August 6, 2002

7:11 AM

What a real depression looks like. Total collapse of the middle class, malnutrition, starving bands of marauders eating road-kill, it's every survivalists dream come true. Until last year, Argentines were part of the richest, best-educated and most cultured nation in Latin America. Not anymore.
posted by stbalbach (47 comments total)

"But when the government devalued the peso, it gave troubled banks the right to convert those dollar deposits into pesos. So the Gonzalez family's $42,000 nest egg, now converted into pesos, is worth less than $11,600."

Good thing the banks were being looked out for.
posted by botono9 at 7:35 AM on August 6, 2002

botono9, that's exactly what I was going to comment on. How did the banks have the 'right' to profit on the devaluation of the peso when "virtually all had kept their savings in U.S. dollar-denominated accounts" for a reason.

Sounds like a scam of epic proportions.
posted by eas98 at 7:52 AM on August 6, 2002

"It's like the nation is dissolving."

wow, it's like the road warrior or something! "all that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real condition of life and his relations with his kind." :)

the newshour had a segment on it yesterday, and this one guy said,

"Argentina has done a complete reversal and it's reversed many of the major policies and reforms that they did. In fact, the Congress applauded the president when he decided to default on the external debt. I think this is very worrisome, and I think that we could see this spreading to other countries."

like it's back to "who lost latin america?"
posted by kliuless at 7:52 AM on August 6, 2002

you'd rather that the banks folded and/or called in all their loans to the companies that still exist (and are paying the occasional wage)? or you know of some other solution to stopping a run on the banks?
posted by andrew cooke at 7:53 AM on August 6, 2002

In March, slum dwellers competed for meat from an injured cow after a cattle truck overturned on a highway in Rosario. "I felt like we had become a pack of wild animals," one participant said.

I did not need to see that picture.
posted by ColdChef at 7:54 AM on August 6, 2002

Bush has promised to help, if and only if Argentina agrees to follow a "sound economic policy" that includes free trade and open markets, and that does not include protectionist measures, such as high import tarrifs and trade restrictions.

To me, this seems like a very unethical way of taking advantage of Argentina's problems to strongarm them into opening up their economy to US corporate takeover. Am I missing something, or is this just another example of the crap that is the current US Executive?
posted by Fabulon7 at 7:56 AM on August 6, 2002

the talk is that all of s america (save maybe chile) is in a mess. uruguay is teetering on the edge at the moment. fwiw public opinion here in chile seems fairly confident (possibly because argentinians aren't exactly respected). otoh, half of all people here are, according to a survey i read on the bus this morning, worried about losing their jobs.

(if anyone is reading this in santiago and wants a good java programmer, please check out the cv on my home page (follow link via my name below))
posted by andrew cooke at 7:56 AM on August 6, 2002

fabulon7 - argentina had already been doing much of what the usa wanted (at least, that's what i understand). there's a fair amount of anger that they did what the usa wanted and then were hosed anyway...
posted by andrew cooke at 7:58 AM on August 6, 2002

Could Enron be behind the collapse of the Argentinian government ?
posted by tami at 8:01 AM on August 6, 2002

I guess we are the self-proclaimed leaders in "sound economic policy," considering our swell track record in corporate responsibility, accounting ethics, solid banking and egalitarian outlook to the common investor/consumer/employee.

Talk about throwing stones...
posted by drstrangelove at 8:09 AM on August 6, 2002

Andrew, you probably know about this much more than I do. But my impression is that most of the problems in Argentina came about because the Argentine government only did half of what "Washington" (for lack of a better term) wanted. On the one hand, the libralized their economy to allow for hightened foreign and private involvement. On the other hand, they had huge, unsutainable social welfare programs, that weren't financed because of massive corruption...not paying taxes in Argentina is supposed to be something like a national sport. This forced the government to borrow heavily at an unsustainable rate, which massively endebted society and led to the current collapse.

