April 18, 2002

April 18, 2002 | News Releases on Foreign Aid and Development

No More Aid for Argentina Without Reform, Analyst Says

WASHINGTON, Apr. 18, 2002-Only wide-scale economic and political reform-not more international aid-can rescue Argentina from critical conditions that have produced riots, looting and a run on the nation's banks, a new Heritage Foundation paper says.

Argentina, which has received $30 billion from the International Monetary Fund since 1983, now seeks $25 billion from the United States and the IMF to stabilize its reeling economy. Its leaders are trying to advance their cause by closely aligning the country with the U.S. war on terrorism, warning that failure to approve the aid could allow terrorist cells to set up shop within its borders.

But, writes Heritage Latin America analyst and Argentine native Ana Eiras, past loans have allowed the country's politicians to forestall reform and have done nothing to help the country economically. The loans pushed Argentina's foreign debt as a percentage of GDP from 44 percent in 1997 to 55 percent in 2001. Yet the growth rate of gross domestic product (GDP) declined from 8 percent to minus 4 percent during that period, unemployment increased from 13 percent to 18 percent, and the poverty rate-13 percent in 1998-now stands at 40 percent.

Any assistance sent in advance of serious reform "simply will get lost in the corrupt Argentine political system and do nothing for ordinary Argentines," Eiras writes. Specifically, Eiras recommends that the United States, the IMF and other international financial institutions withhold all assistance until Argentina puts forth a credible plan for reform. She also says that these institutions must change their lending practices to reward only those countries that adopt free-market reforms designed to prevent future crises.

Former Argentine President Carlos Menem took some important early steps toward reform, which led to five years of relative prosperity, but left much undone, Eiras says. Argentina still needs to deregulate labor markets, streamline regulations to make it easier to invest in or start new businesses, strengthen the independence of the judicial system and lower trade barriers.

"In the three months since Argentines lost access to their money in the banking system, families from all economic classes have taken to the streets to demand change," Eiras says. "This kind of pressure, from the people rather than from the IMF, is what Argentina's leaders fear most and is the only true incentive they have to reform. Fresh funds from the United States, before any reform occurs, will remove those incentives-and the prospects for recovery."

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