Carlos Menem was a controversial president, the sort of charismatic leader the Argentines love. He had the common touch and appealed to the mass of workers and lower-middle classes. Unfortunately, his ten-year administration finished ten years with corruption scandals. However Menem’s real crime has only recently become clear.
He came to power in 1989 at a time of hyperinflation, with policies of trade liberalization and privatization. These measures hit home when he linked the Argentine peso at parity to the US dollar. In the 1930s, thanks to huge beef sales, the country used to be one of the world’s wealthiest. As a result of the Menem measures, it seemed that the good times were coming back. Unfortunately, the president’s judgment then failed him. He began to spend, both on big-ticket prestige works and on ever wider and bigger welfare payments, which most benefited his core Peronista supporters. The spending soon more than outstripped the government’s abilities to raise taxes. But with the international financial community mesmerized by the success of the dollar peg, Argentina never had any problem raising new loans. When Menem left office two years ago, the wheels were already coming off his economic miracle. The country could hardly afford to service, let alone repay, the larger part of its borrowings. The dollar peg had made Argentine exports too expensive in key traditional markets like Brazil and growth had slowed to a crawl. For the last 18 months, the economy has been contracting 10 percent annually and has never been in a less likely position to repay the staggering $132 billion of international debt.
That person to be blamed for the mess is, undoubtedly, Menem. President Fernando de la Rua who resigned in the face of growing popular unrest, was only really guilty of having to make harsh economic decisions, in order to try and clear up the mess left behind by his predecessor. The irony is that between now and elections next March, the presidency has passed to Adolfo Rodriguez Saa, a leading Peronista whose party controls the Argentinian Parliament. Now at least the buck is stopping where it ought to.
It would, however, be wrong to blame just Menem and his opportunist spending policies. There are other guilty parties. They are the international bankers who chose to lend to Argentina in the first place. The agencies that issued and updated their creditworthiness checks on Argentina had all warned that there were larger than normal risks to Argentine debt and the way in which the then Menem government was increasing it. But still the bankers came in with more money. One reason, of course, was that with higher risk, Argentina was having to pay more for its borrowings, which meant the bankers earned more.
Some might argue, however, that risk is no risk at all, if bankers contrive in the end never to lose their money. Maybe some lenders who exploited Argentinian weakness deserve to lose their shirts. The harsh fact is that if the international community had refused to fund Menem’s ambitions, beyond an easily identifiable prudential point, this latest financial disaster would never have occurred.