BTW: What's the concensous in Chile? Why do they feel this happened? And what has Chile done differently? I read an article a little while ago that said what is important to realize is not that many South American nations are having economic problems, that this happens fairly regularly, but that two South American nations, Chile and Mexico, seem to have finally graduated from the boom and bust cycle that has plagued South America for two centuries.
posted by pjgulliver at 8:10 AM on August 6, 2002

Chalk up a great victory to the prophets of globalisation. I like this summation: "From this perspective, pushing neoliberal, market-opening reforms on Argentina looks as wise as giving a supply of gasoline to a bunch of pyromaniacs, on the grounds that gasoline is a very useful and powerful fuel."
posted by riviera at 8:17 AM on August 6, 2002

Actually, pjgulliver, the term you mean instead of "Washington" is "the IMF." A number of high-profile economics/business types such as Steve Forbes have railed and blamed the IMF (International Monetary Fund) for many of the problems with the world economy.

Funny, freeze people's bank accounts for a few months, devalue the money therein, and suddenly an overturned cattle truck seems like manna from heaven. How well would most of us do if the bank suddenly froze our accounts? Oh, and our boss couldn't pay us because his accounts were frozen too....
posted by ilsa at 8:19 AM on August 6, 2002

Riviera, Great Link.

IMF has made mistakes ilsa, I'll give you that. However, I think they were not at fault in Argentina. I used Washington because the US government, in addition to the IMF, championed many of the policies at work in Argentina.

What seems clear, and their was an interesting article written in Foreign Affairs about this a couple months ago, is that there needs to be a better mechanism for sovereign bankruptcy. CUrrently, none exists, basically, there are only adhoc guarantees from the US Treasury, IMF and Paris Club. There needs to be something better.
posted by pjgulliver at 8:24 AM on August 6, 2002

The great PBS series "Commanding Heights" did a show on the Chilean economy. You can read a lot of the commentary here. Explore the rest of "Commanding Heights".
posted by monju_bosatsu at 8:25 AM on August 6, 2002

I don´t think you can lay all of Argentina's problems at the feet of corrupt politicians and dodgy taxpaying. Although this certainly contributed to the problem, I think the IMF and other aspects of globalization had much much more to do with this really tragic collapse. Nobel prize winning economist (and former IMF member) Joseph Stiglitz gives a nice bare bones run down on the events leading to present day Argentina here.

And here is a nice article in Salon where discusses the basic errors the IMF and the US in general make when deciding the economic future of the world.

I think in general greed leads to incompetence not efficiency as some free-market myths like to perpetuate. And I think it is easy to see that the IMF and the US only make decisions that will benefit certain monied sectors, not the country in crisis.
posted by sic at 8:28 AM on August 6, 2002

I was talking to a friend of mine from Chile about a week and a half ago, and she said the a lot of the problem with Argentina is that much of the wealth and "not like the other S.A. nations"-ness was a facade. She said you could go shopping there, and nobody would ever give you a receipt, that accounting practices don't exist, and that it just took a little nudge on the economy to make it collapse. I guess they built it on sand instead of rock.
posted by Ufez Jones at 8:29 AM on August 6, 2002

Man I just read the Enron tie in to the Argentina collapse that tami posted... Is there no end to the Enron scandal??

Damn.

By the way, take opinions from other South Americans (non Argentinians) about the crisis with a grain of salt. Argentinians are often characterized as superior a**holes by other South Americans and latinos mostly because they have had the best economy and one of the richest cultures in South America as well as an irritating habit of flaunting/exagerating their European roots while talking down to their fellow S Americans. I can tell you honestly that this gets under the skin of the rest of the continent. I think that secretly (or openly) many of the other S Americans are delighted to see them cut down to size. Look for them to make a lot of these "see, I knew they weren´t better than us" comments.

