ECONOMY-ARGENTINA: IMF Attributes Crisis to ‘Social Pathology’

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Sep 28 2000 (IPS) - Argentina’s vice-president Carlos Alvarez and economy minister Luis Machinea agreed with the International Monetary Fund (IMF) that the nation’s economic crisis may be rooted in social psychology, but several experts stressed that concrete factors are to blame.

The reactions were spurred by statements made by Tomás Raichman, an IMF economist, suggesting that Argentina needs the help of a social psychologist in order to overcome its economic crisis.

“Argentina did everything right, but the markets did not respond,” Raichman pointed out in an interview with “Emerging Markets,” a newsletter published Tuesday during the joint annual assembly of the IMF and the World Bank, which concluded ahead of schedule Wednesday in Prague.

The Fernando de la Rúa government has applied the IMF’s adjustment measures this year in an attempt to reverse the economy’s stagnation, but the Fund recognises that they did not produce the expected results.

Vice-president Alvarez agreed with Raichman that “it is unclear why the economy is not growing as it should.”

Meanwhile, sociologist Graciela Romer, head of the Buenos Aires- based polling firm that bears her name, said that “attributing the bad mood among Argentines to a social pathology or to a negative fantasy that is not a result of real life experiences is at the very least an unfortunate commentary.”

Romer pointed out that 60 percent of the Argentines surveyed in one of her company’s polls demonstrated negative attitudes about the country’s economic situation and just 14 percent had a positive outlook.

“It is the lowest level of confidence in the economy registered in the last 10 years,” she said.

The sociologist explained that a decade ago, though the public’s assessment of the economic circumstances was equally negative, expectations were not as low as they are now. Back then, possibilities lay ahead for privatisations, shrinking the government and applying other measures – which have all been implemented since.

Romer said the anxiety of the unemployed, of recent university graduates seeking their first jobs, of small indebted businesses or of retirees, is not an indication of a depressive pathology but the result of a reversal of the expectations for a better future that were associated with a change in government.

The administration of De la Rúa, who took office last December, applied a series of “orthodox” economic adjustments to recover investor confidence and boost growth, but IMF officials say the measures do not seem to have affected the negative social psychology of the Argentine population.

“When De la Rúa was sworn in there were high hopes for change, not only in the style of governing, but also in the economic route to be followed,” said Romer.

These expectations likely turned into social ill humour after the government applied its first orthodox adjustment measures, she added.

Rising taxes, declining public sector wages and the enactment of a labour reform law that loosens employment conditions, negatively predisposed the Argentine population, and even more so as the measures did not create the desired levels of growth and unemployment kept climbing, Romer explained.

The IMF’s Raichman suggested in Prague that an economy which grew barely 0.8 percent in the first half of the year, and unemployment levels surpassing 15 percent, are not the result of concrete economic causes, but of negative attitudes and a lack of hope.

The Chilean economist said he was “frustrated” with Argentina’s poor economic performance and acknowledged that “the IMF does not know how to manage this type of social psychology.”

“The outlook for this year was to begin the process of fiscal responsibility and win market confidence. Argentina did everything right, but the markets did not respond,” said Raichman, one of the IMF experts entrusted with following the Argentine case.

The Fund’s economists had never been so clearly in agreement that Argentina had fully complied with IMF economic “recipes.”

“The Argentines did everything with a great deal of courage and therefore deserve our support,” commented Teresa Ter Minasián, also a member of the IMF monitoring group for this country.

In addition, the United States Treasury Secretary, Larry Summers, said the De la Rúa government has contracted the “correct” economic architecture for Argentina.

Lawmakers approved the adjustment, now the country has to begin growing, the US official told members of Argentina’s delegation to the Prague meeting.

Economy minister Machinea said “the attitude is worse in Argentina than it is overseas.”

“The way out of the recession could be much slower than expected, not because of the economy’s real performance, but because of low expectations,” he said Wednesday in the Czech capital.

Machinea was the force behind pushing up taxes in order to increase the money in government coffers, but tax evasions remains a major problem. The 12 percent reduction in public employees’ wages failed to create the desired economic effect, and proved to be a costly political measure.

The “real economy” the minister mentioned also has its “real” negative indicators.

The government had expected this year’s growth to surpass three percent, but now admits that it will be less than two percent. Some independent economists, however, say growth will not top one percent by the end of the year.

Industrial production fell three percent in August and unemployment continues its steep climb. The automotive industry, for example, began to lay off employees in an attempt to reduce costs due to stagnant markets both at home and abroad.

The same dynamic has hit the consumer side. The National Institute of Statistics and Census reported Tuesday that supermarket sales fell 1.7 percent in August while shopping centres saw a 6.8 percent drop compared to the same month in 1999.