesos) to approximately $71.00 (220 Argentine pesos) per month in 2003. The minimum wage was also raised at that time, from $65.00 (200 Argentine pesos) to $81.00 (250 Argentin e pesos) (Argentina: Unemployment and Poverty 2003). Additionally, the administratio n instituted the Generic Prescription Law, which guarantees government provision of drugs at 90 percent discount in primary care clinics that aid low income families (approximately 15 million people). According to the Ministry of Health, this law includes 82 percent of drugs prescribed in Argentina, thus opening drug treatment to many who previous ly could not afford it (Petras 2004). In the area of education, the Presiden t recently (May 2006) convoked a 180-day debate period within which the government will study various aspects of the National Education Law of 1993 and propose changes (Pre sidencia de la Nacin Argentina 2006). Areas of study will include the universaliz ation of preschool and the obligation of attending secondary school. Additionall y, launched in May 2005, the government is piloting a program in Buenos Aires for ch ildren aged 11-18 who have quit school but want to return. The ch ildren who participate in Todos a Estudiar (All Study) receive scholarships (400 Argentine pesos, or $130 annually), while the schools and teachers each receive additional funding for every stude nt enrolled (Presidencia de la Nacin Argentina 2006). The program currently includes 146 schools and over 3,600 students (Todos a Estudiar 2005), although the government ultimately plans to offer
58 scholarships to 40,000 students in 800 schools (Presidencia de la Nacin Argentina 2006). Finally, included as part of Kirchners so cial welfare policy is his attempt to mitigate slowly rising inflation rates through price controls. As examined above, the policies of President Menem in the 1990s ended hyperinflation a nd stabilized the currency. Since the end of th e Convertibility Plan and the devaluation of 2002, inflation has remained relatively low but has begun to increase in the past two years: 26 percent in 2002, 13 percent in 2003, 9.7 percent in 2004, 12 .3 percent in 2005, and projected at 13 percent for 2006 ( Statistical Yearbook 2004; The World Factbook 2006; Brazil and Southern Cone 2006). In the last quarter of 2005, Kirc hner convinced Argentinas large supermarket chains to commit to 15 per cent lower prices on food, personal hygiene products and apparel, and then persuaded th eir suppliers to do the same (Tracking Trends 2005, December 6; Tracking Trends 2005, December 13). The administration is also in the process of renegotiating c ontracts with 46 utility, transportation and telecommunications companies that were priv atized under Menem, all of which had their rates frozen by presidential decree after the economic crisis in 2002. The only contract that has been completed and approved by Congr ess thus far is with the regional electric company Edelap ( Empresa Distribuidora La Plata, SA ), which allows for a 15 percent rate increase (Rossi 2005). Du e to inflation fears and to a void price increases before the midterm elections in October 2005, the administration requested an extension in the renegotiation process; however, renegotiati on (and probable rate increases) will occur in 2006 and be applicable for 2007 (Rossi 2005).