(btw my parents are Bolivian, so this comes from firsthand experience)
posted by sic at 8:47 AM on August 6, 2002

Yeah, i'm pretty well aware of the bias towards argentines (gf from Honduras, friends in school from pretty much every latin american country, including argentina). And from my experience with them, they are, for the most part, pretty much like the stereotype presented. Of course there are exceptions, but I see it to be so prevalent within latin american society for a reason.
posted by Ufez Jones at 8:52 AM on August 6, 2002

The WaPo sees fit not to mention the major policy error which makes Argentina unique: Dollarization. Initially seen as a way to avoid instability, they linked their peso's value directly to the US dollar, i.e. a fixed exchange rate. But then the US economy faltered, its dollar became stronger vs. overseas currencies, and the peso's "correct" value became further and further divorced from its "official" value. Argentina should probably have chosen Spain, Mexico, or even Brazil for its peg, to reflect trading patterns. The peg was maintained far too long, as it was a political liability to break it. When it was finally done, after the economy had sagged considerably, it was a catastrophe for small investors and people with only local savings. Note that their savings were recorded in dollars: this can only have been due to concerns over the value of the peso. It sucks to be them, but Argentina couldn't have sustained a banking collapse on top of everything else.

All other things being equal, dollarization could indeed have reined in currency fluctuations -- which is why other nations (like New Zealand) had been considering it. Argentina's example shows the risks, though, especially when your economy is not closely tied to the US (counterexample: Canada). It was instituted, in hindsight, at exactly the wrong time, and maintained in the face of copious evidence for far too long -- like buying a stock at its peak.
posted by dhartung at 9:10 AM on August 6, 2002

monju_bosatsu-san, thanks for the link to Commanding Heights. I'll return the favor with a link to the great PDF's on the PBS site.
posted by gen at 9:17 AM on August 6, 2002

andrew cooke -

The banks in question, according to the Washington Post article, "are subsidiaries of major U.S. and European financial giants that arrived with promises of providing stability and safety to the local banking system... such as Citibank and BankBoston"

Also, the traditional solution (in the US) to stopping a run on the banks is to have the Federal Depository Insurance Company guarantee deposits.

An older, more draconian measure is to close the bank for a week and then restrict withdrawals to some set amount. I am not aware of any economic plan that advocates a 75% reduction in the face value of the deposits.
posted by Irontom at 9:18 AM on August 6, 2002

Argentine government only did half...

i don't know enough to say whether this is true or not (i suspect this article argues otherwise); when i reported that particular snippet i was just trying to pass on what i'd heard, not give an analysis. but the imf must have been aware of the corruption, so it seems odd not to take it into account when directing changes (i don't know what level of control was available, but it seems at least possible that the pressure was to do "as much as possible" without worrying whether the results would be "balanced").

What's the concensous in Chile? Why do they feel this happened?

as others have pointed out, argentinians are not popular, so people are largely self-congratulatory. but my boss went to argentina recently and was shocked - most people here probably don't realise just how bad it is.

argentina is certainly more corrupt than here. but chile is not perfect either. it's effectively one medium/large city (santiago) with control of most big companies etc either in multinational hands or a few rich families, plus a fairly small ruling elite that give contracts to each other etc.

and no-one (not even the usa) is safe from a run on banks. banks simply don't keep all the cash to hand - they lend it out, receive it as savings and lend it out again. this is all basic economics. so, at the end, it is simply a case of citizens having confidence in banks. (on preview: guarantees only work if one or a small number of banks go bust, not the whole nation; multinational banks presumably keep each nation separate so that when this kind of thing happens the whole company doesn't come down)

personally, i am keeping as much money as possible out of the country (we sold a house before moving here and that money remains in a uk account).
posted by andrew cooke at 9:37 AM on August 6, 2002

sic: the conditions for the IMF-dictated clearance sale of Argentine state assets were set, at least in part, by charitable countries that provided loans to the military junta. Cavallo, the economist/finance minister for various administrations since the fall of the junta, also nationalised the debts of private industries in 1982, when he was head of the central bank under the junta.

