Lessons and Enlightenment from Argentina's Debt Crisis

First of all, in the era of globalization, because the national economy and the international economy are more and more closely linked, and the exchange rate is the link of this link, therefore, choosing the appropriate exchange rate system and implementing the appropriate exchange rate policy has become an important issue that policy makers must consider under the condition of economic openness. The Mexican financial crisis of 1994 and the East Asian financial crisis of 1997 can be said to be induced by exchange rate changes to some extent. One of the causes of the Argentine crisis is also related to the exchange rate system of the currency board. Therefore, it is very necessary to adopt a model that is suitable for China's national conditions and conducive to improving China's competitiveness.

Undoubtedly, the floating exchange rate system is not perfect, and the currency board exchange rate system is not without its merits. The crux of the problem lies in how to take some corresponding supporting measures in the process of implementing a certain exchange rate system in order to make this exchange rate system operate in a favorable environment. For example, when Hong Kong and Estonia implemented the currency board exchange rate system, they paid great attention to improving the basic elements at the microeconomic level. In Argentina, not only the growth of enterprise benefits is slow, but also the labor market is very rigid. In addition, international experience also shows that in order to make the currency board system run smoothly, the domestic economy should have greater vitality, a sound financial system and strict fiscal discipline, and its pegged currency must be the currency of its main trading partners.

In Argentina, because the cash in circulation is decreasing, the government allows provincial governments to print and issue their own coupons for government expenses or pay the salaries of public sector employees. For example, Buenos Aires, the most populous province, took the lead in printing a one-year coupon of $ kloc-0/billion. Undoubtedly, although these quasi-currencies have temporarily solved the problem of insufficient liquidity, they have greatly damaged the exchange rate system of the currency board. No wonder some economists pointed out that Argentina's currency board exchange rate system is not the kind of currency board system in the strict sense, because the government allows the monetary base of 1/3 (peso in circulation plus peso deposit in the bank) to be supported by government bonds to make it flexible. Secondly, we should pay attention to the scale of foreign debt utilization. Argentina has experienced two large-scale debt crises in its history. The first time was at the end of 19, and the second time was in the 1980s. Although these two crises have brought great trauma to Argentina's economy, it must be pointed out that borrowing foreign debt is not a bad thing in itself, because there are various ways to use foreign capital. Especially in the era of globalization, actively borrowing foreign debts has become a wise choice for policy makers in developing countries. However, the scale of foreign debt must be commensurate with the country's solvency. Regrettably, Argentina did not learn from the past crisis, but borrowed a lot of foreign debts again after the economic recovery in the early 1990s. What's more, a considerable part of foreign debt is not invested in the production sector, but used by the public sector for unproductive purposes.

Argentina's public debt is less than 50% of GDP. According to the standards of developed countries, this ratio does not seem to be high. But the ratio of public debt to exports is as high as five times. This is a ... Second, Argentina's debt structure is unreasonable. First, the principal and interest are concentrated in 200 1-2004. Second, most debts use fixed interest rates, generally above 10%, which further increases the debt service burden.

In short, as the Financial Times said, unless a country's economy grows rapidly and its financial market is very developed, it should not be allowed to bear such a heavy debt burden. No wonder some people think that Argentina's exchange plan died in the hands of debt and economic recession. In addition, Argentina's lessons also show that, with the continuous inflow of foreign capital, Argentina should strive to increase the domestic savings rate, and the social security system should be the focus of reform at the beginning of economic reform. Third, improving the stability of the financial sector is also one of the necessary conditions for maintaining economic security. The Mexican financial crisis of 1994, the East Asian financial crisis of 1997 and the Russian financial crisis of 1998 are all related to various problems in the financial field. Therefore, people often pay attention to financial issues when talking about economic security. However, the Argentine crisis shows that the huge fiscal deficit is also very harmful.

Undeniably, in the early 1990s, Argentina's financial situation was relatively good except for 199 1 year (see table). The financial balance of 1993 even showed a surplus. Although other years are deficits, they account for a small proportion of GDP. However, since 1996, on the one hand, after the stormy privatization in the early 1990s, the privatization income has been greatly reduced, but the government expenditure has not been controlled. On the other hand, in order to seek a third term, former President Menem did not hesitate to increase fiscal expenditure substantially, and also allowed the increase of fiscal expenditure of local governments. As the Financial Times said, Argentine politicians have a tradition of printing money at will to meet political needs. As a result, the fiscal deficit continues to widen. Lopez, a former Argentine minister of economy, said that in the 1990s, Argentine government expenditure increased by 1.50%, while the economy only increased by 50%. According to an article in Latin American Finance magazine, in the past decade, Argentina's public expenditure has doubled and its fiscal deficit has increased sixfold.