59 Results of Kirchners Policies Nstor Kirchner has been president of Argentina for three years and, while he maintains a high popularity rating within hi s country, assessing the efficacy of his policies requires acknowledgement of the fact that three years is a relatively short period of time to appraise structural change. Moreover, as stated above, many of the causes of Argentinas high growth rates these past th ree and one-half years have been based on devaluation of the peso and a positive international climate. In light of his goals of a more equitable society and his lefist labe l, a more accurate evaluation of Kirchners policies is based on changes in poverty levels unemployment and income distribution. According to Argentinas Instituto Nacinal de Estadstica y Censos (National Statistics and Census Institute, or INDEC), poverty rates have gradually decreased since the high point of 57.5 percent in 2002. P overty rates dropped to 47.8 percent in 2003, 40.2 percent in 2004 and 33.8 percent in 2005 (the most recent data available). At the same time, unemployment rates have also decreased steadily: 19.7 percent in 2002, 15 percent in 2003, 14.8 percent in 2004 and 11.1 percent in 2005 (Statistical Yearbook 2004; The World Factbook 2006). However, it is important to note that the government counts as employed participants in the Head s of Households progr am; thus the decline in unemployment rates is not due solely to e xpansion of the job market. If the Heads of Households recipicients were included in unemployment rates, they would increase by approximately three percent (Tracking Trends 2006, March 7). The second primary measure of improved living standards due to policy changes by the current administration is income dist ribution. Rates of income distribution in Latin America have historically been some of worlds most unequal (Sherman 2000),
60 although Argentina was long one of the most pros perous countries in Latin America, with a large, educated middle-class and opportunity for upward mobili ty. However, in the past three decades, disparity in income distribu tion in Argentina has increased greatly: the income share of the poorest decile fell from 3 percent in 1974 to 1.2 percent in 2003, while the income ratio between the poorest de cile and the richest gr ew from 8 to more than 30 ( Monitoring Socio-Economic Conditions 2005). In examining income disparity under President Kirchner, the ne gative trend has not abated. For the two years of his presidency for which there is information (2003-2004), the poorest decile maintained 1.2 percent of the share of income, while the richest decile received 39 percent in 2003 and 38.4 percent in 2004 ( Monitoring Socio-Economic Conditions 2005). However, a longer term perspective is necessary to fully judge whether Kirchners pol icies will alter this disparity. As stated above, inflation has become a primary concern for the Kirchner administration, prompting price controls a nd postponement of renegotiation of utility prices frozen since 2002. However, while Ar gentina has experienced high growth rates the past three years, investment has not kept pace due to negative real interest rates (Argentina: 9.1% Growth 2006). Price controls are being utilized to control inflation, rather than the standard reci pe of raising interest rates. However, without increased investment that would follow higher interest ra tes, it will be difficult for the country to sustain growth and build a stronger domestic market (Argentina: 9.1% Growth 2006). A well-developed domestic market would help cultivate a larger middle class (as had historically been a common factor in Argentina) and further decrease unemployment and poverty rates.
61 One further aspect of Kirchners policies requires examination: his consolidation of power. While not a linear result of the administrations economic and social welfare policies, Kirchners consolidati on of power certainly plays a role in his ability to fulfill his promises. As stated above, Kirchner became president in 2003 without a strong mandate, receiving only 22 percent of the national vote. He has since built a strong popularity rating, currently at 75 percent of the population (Argentinas Nstor Kirchner 2006). When elected, Kirchner wa s viewed by some as a puppet of former president Eduardo Duhalde in his ongoing poli tical battle with Carlos Menem; Kirchner soon overcame that misperception through both hi s confrontational political style and his policies. However, Kirchners split from Duhalde has deve loped into a widening rift within the Peronist party. Durning hi s Patagonia years in the government, Kirchner founded his own branch within the Peronist party: Frente para la Victoria (Front for Victory, or FPV) (Garrone & Rocha 2003). D uhalde also has his own branch of support within the Justicialist Party: the Justicialist Front. The rift between these two branches of the Peronist party (the kirchneristas and the duhaldistas ) has at times blocked the passage of legislation within Congress (Argentina: Kirchner-Duhalde Rift 2005), although kirchnerista gains in the midterm election of Oc tober 2005 helped ease the situation somewhat. A powerful symbol of his success is th e fact that Kirchners wife, Cristina Fernndez, won her election for Senator of Buenos Aires province (a former Duhalde stronghold) in the midterm elections of October 2005, b eating Duhaldes wife. Kirchners Front for Victory Party (within the Peronist party) gain ed seats in both the Senate and the Chamber of Deputies, alt hough it does not hold an outright majority ( The