dhartung: you neglect to mention that the dollar-peso peg was considered a key element of making the Argentine economy look pretty for the IMF. And note the cheerleaders for complete dollarisation (that is, moving from dollar-peso parity to using the dollar as the Argentine currency): yep, it's the usual suspects at the Cato Institute and the American Enterprise Institute. And I seem to remember rather more cheering of that dollar-peso peg from those of the 'neoliberal' monetarist right than they care to admit now. Now, complete dollarisation is, in theory, less vulnerable than the currency board peg, but only on the assumption of parallel economic cycles. (Hence the shoe-horning that was necessary to get EU economies in position to adopt the Euro.) This piece, written two years ago, seems rather prescient by comparison.

I can see why many South Americans regard Argentina with scorn, though: the polo-playing, Pimms-drinking, pseudo-English 'aristocratic class' always struck me as being very more suited to Badminton Horse Trials than Buenos Aires. Though Schadenfreude can only go so far.
posted by riviera at 9:41 AM on August 6, 2002

"not paying taxes in Argentina is supposed to be something like a national sport."

Here in the US it's a professional sport. The average person can't do it, but big professionals can. All you need is a mail box in Bermuda.
posted by whatever at 10:07 AM on August 6, 2002

"Am I missing something, or is this just another example of the crap that is the current US Executive?" I think so...since 'loaning' Argentina money already equals 'giving' them money, where is the obligatation to give more, especially since it wasn't a lack of loans which got them in trouble in the first place.
"...two South American nations, Chile and Mexico"...Don't believe everything you read. Mexico is still in North America.
posted by Mack Twain at 10:13 AM on August 6, 2002

OK Mack Twain.....Mexico is in North America geographically, but, for the large part of its existance, it has been "Latin American" in terms of its economic cycles....don't split hairs
posted by pjgulliver at 10:16 AM on August 6, 2002

We seem to have lots of bank failures, but they also don't seem to have any effect at all on our economy. Certainly we dont have food riots. What's the essential difference?
posted by Irontom at 10:16 AM on August 6, 2002

There is a difference between "bank failures" and "banking failures." Banking failures, what is (or feared to be) happening in Argentina, Urugauy et all is system wide failure. Bank failures, singular, is like a business going bankrupt. And we have the FDIC insuring individuals deposits and accounts. Americans know that even if their bank ceases to exist overnight, the Feds will still back it up with cold, hard, cash. Additionally, the Federal Reserve System has loose money used to support banks that are on the cusp of insolvency, to prevent a run.
posted by pjgulliver at 10:19 AM on August 6, 2002

Can we at least agree that the working peasants who cannot afford to buy food even while still working, are probably not to blame?

Hector Ariel works everyday, and his family is starving. He probably believes that if he keeps working hard, that things will work out. I hope he's right, because he is a hard working and honorable man. His belief that if he does the right thing, at least his family won't starve, and what he is willing to risk for that belief, makes him the foundation on which any economic system should be proud to build a better future. He at least deserves enough respect from the people managing Argentina's economy to see to it that his family doesn't starve while he is out cutting sugar cane.

I don't know the details of South American's feeling toward Argentinians, but I know one Argentinian the rest of South America can be proud of. And if that man is driven to pick up a brick and go to that store, then Argentina will have lost a hell of a lot more than a store window.
posted by dglynn at 10:23 AM on August 6, 2002

We in America did have a big scare with the Savings & Loan crisis of the 1980s. The bailout cost around $500 billion. If there wouldn't have been an economic boom in the '90s, the S&L crisis would be talked about much more today. What about the bailout Long-Term Capital Management, which was said to be essential to stop the destablization of the entire world economy? Could the U.S. survive one or two of those sorts of crises happening at one time? How good is federal backing, or bailouts, then?
posted by raysmj at 10:32 AM on August 6, 2002

"Am I missing something, or is this just another example of the crap that is the current US Executive?" I think so

mack twain: you mean to tell me that you honestly believe that you can blame the collapse of an entire nations economy on george w. bush?? are you taking any medications we should know about?
posted by epoh at 10:38 AM on August 6, 2002

here's LEX's take on it!

