assignment

Varieties and Crises of Neoliberal Globalisation: Argentina, Turkey and the IMF

ZIYA ÖNIS

ABSTRACT Argentina and Turkey are two important ‘emerging market countries’ that experienced a major economic crisis during the same year. Focusing on the period leading up to the respective 2001 crises in the two countries, this article attempts to place the two experiments in historical perspective and provide an understanding of the common elements as well as the diversity of the neoliberal restructuring process in semi-peripheral settings. The article also attempts to identify some of the key mistakes made by the IMF, which was, in part, responsible for the crises experienced. A central conclusion is that ‘new’ or unconsolidated democracies find themselves particularly vulnerable when they are suddenly and prematurely exposed to financial and capital account liberalisation. The outcome is a highly fragile, debt-led growth path with costly consequences. Indeed, although both countries have managed to accomplish impressive recoveries in the post-crisis period, given their past trajectories and the heavy debt burden that they face, it is too early to say that the recovery process will be translated into sustained and crisis-free growth. The regional environment in which the two countries find themselves might be particularly important in this context, with the powerful EU anchor a possible important advantage in the Turkish context.

The Argentinean experiment of the 1990s has attracted significant interna- tional attention as a model of neoliberal restructuring. Similarly, the Turkish experiment, which was one of the early cases of neoliberal restructuring associated with the rise of the ‘Washington Consensus’, was identified as a success story during its early stages in the mid-1980s. More recently, however, both countries have been the focal point of international attention once again, but this time for the major crises that they have experienced, ironically in the same year, 2001. In retrospect, the crises in both countries have exposed the limitations of a model of economic growth based on short- term capital inflows and heavy exposure to foreign borrowing. The recent crises have also raised some major question marks concerning the effectiveness of IMF involvement in the context of ‘emerging markets’,

Ziya Önis is in the Department of International Relations, KoçUniversity, Istanbul, Turkey.

Email: [email protected].

Third World Quarterly, Vol. 27, No. 2, pp 239 – 263, 2006

ISSN 0143-6597 print/ISSN 1360-2241 online/06/020239–25 � 2006 Third World Quarterly DOI: 10.1080/01436590500432366 239

ie countries located in the semi-periphery of the world economy which, nevertheless, are tightly integrated with the ‘core’ in an era of intense globalisation, notably in the financial realm. This article aims to highlight the key dilemmas experienced by countries like Argentina and Turkey in the process of neoliberal restructuring, drawing attention to some of the inherent limitations of the neoliberal model and the associated IMF advice in the process. At the same time there is an attempt to move beyond external dynamics and identify some of the unique problems that ‘new democracies’, on the path from democratic transition to democratic consolidation, face when they are confronted with the vagaries of financial globalisation. The article is organised as follows. Following a brief overview of the

development trajectories of the two countries in the 20th century, an attempt is made to single out the similarities and contrasts of their neoliberal experiments. A key insight that emerges from this comparative exercise is that neoliberal experiments can diverge significantly from one another in terms of timing, sequencing and the intensity of the implementation process. Yet, in spite of these differences, it is possible to find striking commonalities between such experiments. The next stage of the analysis involves a comparative look at the broad contours of the crises experienced by the two economies in the recent era. The comparison is extended a stage further through a comparison of the post-crisis dynamics in the two countries; these have displayed some sharp differences as well as certain common elements. Based on this comparative set of observations, an attempt is made to generate some critical insights concerning the role, both positive and negative, that the IMF has played in the recent development trajectories of emerging market economies. Finally, the overall lessons of comparative analysis are presented.