62 World Factbook 2006). (Although coupled with Duhalde s Justicialist Front (FJ) within the Peronist party, the Justicialist Party maintains a majority). While Kirchners success in the midter m election increases the likelihood of implementing more of his policies before the next presidential el ection in 2007, there is also a risk inherent in in vesting too much power in one person. As stated above, Kirchner is strong-willed and maintains a conf rontational political style a fact that increased his popularity in Argentina duri ng his negotiations with the IMF and the bondholders. However, too much power granted to one person creates the potential for corruption, in addition to the fact that it will be near ly impossible for Kirchners successor to replicate his persona listic style and po licies. Moreover, Kirchner has taken to ruling by decree when necessary, having avai led himself of his Congress-given right to do so in cases of urgency and necessity. In the first two years of his presidency, Kirchner submitted 140 bills to the legislature for approva l; during the same time frame, he issued 166 decrees covered by the economic emerge ncy he inherited when he became president (Kirchner Basks in Strong A pproval 2005). However, the country has experienced three successive years of strong economic growth and is poised for a fourth, leading many opponents to claim that the ec onomic emergency has ended and Kirchners use of decree should be revoked. Based on the above information on poverty, unemployment and income distribution, it would seem that the results of Kirchners po licies thus far are mixed. Growth continues to be steady (although it is aided by the internat ional climate and the high price of commodity goods), poverty leve ls have decreased and unemployment is lower (even when the recipients of the Head s of Households subs idy are excluded from
63 the count). Kirchner has increased payments to pensioners, increased the minimum wage and divided the social welfare program (Heads of Households) to bette r serve two distinct communities: those seeking work (the Cap acity and Employment Insurance program) and families headed predominantly by single mothers (Families). Moreover, his administration has instituted the Generic Pr escription Law to provi de medicine to the poor, and recently called for a renewed examina tion into education policy and programs. Opposed to these gains, however, is the fact that income distribution has not begun to decrease and inflation continues to rise, eroding gains from the above social welfare programs. Price controls provide a te mporary measure to stem inflation, but they also have the potential to st ymie investment in certain sectors of the economy which, coupled with negative real inte rest rates, will further hamper the expansion of a domestic market. Without a strong domestic market and further development of industry, a drop in commodity prices or a shift in the international climate could cause growth levels to diminish, leading to higher unemployment a nd a return to higher levels of poverty. It is important to reiterate that Kirchner has been in office for only three years, a limited amount of time to judge the long-term success or failure of his new policies. He recently replaced his Economy Minister Robe rto Lavagna with Felisa Miceli (December 2005), which could signal a shift in policies. Additionally, he is widely expected to run for president in the 2007 election, which may cau se him to alter his policies and, if he wins, provide him with the opportunity to beco me more leftist or more centrist in his second term.
64 Chapter Seven: Conclusion The research question proposed in the introduction was to determine if the policies pursued by the recently elected (in the last decade) leftward-leaning presidents in Latin America suggest a potenti al development alternative to the policies of economic globalization, as seen through a case study of Argentina. The hypothesis was that the new president of Argentina, Nstor Kirchne r, while not completely rejecting trade liberalization or globa lization, is pursuing policies of stronger state intervention and government control in order to direct the economy and provide greater stability within Argentina following the economic collapse of December 2001/January 2002. Stability in this context signifies sustai ned economic growth, declining or low poverty rates (below 20%; poverty in Argentina in 1994 stood at 16%) low or stable rates of unemployment (historically at less than 10% in Argentina, until the 1990s), and a low rate of inflation (10% per year). (Inflation in Argentina has historically been high, but President Kirchners stated target is 10%) (Miguez 2005). The methodology proposed for the study was a longitudinal approach to investigate the policies of both President Carlos Menem (1989-1999) and President Nstor Kirchner (2003present), using aggreg ate statistics of such indicators as growth, poverty rates, unemp loyment and inflation to assess the results of each presidents policies. In addition, it will be necessary to evaluate Kirchners policies against the criteria for development alternatives presented in the Literature Review, specifically the works of Joseph E. Stiglitz, Charles Gore and W.D. Lakshman.