The US appears to be taking the view that a little money will go a long way towards mending fences with Latin America. Its $1.5bn "swap" loan to Uruguay is a pittance compared with the damage Paul O'Neill, US Treasury secretary, inflicted on the Brazilian currency by appearing to turn his back on Brazil last week.

But just as the market sold off on his cheap talk, so it may take heart from a cheap loan if it suggests the Bush administration is not dogmatically opposed to any foreign bailout. That message could be reinforced by (at least) moral support for Brazil's request for more IMF funding to tide it through the October elections.

A victory for either leading presidential candidate may threaten the IMF programme. But if that happens, the IMF can turn off the taps and still expect repayment of its loans. Meanwhile, without a bailout there is a risk that post-Argentina contagion will do further damage to the global financial system. And Latin America is in such a precarious economic state, some support for its more enlightened policymakers - in Brazil as well as Uruguay - is important.

That precariousness is graphically spelt out by the Economic Commission for Latin America and the Caribbean. In a report last week, it forecast a 0.8 per cent decline in Latin American GDP this year after stagnation last year. Global economic concerns could have a two-pronged impact. Sluggish US and European growth will hit the more trade-dependent countries such as Mexico.

A net exodus of resources, for a fourth straight year, affects the financially dependent, such as Brazil. With fiscal deficits increasing for the fifth straight year, and per capita GDP down 2 per cent since 1997, the danger is this may have been a lost half-decade. It is no wonder the economic reformers are doing so badly on the political stage.

and the economist's :)
posted by kliuless at 11:15 AM on August 6, 2002

epoh: My "I think so" was an answer to the question "am I missing something?" part of the question, not if GW is to blame. And yes, this years crop of medication is interesting.
posted by Mack Twain at 11:19 AM on August 6, 2002

pjgulliver South America != Latin America.
posted by signal at 11:38 AM on August 6, 2002

What ilsa said above was the first thing to come to my mind: I don't know about y'all, but I'd be fawked if my bank account was frozen, and my other assets became devalued and I lost my job.

I'm so glad globalization is making things better for folks in the developing world.
posted by AlexSteffen at 12:10 PM on August 6, 2002

Yes, riviera, and as long as were neglecting to mention things, you neglect to mention that dollarization performed heroically in getting Argentina out of the hyperinflation death spiral. (People do remember that, don't they? It was considered intractable.) But Brazil was smart enough to float its currency in 1999; Argentina waited until it was much too late and that, not the initial dollarization, was what deepened the crisis, led to the fall of the government, etc. Was it the whole cause? Certainly not, but it was a critical decision that in its execution contains truths about Argentina's mismanagement of the situation. Just like Worldcom's finances, they probably thought they could weather the storm without making the hard decisions, that bridge loans and shaky accounting could stave off disaster until the economic picture improved and they could actually pay for all their debt. They gambled, and lost. I completely sympathize, but another bail-out isn't the answer, unless they find ways to live within their budget.

It isn't that we don't want to help; we just don't want to keep throwing good money after bad, and setting up the wrong sort of incentive.
posted by dhartung at 1:11 PM on August 6, 2002

The Gonzalezes had been planning for 18 months to take Norma's dream vacation, to Chicago to visit a childhood friend. After the trip was shelved as too expensive, she seemed to break.

call me callous, but isn't it a little disturbing this was the final straw that made someone set herself on fire? granted, having your life savings cut by 3/4 would suck, but still...
posted by gottabefunky at 1:40 PM on August 6, 2002

Why yes, dollarization did help end hyperinflation in certain countries. It did tend to have a stabilizing effect on the nations whose currencies were so badly messed up that a fixed exchange rate with the dollar was a good thing. This meant several things. First, it meant more stable trade with the United States. It meant that for all practical purposes you could use greenbacks for day to day use (or have dollars on hand for leaving the country without arousing suspicion). It meant that you could put off purchases without worrying that the cost would double by next week. These effects were so tangiable that there was some rumbling of just tossing the local currency in favor of "King Dollar."

