IMF, U.S. should not push remedies
The Asahi Shimbun, Tokyo
The International Monetary Fund and the U.S. government recently promised new loans to Brazil and Uruguay to battle financial and currency instability. While a Central and South American crisis will likely be avoided, not all Latin American economic flashpoints have been extinguished.
The IMF has announced an unprecedented US$30 billion (3.45 trillion yen) in aid to Brazil to head off a collapse in the region's largest economy. The Brazilian real has dropped temporarily as much as 40 percent this year. The IMF said the economy must be stabilized to keep repercussions from spreading around the world.
The United States has decided to lend $1.5 billion to Uruguay. The latter has been called the "Switzerland of South America" because its liberalization of financial services, and has garnered deposits from neighboring countries. But large amounts were withdrawn following economic turmoil in Argentina, and Uruguayan banks were temporarily forced to suspend operations.
"Neither Brazil nor Uruguay has made major economic policy mistakes, and they are victims of Argentine turmoil," said Enrique Iglesias, president of the Inter-American Development Bank. "The foreign exchange market is overreacting." Many analysts agree with his sympathetic view.
Though the United States was apathetic when Argentina defaulted on debts at the end of last year, it took a more active stance now probably because it thinks Uruguay will recover if its financial instability is shored up.
But Brazil is suffering from interest payments on $260 billion in national debt, while Uruguay's peso has lost value mostly due to a shortage of foreign currencies. The situation could worsen unless proper policies are implemented.
Recent Latin American economic instability is mostly due to the Argentine economic collapse. So this is all the more reason the IMF and other bodies involved should draw up recovery plans for Argentina as quickly as possible.
However, there is strong opposition within Argentina against suggested IMF remedies to promote a stronger market economy, such as controlling fiscal expenditures, privatization and deregulation. The reasoning is that such measures would slow government moves to boost the economy, and expand the gap between rich and poor.
Brazil will hold a presidential election in October. A leading left-wing candidate gives IMF plans some credit. However, he repeatedly says he wouldn't hesitate to default on debts as there is mounting public wrath over IMF demands for severe fiscal austerity.
While it's a given that doctors who prescribe bitter medicine are cast as villains, the IMF should be less forceful and make adjustments that allow for governments to voluntarily set out reconstruction measures.
The administration of George W. Bush is promoting a Free Trade Area of the Americas scheme that would strengthen economic ties between North and South America, and is trying to get more involved by taking advantage of the recent congressional approval of fast-track trade authority.
U.S. efforts, however, raise concerns similar to those voiced about the IMF. The United States should realize that if it forces its wishes upon other countries, it will face resistance and even create disturbances in Central and South American countries that ardently want to promote their own self-sustaining development.