65 The first factor to address is whether Kirchner is providing gr eater stability in Argentina following the economic collapse of December 2001/January 2002. Utilizing the four benchmark standards for stability discussed above (economic growth, low or declining poverty rates, low or stable unemployment and low inflation), Kirchners policies (coupled with devaluation of the peso and the international financial climate) have created greater stability in Argentin a. While growth was negative from 1999 to 2002, GDP has grown immensely since that tim e: 8.8 percent in 2003, 9.0 percent in 2004, and 9.2 percent in 2005 (Instituto Nacina l de Estadstica y Censos 2006), with projected growth for 2006 of 7.5 percent (San chez 2006). While poverty has not declined to the benchmark statistic of 20 percent, is has progressively dropped from 57.5 percent in 2002 to 33.8 percent in 2005 a three-year decrease that affects nearly 25 percent of the population (Instituto Nacinal de Estadstica y Censos 2006). It is possible to surmise that if growth rates remain positive and Kirc hners social welfare policies are maintained, poverty will continue to diminish. With th e higher growth rate, unemployment has also declined from 19.7 percent in 2002 to 11.1 percent in 2005 ( Statistical Yearbook 2004; The World Factbook 2006) (including beneficiaries of the Heads of Households work program). While the above three indicators of stability are positive, the fourth indicator, rate of inflation, has begun to increase (9.7 percent in 2004, 12.3 percent in 2005, and projected at 13 percent for 2006) ( The World Factbook 2006; Brazil and the Southern Cone 2006). Kirchner has in stituted price controls a nd postponed renegotiation of utility contracts in order to halt the incr ease, but these are temporary policies. The government will need to reassess monetary policy to overcome negative real interest
66 rates; higher interest rates could decrease inflation and in crease investment, potentially cultivating a stronger dome stic market and the retu rn of the middle class. To judge Kirchners policies as an alternative model of development for Argentina, it is first essential to compar e them to those of President Menem, who embraced neoliberal economic policy after becoming president in 1989. Menem instituted Washington Consensus policies, incl uding privatizing state entities, reducing tariffs, increasing taxes, eliminating subsidies and instituting a form of fiscal reform in order to reign in hyperinflation (the Convertibility Plan, wh ich was not specifically an IMF dictate) (Mussa 2002). (It is important to note that fisc al reform did not preclude the provinces from excess spending, and that Mene ms administration was widely known to be corrupt; thus, money from privatization di d not necessarily benefit the state). Under Menem, inflation decreased from 3,000 percent in 1989 to 10 percent in 1993 ( Statistical Yearbook 1996), and then to 0.7 percent in 1998 ( Statistical Yearbook 2004). Growth rates over the decade were mixed, as 1991-1994 (9.5 percent, 8.4 percent, 5.3 percent, 6.7 percent) and 1996-1998 (5.5 percent, 8.0 percen t, 3.8 percent) were positive; 1989, 1990 and 1995 (-6.5 percent, -0.1 percent, -4.6 percent) were negative ( Statistical Yearbook 1990-2000). Additionally, 1998 began a recession that developed into a depression with the economic crisis of December 2001/Janua ry 2002. However, while the decade saw mostly positive growth rates, unemployment and poverty increased. When the decade began, unemployment stood at 7.4 percent (1990). In 1994, unemployment reached 11.5 percen t, passing the long-establishe d ceiling of 10 percent. As Menem left office in 1999, the rate had reached 14.3 percent ( Statistical Yearbook 1991-2000). Under Menem, Congress passed th e Law of Economic Emergency (1989)
67 and the Law of State Reform (1991) (Romero 2002). The former eliminated government subsidies and special privilege s, and authorized the laying off of state employees; the latter declared the necessity of privatizing state-owned entities, giving the president the authority to do so as he deemed necessary. Menem thus authorized the sale of ENTEL (the state telephone company) and Aerolineas Argentinas. The highway system, TV networks, railroads and parts of the state oil industry (Yacimientos Petrolferos Fiscales, or YPF) followed, as did the electric, gas and water utilities after 1991. As each entity was sold, the newly privatized company la id off former state employees, increasing unemployment. Additionally, lower tariffs a nd fewer protections for local industry also led to higher unemployment as local businesse s folded or downsized due to competition from cheaper imports. Higher unemployment, coupled with reduced subsidies affecting social welfare programs under the 1989 Law of Economic Emer gency, also increased poverty. Poverty rates, which stood at 33.7 percent in 1990, in itially decreased under the