But it had drawbacks. Why hold Pesos when you can hold Dollars? The net effect was to suspend the national currency. Also, the hands of the nation's central back were tied in many ways, as there were fewer economic variables to control. Finally, Agent Greenspan's responsibility is to the *American* economy, not to any other country that says "Hey, dollars are great! We want to use them too!"

So yeah, dollarization was great short term, and it turns out not great long term.
posted by ilsa at 1:43 PM on August 6, 2002

you neglect to mention that dollarization performed heroically in getting Argentina out of the hyperinflation death spiral.

Well, you were the one playing fast and loose with terminology, dhartung: 'dollarization' isn't the same as the dollar-peso peg, but rather the wholesale adoption of the dollar that was eagerly pushed by Cato et al back in the silly late 90s as an alternative to flotation. (A flotation in tandem with Brazil's, that was supported by the anti-Cato link I posted.)

It's arguable, in fact, that the problem with Argentinian politics, at least dating from Menem, has been the interchangeability of parties, and the lack of proper debate, around an economic policy set by Cavallo. The cart's been driving the horse.

we just don't want to keep throwing good money after bad, and setting up the wrong sort of incentive.

Unless it's moribund domestic industries, of course. For which US farmers, steel workers, miners et al are thankful. And it's that fact which betrays the fact that good money can and will be thrown after bad, in national and international contexts, when there's a political payoff, no matter what the 'incentive' for the beneficiaries.
posted by riviera at 1:54 PM on August 6, 2002

"Peasantology" - how the other half live (from the New Scientist). How to live independently of the formal (or former?) economy - like most people in this world. The good news is that there is an alternative to either capitalism or marxism, the bad news is the potential for polarisation. Shows (once again) how aid can make things worse.
posted by ozjohn at 5:39 PM on August 6, 2002

This article was heartbreaking... damn, they need humanitarian aid.

I feel sort of sick. I don't like reading about starving children.
posted by beth at 6:27 PM on August 6, 2002

Sorry, riviera, but the World Bank (among others) use the term more expansively, i.e. dollarization process, degrees of dollarization, informal dollarization. Clearly much of Argentina's business, including banking, was being done in dollars. The peg was one step at the end of which lay full dollarization, which was considered ca. 1999, before the slump of 2000 sent interest rates zooming and De La Ruined their day. I'm comfortable with my reference.
posted by dhartung at 11:47 PM on August 6, 2002

I found that article on peasantology very interesting ozjohn. I have some friends in America, who live outside of the monetary system (more by choice, than by necessity). One of them just wrote an article on dumpster diving in different american cities.
We all agree that the dollar represents, or means something. But what would it mean if no one used it?

I work in off-shore finance, and it does seem like money is made-up; there are all of these massive quantities of stocks traded, and there is nothing gained, or accomplished, in the buying and selling of these 'stocks'.

It's bad enough that 'worth' is determined by little green pieces of paper, but it's terrible that it's determined by a computer print out representing little green pieces of paper.
posted by goneill at 4:14 PM on August 8, 2002

notes from the road (into the wild!)

the hobohemians (the brothers :)

money is an agreement :)

money as a source of social memory!
posted by kliuless at 6:30 PM on August 8, 2002

Thank you kliuless.
posted by goneill at 9:25 AM on August 9, 2002

as a footnote to this thread, and an example of the shape a modern depression takes: Argentina's most popular game show - Human Resources - where contestants take part in the hope of winning not money, but a job.
posted by gravelshoes at 4:22 AM on August 11, 2002