Development trajectories of Argentina and Turkey in the 20th century

Argentina and Turkey are two countries that have managed to achieve considerable industrialisation during the course of the 20th century. Yet neither of these countries have managed to fulfil their development and emerge as major success stories within the group of late industrialising economies. Argentina was a rich agricultural exporter during the 1930s. However, its postwar development performance has been quite disappointing. Argentina recorded low rates of economic growth in the presence of a prolonged import- substitution (ISI) strategy and unusually severe income distributional conflicts. A strong pro-ISI coalition involving inward-orientated industrialists and

organizsed labour was confronted with an equally strong anti-ISI coalition, a major component of which was a class of large landowners. The severe distributional conflicts exercised a negative influence over economic growth for most of the postwar period. Argentina’s pace of industrial transforma- tion, as a result, lagged significantly behind the two leading Latin American newly industrialising countries (NICs), namely Brazil and Mexico, with the qualification that Argentina displayed a more egalitarian pattern of development compared with these two cases, which were characterised by extremely high income inequality.

1 Argentina, however, enjoyed the

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advantage of starting from a high base of development. In spite of slow growth recorded in the postwar period, the level of development recorded by Argentina should not be underestimated. The size of the country’s GDP is broadly comparable with that of Turkey, although its per capita income is substantially higher thanks to smaller population size (see Table 1). Another interesting feature of the Argentinean experience is that the

country has lived through extreme situations, both in economic and political terms, of low growth, hyperinflation and an extended period of military government over a period of 17 years between 1966 and 1983. Although Turkey has also experienced considerable political and economic instability over the postwar period, the depth of instability encountered has been less intense by Argentinean standards. A similar observation applies to the more recent period of neoliberal restructuring. Argentina experienced a transition to democracy in 1983 under a presidential system. Carlos Menem was elected president in 1987 and played an instrumental role in carrying out neoliberal reforms. In retrospect, the Argentinean reform experience is of much shorter duration but of much greater intensity compared with the Turkish experience, very much in line with the overall logic of an Argentinean development experience characterised by extreme situations.

2

Turkey, starting from a lower base of development in the postwar period, managed to generate higher rates of economic growth, at least until the 1990s. The key phase of industrial transformation occurred during the 1960s and 1970s under the ISI model based on heavy protectionism. The Turkish development experience has also been characterised by periodic macro- economic instability and economic crises which rendered periodic encounters with the IMF inevitable. Economic crises until recently have been associated with political crises involving periodic breakdowns of the democratic regime. Military interludes that followed economic crises were costly but nevertheless of short duration, the longest being the interlude from September 1980 to November 1983. Ironically, the return to democracy occurred in Turkey in 1983, the same year that marked the return to democracy in Argentina. The issue of maintaining fiscal discipline and a stable macroeconomic environ- ment also emerged as significant problems in the Turkish context in the presence of acute distributional pressures originating from the claims of various segments of society, notably industrialists, labour and agricultural interests. Yet, arguably, the degree of conflict over relative income shares was lower in the Turkish case. For example, Turkey has experienced high and chronic rates of inflation since the early 1990s but not hyperinflation of Argentinean proportions.

3

What is interesting for our purposes is that these relatively large middle- income economies have managed to achieve considerable economic devel- opment over the course of the 20th century. Neither of them, however, has been capable of replicating the kind of performance displayed by Asian NICs such as South Korea and Taiwan which would have enabled them to converge towards developed country status over a relatively short space of time. Clearly, these are not successful catch-up stories. Furthermore, given the degree of economic and political instability that has been endemic to their

VARIETIES AND CRISES OF NEOLIBERAL GLOBALISATION

241

T A B L E 1 . M a cr o ec o n o m ic

p er fo rm

a n ce

o f T u rk ey

a n d A rg en ti n a in

co m p a ra ti v e p er sp ec ti v e

1 9 9 0 – 1 9 9 9 a ve ra g e

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

A rg

T u r

A rg

T u r

A rg

T u r

A rg

T u r

A rg

T u r

A rg

T u r

G ro w th

(% )

4 .3

3 .8

7 3 .4

7 4 .7

7 0 .5

7 .2

7 5 .2

7 9 .5

7 1 0 .9

7 .8

8 .8

7 .2

R ea l G D P p er

ca p it a (U

S $ )

2 9 6 0

2 7 1 5

7 5 5 0

2 9 0 0

7 4 6 0

3 1 0 0

7 4 1 8

2 1 0 1

2 8 7 2

2 6 0 9

3 4 7 1

3 3 6 6

In v es tm

en t (%

o f G D P )