economic growth of 1991-1994 (and the end of hyperinflation). In 1993, poverty affected 16.8 percent of the population, but by 1999 it had jumped back up to 27 percent (Instituto Nacinal de Estadstica y Censos 2006). While obviously lo wer than the 33.7 percent registered at the beginning of the decade, it is important to remember that during the same period that poverty increased (1994-1998), economic growth was positive for all but one of the years (1995). One of the principle presumptions of economic liberalism is that high economic growth will decrease poverty; however, this was not the case in Argentina under Menem. At the same time that levels of poverty grew, income disparity increased. From 1992 until 1998, the share of income held by the poorest ten percent of the population declined
68 from 1.9 percent to 1.3 percent. During the sa me period, the richest decile increased its share of income from 33.8 percent to 37.2 percent ( Monitoring Socio-Economic Conditions 2005). Based on levels of unemploymen t, poverty and income distribution, Menems policies clearly did not help all sectors of society achieve a better standard of living. And while Menems Convertibility Plan is credited with ending hyperinflation (a benefit to all segments of society), the inflexib ility of the Plan has also been discussed as one of the primary causes of the economic crisis of 2001/2002, which ultimately increased poverty and unemployment and decimated the middle class. When Nstor Kirchner became president in May 2003, he inherited a weak economy, albeit one that had begun to recover under the guidance of interim President Duhaldes Economy Minister, Roberto Lavagna As discussed above, economic growth rebounded in 2003 (8.8 percent) and has remained strong to date (Instituto Nacinal de Estadstica y Censos 2006), aided by devaluation of the peso and a positive international climate. Poverty and unemployment have decreased; poverty stands at 33.8 percent (2005), down from its high point of 57.5 in 2002, while unemployment in 2005 was 11.1 percent (including recipients of the Heads of Househol ds work program) (Instituto Nacinal de Estadstica y Censos 2006; The World Factbook 2006). Admittedly, the current poverty rate is higher than the 27 percent rate in 1999; however, the trend under Menem was increasing poverty during years of positive growth rates, while the trend during Kirchners three years has been decreasing poverty during years of positive growth rates. Comparing unemployment rate s between the two administrations is more difficult as the rate under Menem did not incl ude members of the Heads of Households work program, which was begun in 2002. Howe ver, allowing for the approximately 3
69 percent of Heads of Househol ds recipients currently excl uded from unemployment rates, unemployment at the end of Menems second term (14.3 percent) would be approximately the same as the current rate (11.1 percent plus 3 percent from Heads of Households, or 14.1 percent). Again, it is im portant to examine the trend under the two presidents: unemployment increased during positive growth during Menems administration, while it has decreased during three years of positive growth under Kirchner. (Income disparity has remained essentially the same, following the 30-year trend in the region) ( Monitoring Socio-Economic Conditions 2005). Coupled with the above comparison betw een poverty and unemployment during years of positive economic growth during bot h administrations, discussion of actual policies is necessary. Menem instituted polic ies of economic globalization that included privatizing state entities, re ducing tariffs, increasing taxes and eliminating subsidies. Kirchner has not widely rejected policies of economic globalization; he has not renationalized privatized i ndustries (although three have be en nationalized: the post office, a railroad line and Aguas Argentinas and his administration created a weak staterun oil company, ENARSA, that works in conjun ction with private oil companies). In his goals for 2006, Kirchner discussed reformi ng the tax structure to make it more progressive; however, this has been postpone d in order to concentrate on inflation (Miguez 2005). Regarding trade liberaliza tion, Argentina remains a member of the World Trade Organization as well as a key partner in Mercosur ( Mercado Comn del Sur ), which facilites regional trade between Argentina, Brazil, Uruguay, Paraguay and associate Andean members. At the end of 2004, though, Kirchner postponed auto trade liberalization with Brazil that was to begin in 2006, stating that it needed to be further
