Wednesday, February 13, 2013

A Global New Deal: Three lessons from Argentina

As noted by Richard Kozul-Wright and Jayati Ghosh finance-led globalization has failed. In Argentina we discovered that early on, having applied all the reforms of the Washington Consensus by the early 1990s, only to fail spectacularly in 2001-2. Our crisis was worse than the one during the Great Depression, and preceded the Great Recession by 6 years, which put us on the path of reforming the reforms relatively early. In fact, I suggest that certain lessons from the recent Argentine experience would be valuable for the construction of "a global new deal allowing different economic strategies providing benefits for all."

The first fundamental lesson from the Argentine experience is that foreign debt should be maintained to a minimum, and that negotiations with creditors have to be on the basis of ability to pay, putting the well being of the population ahead of interest payments. It is important to note that the default and restructuring of debt obligations is a normal procedure in capitalist economies. Argentina took advantage of the inevitable situation to promote a significant reduction of foreign obligations. Austerity measures at home could be reversed, as a result, and conditional transfers allowed for a rapid reduction of extreme poverty.

Note that even after successful renegotiation and resumption of payments, Argentina has not been free from harassment. Vulture Funds have been able to, at least temporarily, seize Argentine property, the International Monetary Fund (IMF) has recently menaced with the possibility of expulsion, and Credit rating Agencies still have the power to treat Argentina debt as junk. For that reason a New Deal must strengthen the position of debtor countries, reduce the power of Vulture Funds and other bad citizens of the international financial community, increase the voice of developing and debtor countries within the IMF, and create an international rating agency that is not captured by financial interests of creditors.

A second fundamental lesson from Argentina is that ... Read the rest here.

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