1 4

2 4 .3

1 7 .9

2 3 .4

1 5 .9

2 4 .1

1 4 .2

1 9

1 2

1 7 .4

1 5 .1

1 7 .6 *

E x p o rt s (%

o f G D P )

1 0 .4

1 3 .3

9 .8

2 3

1 0 .8

2 3 .8

9 .9

2 1 .7

2 4

1 9 .8

2 2 .9

1 7 .3

Im p o rt s (%

o f G D P )

4 .6

1 7 .6

1 1 .5

2 6 .9

1 1 .4

3 1 .2

7 .6

2 7 .9

8 .4

2 7 .6

1 0 .8

2 7 .2

C u rr en t a cc o u n t b a la n ce

(% o f G D P )

1 .2

7 1 .7

7 4 .2

7 0 .7

7 3 .1

7 4 .9

7 1 .4

2 .3

8 .5

7 0 .8

6 .1

7 3 .2

T o ta l d eb t (%

o f G D P )

4 4

3 2 .8

5 1 .5

5 5 .6

5 1 .4

5 8 .1

1 0 6

7 9

2 5 3 .5

7 2 .2

2 5 3 .2

7 0 *

C o n su m er

p ri ce s

(% ch a n g e)

2 3 1 4

6 0 .3

7 1 .2

6 3 .5

7 0 .8

5 4 .2

7 5 .3

6 8 .5

1 1 8

2 9 .7

2 1 8 .4

* N o te : D a ta

fo r 2 0 0 3 a re

p ro v is io n a l.

S o u rc e:

h tt p :/ /w

w w .s p o .g o v .t r; h tt p :/ /w

w w .m

ec o n .g o v .a r; a n d h tt p :/ /w

w w .l a ti n -f o cu s. co m .

ZIYA ÖNIS

242

development experience, they have failed to attract long-term capital on a substantial scale that could have speeded up their growth processes significantly. Turkey managed to achieve higher rates of growth than Argentina. Yet a growth rate in the region of 5% per annum during the post- 1945 period was not sufficient to make a dramatic impact on living standards, given the low income base that growth started from and the high rates of population growth. Consequently, per capita incomes have remained at low levels (Table 1). Yet another common element is the fact that these are relatively new democracies which are short of being fully consolidated. The relatively new and fragile democratic environments in both cases undermined the basis of sustained economic growth over time because of their failure to create a stable and crisis-free economic and political setting. Finally, in both cases the shift to a neoliberal economic model was not a voluntary choice on the part of the domestic economic and political elites. Both countries were forced to undertake the transition in a neoliberal direction in line with pressures from key external actors such as the IMF and World Bank as a result of a combination of fiscal and balance of payments crises brought about by the exhaustion of the ISI model of development.

Varieties of neoliberalism: the two experiments in comparative perspective

Argentina emerged as one of the model cases of global neoliberalism during the 1990s. The country, perhaps more so than any other ‘emerging market’ in recent years has tried to strictly conform to IMF advice with the objective of restoring trust and confidence among the key economic actors after decades of macroeconomic populism and endemic instability. Following the implementation of an extreme version of a neoliberal programme during the presidency of Carlos Menem in the early 1990s, Argentina has been able to recover rather swiftly from the prolonged instability and crises of the previous era, achieving high rates of economic growth for the first time during the postwar period (Table 1). Furthermore, inflation, which had reached hyperinflationary proportions by the beginning of the decade, was reduced to single digit levels over a remarkably short space of time. One of the features of the Argentinean experiment that attracted most

international attention was the convertibility plan, which was basically a currency board system. The Convertibility Plan and its institutional counterpart, the Currency Board, were implemented by the Argentinean authorities through close collaboration with the IMF.