70 strengthened beforehand (Tr acking Trends 2004, September 14). One year later, the auto industry had grown in the first seven months of the year by 27.5 percent over the same period in 2004 (Tracking Trends 2005, August 09), and further increases were expected for 2006 (Tracking Trends 2006, Janu ary 10). Thus, while not renouncing the benefits of freer trade, Kirc hner also values strengthening local industry to make it more competitive before reducing tariffs. Regarding social welfare policy, Kirchne rs administration has increased the minimum wage and pension benefits, and recently (February 2006) announced the restucturing of the Heads of Households work program, which will also provide higher beneficiary payments. The administration al so instituted the Generic Prescription Law, which gives approximately 15 million poor people access to prescription drugs subsidized by the government (Petras 2004). Government spending in the first 10 months of 2005 was 43 percent higher than the same period in 2003 (Argentina 2006), which, while it may increase inflation, has helped ra ise the standard of liv ing of poor Argentines. Based on the above policies, as well as Kirchners IMF and bondholder debt negotiations and early termin ation of the IMF loan, it is obvious that Kirchner has implemented stronger state intervention and control in the first three years of his presidency. He has not reje cted tenets of economic globa lization but has attempted to mitigate their negative effects via increased control and greater state spending on social welfare programs. These policies appear to have benefitted Argentina as poverty and unemployment have decreased; do these policie s also provide an alternative model of development for Argentina?
71 Three authors in the Literature Review discussed alternative development strategies to economic globalization: Jose ph E. Stiglitz, Charles Gore and W.D. Lakshman. Based on their writing, following ar e the nine primary components of a new development model (considered alternativ es within globalization, as opposed to a complete break from globalization): (1) Greater state control in opening up to international markets is importa nt, especially with regard to timing, speed and sequence. Use of tariffs enables national enterprises to build production capa bilities, while capital account liberalization should be gradual. (2) Acknowledge that the state has a significant role in development policy and that stateowned enterprises can pioneer industries in promising fields and then hand them over to pr ivate enterprise. Infrastructure remains the responsibility of the state, but it can benefit from private sector participation. A key concept is that the State has a wider role than that advocat ed by economic liberalism, but it also supports private enterprise. (3) Macr oeconomic policy is gr owth-oriented that reduces inflation and deficits but also ensu res full production capacity. Aspects of this policy include human resource developm ent, technology policy, infrastructure development and industrial organization. (4) Wide asset ownership and productive employment assist a productionoriented approach to growth rather than redistributive transfers. (5) Regional integr ation and cooperation are importa nt for integration into the global economy, particularly in order to deve lop regional production ch ains and markets. (6) It is important to accept the nece ssity of producing basic food items and manufacturing (rather than stri ct focus on exports) to allevi ate poverty and provide jobs. (7) Rather than focusing strictly on profits, it is necessary to rec ognize the benefits of wages that enable workers to achieve and maintain a comfortable standard of living,
72 which subsequently increases aggregate demand, reduces societal inequality, and improves work incentives. (8) SAPs from a bove (the IMF, World Bank, etc.) need to be replaced by adjustment programs from b elow (with participation of the populace) because they can facilitate investment in e ducation, research, health and productivity for sustained development purposes. (9) Tailor development policy to the conditions and culture of each particular nation, rather than providing one policy approach for all developing nations. Before assessing Kirchners policies on the above criteria for an alternative model of development, it is imperative to reempha size that this model provides an alternative within globalization rather than a radical shift or re nunciation of globalization advocated by socialist thinkers. As stated above, Ki rchner has not rejected globalization nor many of its key elements: Argentina remains pa rt of international and regional trade organizations, has not nationalized key s ectors of the economy, welcomes foreign investment, and continues to pay its foreign debt. While Argentina may have shifted to the left, it has not become a socialist country. The first two criteria in the new devel opment model concern greater state control both in development policy and with regard to timing, speed and sequence in opening up to international markets. The most prominen t examples in support of this component are Kirchners postponement of auto trade liberal ization with Brazil (d iscussed above), and the fact that, after taking office, one of Kirc hners first policy changes was the restriction of short-term speculative capital inflows (Argentina: Lavagna 2003). Foreign funds (not linked to trade) must remain in the country for 180 days in an attempt to maintain currency stability. Thus the government is at tempting to control the timing and speed at