Table: Argentina's fiscal balance (relative to GDP)

199 1 1992 1993 1994 1995 1996 1997 1998 1999 2000 200 1

- 1.6 -0. 1 1.5 -0.3 - 0.6 - 1.9 - 1.5 - 1.4 - 1.7 -2.4 -3.5

Source: ECLAC: Preliminary Survey of Latin American and Caribbean Economy,1997,2001.

The root of the serious imbalance of Argentina's fiscal revenue and expenditure lies in the heavy burden of fiscal expenditure. The uncontrollable fiscal expenditure is closely related to the huge civil servants. For example, Argentina has a total population of 36 million, while the number of civil servants is as high as 2 million. This ratio is relatively high not only in Latin America, but also in the world. Another example is that the Congress of Argentina employs 10000 people, which is more than twice that of Mexico (while the population of Mexico is more than 1 times that of Argentina). In addition, the provincial legislatures in Argentina employ 50,000 people. Another example is Argentina, where there are 72 seats in the Senate (3 seats are elected by 23 provinces and the federal capital) and 257 seats in the House of Representatives (elected by 1 44,000 people/seat). An article by The New York Times pointed out that if this ratio is followed, there will be as many as 2,000 members of Congress in the United States, instead of the current 535.

Argentine civil servants not only get high salaries, but also enjoy very generous benefits. Therefore, the huge civil servants occupy a lot of funds of the country. Take the Library of Congress as an example, 98% of its $30 million budget is used to pay the salaries of its 964 employees.

The financial imbalance in Argentina is also closely related to the complex financial relationship between the central government and local governments. In the financial reform carried out in the late 1990s, the financial power of the central government decreased, while the financial power of local governments was obviously strengthened, and the financial expenditure also increased greatly. In this process, the central government did not take effective measures to supervise or restrain the financial expenditure of local governments. For example, President Duhad served as the Governor of Buenos Aires Province for eight years in the11990s. During this period, the province's fiscal deficit increased by 10 times, and it kept borrowing from banks. In this regard, the central government is almost helpless. It is estimated that at the end of 1990s, about one third of Argentina's public expenditure increased sharply, which was related to local governments.

On the one hand, due to the great demand of the government for funds, the cost of raising funds in the capital market remains high, which puts the private sector in a very unfavorable position; On the other hand, the government collects various taxes from enterprises to increase fiscal revenue. According to statistics, general enterprises should pay 14 tax to the federal government, provincial government and municipal government. However, tax evasion is common. According to the statistics of the International Monetary Fund in the mid-1990s, in Argentina, only 50% taxpayers pay VAT. So some people come to the conclusion that if Argentina can reduce the tax evasion rate of 12.5%, Argentina's fiscal revenue and expenditure will not be a deficit.

In short, as the chief economist of the International Monetary Fund, Rugoff, said, the combination of improper fiscal policy, heavy debt burden and rigid exchange rate system will inevitably lead to crisis. Fourth, political stability is one of the basic conditions for accelerating economic growth. It should be said that the process of political democratization has been developing steadily since Argentina realized the return of the military government to the people in the early 1980s. However, since the national economy fell from 65438 to 0999, the politicization of economic issues has become more and more serious. In other words, the introduction or implementation of any government economic policy is affected by partisan struggle.

The politicization of economic issues is even linked to differences and discord within the same political party. For example, the current President Duhad and former President Menem belong to the Justice Party, and Duhad also served as vice president during Menem's administration. It stands to reason that after the national crisis, these two people should unite as one and tide over the difficulties together. However, Menem said in an interview with Chile's Business Daily on June 9, 2002 that President Duhad was incompetent. Menem also criticized Duhad's economic policy as extremely bad. He believes that the abandonment of the exchange plan of 1 peso = 1 US dollar by the new government will lead to economic instability, make Argentina's participation in the world economy disappear rapidly, make Argentina self-enclosed, and make Argentina go backwards for 40 years. Some analysts pointed out that Argentina has a tradition of cannibalism in its political system. Menem's purpose of belittling Duhad is nothing more than to put himself in a favorable position in the 2003 general election.

