IMF “Rescue” Won’t Help Latin America



I was a child growing up in Chicago, we heard stories of lifeguards who saved

panicked, drowning beach-goers by first knocking them out with a punch to the

face, then hauling them to shore. This seemed like a risky strategy to me, and I

never knew if it actually worked.


International Monetary Fund has a similar "rescue" strategy for countries in

financial trouble. Does it work? We are now seeing it tested yet again in

Argentina and Brazil.

Fearing "contagion" of the type that spread financial panic from Asia to Russia

to Brazil a few years ago, the IMF has offered a $15 billion credit to Brazil.

In order to qualify, Brazil will have to cut another $2.5 billion from its

budget, even as its economy is slowing and foreign investment is drying up.

Argentina is also being forced to cut spending, despite being stuck in a

recession for three years


problem with evaluating the Fund’s policies is that most economies eventually

resume growth, and so the architects of austerity, "shock therapy," or any other

punishment can always claim success at some point. South Korea eventually

recovered from the Asian economic crisis. Brazil grew at a respectable 4.0

percent in 2000, and Russia last year registered its highest growth (over 8

percent) in two decades.


these growth spurts followed IMF policies that clearly failed to accomplish

their objectives. The Fund’s $41 billion loan to Brazil at the end of 1998 was

to stabilize the Brazilian currency; that currency collapsed a few months later,

losing 40 percent of its value. The same was true in Russia: the Fund loaned

billions of dollars to prop up the ruble — but it was the ruble’s collapse that

allowed the Russian economy to recover.


both of these cases, the IMF insisted that these over-valued currencies had to

be supported, no matter what the cost to the economy. This meant high interest

rates that cripple economic growth, budget austerity, and massive borrowing to

support the exchange rate.


only economic argument was that if the currency were allowed to fall, the

country would lapse into hyper-inflation (because of the increased cost of

imports). But both the Brazilian and Russian currencies did collapse, and the

hyper-inflation never came. Instead, there was growth.


Argentina is being put through the ringer to save its over-valued peso. Interest

rates on government bonds have risen to 14 percent, and the government has

borrowed $40 billion in a deal arranged by the IMF. For comparison, imagine our

government borrowing $1.4 trillion (70 percent of our entire federal budget) in

order to keep our own, overvalued dollar from falling.


would never happen here, and it shouldn’t be happening there either. Throughout

Latin America, the expertise of the IMF’s mad scientists — always standing by

with more loans and unpleasant elixirs to swallow — is falling into increasing



fact, this is the great fear among the US foreign policy establishment right

now: that Latin Americans will decide that Washington’s cures are worse than any

disease that they could catch on their own, and will go their own way. Their

nightmare: First, a devaluation of the Argentine peso — another failed showcase

macro-economic experiment. Then Argentina defaults on, or has to renegotiate,

its foreign debt.


Brazil elects a Workers’ Party government in its national elections next year —

something voters came within a hair of doing in 1990. There is enormous public

sentiment in Brazil for defaulting on its massive international debt, and little

that could be done to punish the country if it did. (Brazil’s economy is still

fairly closed, with exports amounting to only about 7 percent of the economy).


short, the whole experiment in "neoliberalismo," as it is regularly denounced

among Latin Americans, could go down the drain. And well it should. For 20 years

now, Latin America has followed Washington’s economic advice. They have slashed

their tariffs, swallowed IMF austerity, and sold off tens of billions of dollars

of state assets to foreigners.


been a lot of pain, and no gain. Over the last 20 years, income per person grew

by a mere 7 percent in Latin America. This compares to 75 percent for the

previous two decades (1960- 1980), when national governments exercised much more

control over their economic policies. And the gap between rich and poor has also


Summing up the Russian experience, Putin’s economic adviser Andrei Illarionov

said recently "We didn’t need IMF money before, and we don’t need it now. It

causes nothing but harm."


governments in Latin America could say the same, and they will. The only

question is when.

Name: Mark Weisbrot E-mail: <weisbrot@cepr.net> Co-Director: Center for

Economic and Policy Research 1015 18th Street NW, Suite 200 Washington, DC




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