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In the old days, Argentina suffered a right-wing dictator with a left-wing economy. After political reform in the early 1980s, the IMF lent billions to encourage the transition from a state-run economy to a market system. Argentina started well, holding real elections and seeing real reform. But somewhere along the way, Argentina backslid into the habit of political spending and popular make-work government jobs (sound familiar?), and enjoyed the high life on borrowed IMF money. Fourteen emergency bailouts later, the transition from flaccid socialism to market capitalism never took place. Now, Argentina suffers from 20% unemployment and 40% poverty rate. Like all socialist economies, Argentina never created wealth. Now, they can't pay the bill.
It's a classic dependence/enabler syndrome. For dependant Argentina, eighteen years of socialist binging is gonna make one nasty hangover. There will be an inevitable detachment of the peso from the dollar. The low inflation that kept the economy afloat will disappear. Since 80% of Argentinean debt is tied to the dollar, most debts will instantly become 20-30% greater. Banks will be unable to lend money. Businesses will fold, exports will disappear, bankruptcies will explode, and Argentina will teeter on third-world misery.
On the other side, the IMF faces the paradox of throwing good money after bad. Is it worth perpetually propping up an addict that refuses to change? Will the world feel a harsh ripple effect if Argentina withdraws from the new world economy? Will Argentina fall into quasi-socialism? Will the IMF lose their shirts now, or lose the wardrobe later? Will other debtors push the envelope? Can they afford to let Argentina fall?
All this leads to the ultimate question: is the socialist addiction being fixed or fed by IMF injections? Watching interim president Adolfo Rodrigues Saa reacting to national riots was particularly telling. Free food! Block the imports! Default! A third currency! 100,000 new jobs! More street sweepers, forest service and military! "I will govern for the most humble and for those who suffer".
Workers of the world…Unite!
Then, after ten days of teasing his people with visions of socialist sugarplums, Rodriques Saa quit. He knows doom awaits. Unless someone can explain how babysitting trees will create $155 billion in national wealth, the typical Argentinean fool-on-the-street will get a rude awakening. Without capitalist success, Argentina will crumble into petty factions squabbling over a huge debt. And the IMF will be holding the bag.
Meanwhile, the once almost-eliminated communist guerillas have made dramatic comebacks across the entire continent. If the IMF money pot dries up, they will gain more power, and start the old battles once again.
Is your head spinning yet?
Nevertheless, here are the lessons:
1-Reform. Never "lend" money to any nation that is not marching headlong towards capitalism. Economic reform should be instantaneously coupled with any loan. No change? No money. The IMF and various bond traders knew Argentina strayed from the program for years, yet kept lending.
2-Pay attention to your back yard. The Argentinean market revolution flourished during the 80s, but faltered in the 90s. When we needed an eye on South America, Bill Clinton spent his time chasing down Chinese bribes and big-haired bimbo's.
3-Keep priorities straight. In a juvenile partisan snit, Senator Christopher Dodd is ignoring his national responsibility by holding up the appointment of Otto Reich to Assistant Secretary of State for the Western Hemisphere. (Earth to Mr. Dodd…we have a world crisis.)
4-Advertise- Let the world know just what went wrong. Often.
The lesson never changes. Capitalism works. Communism does not. Socialism is really "communism Lite", and if you chug $155 billion from the socialist bottle, drunken dependence soon follows. And socia-holic recovery is tough. It's toll is measured in misery and lives. If Argentina keeps swigging, the world will soon be stepping over them as they lay retching in the third-world gutter.
This essay by Tom Adkins was published by permission. Mr. Adkins is the Executive Publisher of the Common Conservative.
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