It should also be pointed out that the biggest problem of Argentina's political democracy in recent years is that the presidential power is greatly limited. De La Rua does not control the parliament, nor does it control 14 of the 23 provinces in China, and those provinces that are in the hands of the opposition are all large provinces with relatively strong economic strength. When calling for reducing the fiscal deficit, these provinces took a provocative stance. De La Rua did not even get the full support of the United Front, which allowed him to participate in the election. In fact, since De La Rua came to power, the leftists in the United Front have been criticizing his economic policies, and even Alfonsin, the leader of the Radical Citizens' Union (the main part of the United Front) and former President, has stayed away from his economic plans. In addition, on many issues, the government cabinet is often unable to reach a consensus. Due to the lack of extensive support, nearly 65,438+00 economic plans implemented by the government in 2000 and 2006 failed or fell by the wayside. Therefore, the crisis of domestic and foreign investors' trust in the government is becoming more and more obvious, and they are forced to stop investing or transfer their funds abroad. Fifth, the government and the public should reach a maximum understanding of anti-crisis measures and other economic policies. As mentioned earlier, in order to avoid the crisis, the government of De La Rua has introduced a series of austerity measures according to the prescription of the IMF, including cutting wages and pension expenses. These measures not only aroused the opposition of low-income people, but also met with the resistance of the middle class, thus intensifying the opposition between the government and the people. A poll in July, 20001showed that the support rate of President De La Rua had dropped to 20%, which was the lowest point since he 1999 took office. During President De La Rua's two years in power, the All-China Federation of Workers organized nine large-scale strikes. Demonstrations and protests characterized by beating pots and pans are even more common. Some western media pointed out that we should not underestimate the power of pots and pans, which enabled President De La Rua and President Sa 'a to hand over power.

1997 after the outbreak of the East Asian financial crisis, people in Thailand and South Korea enthusiastically donated gold, silver and jewelry to their countries, although some people strongly opposed the government's austerity policy. It is undoubtedly necessary for people to understand and preside over the anti-crisis policy. Of course, as far as the government is concerned, every policy or measure should take into account the affordability of the people, otherwise it will be counterproductive. However, the austerity measures of De La Rua's government are so severe that it has such a bad influence that some economists have raised the question: Is the drug of De La Rua's government more unacceptable than the disease it wants to treat?

It should also be noted that one of the targets of power attacks in Argentina is government corruption. In the parade, the slogan shouted by people was to oust those bureaucrats. Undeniably, corruption is one of the serious problems that have long plagued Argentina's political life. For example, many politicians and government officials often use their power to arrange jobs nominally. Those lucky enough to get this wonderful job called sponsor job don't have to go to work every day, they just need to show up once a month to get paid. It is estimated that 654.38 million people in Argentina enjoy this kind of treatment, and the political expenditure in 2006.5438+0 was as high as $2-4 billion. After taking office, President Duhad said that corruption would be punished and asylum seekers' jobs would be cancelled, so as to drastically cut political expenses. Sixth, privatization is not a firewall against the economic crisis. Under the influence of neo-liberal theory, Menem's government privatized state-owned enterprises on a large scale, so that many Argentines said that the whole country was sold.

The guiding ideology of Menem government is that state-owned enterprises are inefficient and suffer long-term losses. Only by privatizing it can we reduce government intervention, give play to the role of market mechanism and mobilize the enthusiasm of private capital.

Undeniably, large-scale privatization once put Argentina and Mexico on a par and walked in the forefront of Latin American economic reform in the 1990s. What makes Menem's government proud is that privatization has made the government earn a lot of money. According to the statistics of the Inter-American Development Bank, during the climax of 1990- 1995 privatization, * * 123 state-owned enterprises were privatized, and the government obtained184.5 billion US dollars. This huge income allows the government to continue to spend money lavishly, and can continue to pay high salaries and generous social security benefits to government officials. However, in the late 1990s, that is, after privatization, the income from privatization was decreasing, but the government expenditure was not controlled. It can be seen that privatization not only failed to save Argentina, but also left a legacy to its financial situation. Eighth, the IMF should play an active role in avoiding the economic crisis in emerging markets. From the whole process of solving the Mexican crisis and the East Asian crisis, we can see that external assistance has played an important role in the process of solving the crisis. But IMF assistance is conditional. For example, recipient countries must further open their markets, implement a series of austerity measures such as cutting government expenditures, and carry out more profound reforms. No wonder 1997 After the outbreak of the East Asian financial crisis, many demonstrators in South Korea and Indonesia played such a slogan in the parade: I.M.F. = I'm fired, which means that the IMF means' I'm fired'.

On the one hand, if the IMF continues to provide assistance, some people may accuse it of contributing to moral hazard. On the other hand, if the IMF stops providing assistance or imposes harsh conditions, some people may blame the crisis on the agency's ruthlessness. This seems to put the IMF in a dilemma.

It is true that many Argentines are extremely dissatisfied with the position of the International Monetary Fund. In their view, the International Monetary Fund has gone bankrupt. In response to Kruger, vice president of the International Monetary Fund, criticizing the Argentine government for pursuing the dual-track interest rate system, Argentine Deputy Minister of Economic Affairs Todd Ska even said on the radio that the International Monetary Fund should not dominate Argentina's policy orientation. He believes that the International Monetary Fund is 0/000 kilometers away from Argentina/KLOC and knows nothing about the situation here. ..... If it doesn't say anything interesting, it's better to say less.

In any case, the outbreak of the Argentine crisis further shows that the International Monetary Fund should play a more transparent and authoritative role in monitoring the risks of member countries and preventing crises.