73 which it opens to international markets (in th is case, financial speculation). The third factor pertains to macroeconomic policy to control inflation and increase production capacity; to date, Kirchners polic ies have permitted an increase in inflation (which he is trying to control with price controls). Ther efore his policies do not currently fulfill this test, although production capaci ty (the other factor in this component) has greatly increased since Kirchner took office. The fourth criterion refers to wide as set ownership and a production-oriented approach to growth. Asset ownership is disp ersed in Argentina due to privatization under Menem (and the fact that Kirchner has not renationalized key economic sectors); however, many of the privatized industries are foreign owned (especially by European companies). Moreover, according to a Worl d Bank study (2005) on income distribution in Latin America over the past 30 years, wealth has concen trated upward. Assets are owned by the elite of Argentina, a trend that grew worse as endemic corruption under Menem allowed those with government connecti ons to benefit from privatization in the 1990s (Romero 2002). With regard to a pr oduction-oriented approach to growth, Argentina primarily exports commodity goods (m eat, soybeans, grains, oil, natural gas) in addition to automobiles (The World Factbook 2006). Its non-commodity goods production is therefore limited predominantly to agricultural produc tion and automobiles (while a growing service industry makes up 53.7 percent of GDP) ( The World Factbook 2006) The fifth component, regional integration a nd cooperation, is a considerable factor in Argentinas trade relations due to its par ticipation in Mercosur (as discussed above). The sixth and seventh components concern pr ovision of basic food items, jobs and
74 wages to achieve and maintain a comfortable standard of living. Th e strongest evidence of this aspect of development is Kirchners policies that have increased minimum wage, pension and social welfare payments (discu ssed above), as well as the educational program All Study (scholarships for 11-18 year olds) and the current examination of education policy. Furthermore, declining une mployment rates in the past three years have also improved the standard of living. Finally, the last two criteria of th e development alternative pertain to conditionality and development policy stemmi ng from below (rather than from the IMF, the World Bank, etc.) and development cond itions specific to one country. In this regard, Kirchners fulfillment of the IMF loan and subsequent ability to reject its economic dictates provide the most powerful ev idence of his desire to develop Argentina on the countrys own terms. Given the analysis above, it is clear that many of Kirchners policies do provide a new development model for Argentina. While his policies do not fulfill all of the listed criteria (namely, inflation is on the rise, asse t ownership is highly e lite, and the economy is led primarily by commodity goods), Ki rchner has broken from some of the key elements of economic liberalism: state and so cial welfare spending have increased and he has expanded state intervention and control. President Kirchners conti nued popularity and success also provide a powerful example of the shift against economic globaliza tion within Latin America. As stated in the introduction, none of the new leaders of the growing anti-economic globalization movement in Latin America has advocated a complete break from trade liberalization or cooperation with multinational co rporations. However, the trend toward greater state
75 intervention, regional in tegration and social reform is gr owing. While it is imperative to remember that each country in the region has its own priorities, problems and approaches to economic growth and poverty reduction, Ki rchners policies th at promote production, trade, regional integration and social well-being provide a potential development model for other states, as well. Investment in edu cation, health and well being, in addition to policies that increase growth, ultimately lead to a more flexible and productive workforce that can sustain a domestic market. Moreove r, maintaining a well-educated, healthy and productive society will reduce the likelihood of transnational problems such as the drug trade, illegal immigration, hu man trafficking and failed stat es. Finally, it is hoped that promoting economic development and greater opportunity for all citizens will have positive consequences for the Argentine people.
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