4 The plan represented

an extreme version of a fixed exchange rate system. The aim of the plan was to peg the Argentinean peso to the US dollar on a one-to-one basis to restore confidence and to eliminate hyperinflation. The underlying logic was the following. In the absence of an extreme external anchor such as the convertibility plan, it would have been impossible to implement a stabilisation programme which would have any kind of credibility, given successive stabilisation failures in the past. The plan effectively eliminated the power of governments to finance deficits through the Central Bank and restricted new money creation to the inflow of foreign exchange. To maintain

VARIETIES AND CRISES OF NEOLIBERAL GLOBALISATION

243

the fixed exchange rate, the currency board maintained dollar reserves and could increase the supply of pesos without an equivalent increase in dollars that were under its possession. Clearly, the success of the plan rested on strict monetary and fiscal

discipline. In sharp contrast to the kind of behaviour that they had displayed in the past, the Argentinean governments in the 1990s were able to display the commitment necessary to maintain strict discipline over monetary and fiscal policy. The new policy attracted broad public support given the abnormally high inflation rates experienced during the 1980s and their widely felt negative consequences. Furthermore, the concrete success of the programme in curbing hyperinflation, creating the infrastructure for large inflows of capital and rapid growth, helped to maintain this initial base of public support over a considerable period. Hence, by the second half of the 1990s, Argentina appeared to accomplish a decisive break with its past, characterised by relative stagnation and endemic instability.

5

Moving beyond the immediate success on the inflation front, during this period Argentina managed to implement a massive privatisation programme, as well as drastic trade and capital account liberalisation. By the mid-1990s all public utilities and public industrial enterprises had been privatised. Privatisation revenues were utilised as part of the government’s overall macroeconomic policy package to counter fiscal and current account imbalances and they contributed to the achievement of the fixed exchange rate.

6 Macroeconomic stability and massive privatisation, as well as drastic

trade and capital account liberalisation, have been instrumental in generating large flows of foreign capital. These vast flows, in turn, have made a major contribution to the process of economic growth. Yet the dependence of growth primarily on external forces, rather than on the competitive strength of the domestic economy, highlighted the inherent fragility of the growth dynamic that appeared to be associated with the IMF-induced neoliberal reforms. Given the precarious nature of economic growth, it was not surprising after all that in spite of the favourable developments emphasised above; a crisis of major proportions could not be averted at the beginning of the new decade. Turning to the Turkish case, the origins of neoliberal reforms may be

traced to an earlier date, namely 1980. Neoliberal reforms have been in progress in Turkey over a period of two decades. Full capital account liberalisation, however, occurred at a relatively advanced stage of the programme, in 1989. In contrast, Argentina’s encounter with neoliberalism has been more recent and the reform process has been accomplished in a far more radical manner over a much shorter period of time in the context of the 1990s. The Argentinean experiment involved a shock-treatment approach, while a gradualist approach would be a better characterisation of the Turkish experiment.

7 In the Turkish context there appeared to be a lower degree of

commitment to the fiscal stabilisation component of neoliberal restructuring. Indeed, the degree of fiscal instability intensified during the second phase of neoliberal reforms in the 1990s. Fiscal instability in an environment of an open capital account regime created a highly fragile pattern of economic

ZIYA ÖNIS

244

growth during the post-1990 era. The result has been three successive financial crises, in 1994, 2000 and 2001 respectively, with costly ramifica- tions.

8 In contrast to Argentina, privatisation has been a rather slow process

in Turkey. In retrospect, Turkey found itself in a vicious cycle of fiscal instability and debt-led growth and only very recently, following the adjustment process after the 2001 crisis, do we observe the beginnings of a transition to a potentially new era of low inflation and sustained economic growth. Nevertheless considerable elements of fragility, such as a large current account deficit and dependence on inflows of short-term capital, continued to characterise the system during the summer of 2004. In terms of economic performance Turkey was more successful during the first phase of its neoliberal reforms during the 1980s, while Argentina recorded superior economic performance during the course of the 1990s. In addition to the key differences emphasised, a number of interesting

parallel features involving the two neoliberal experiments may also be identified (see Table 2). It is interesting to observe, for example, that neither of the two countries managed to achieve sustained economic growth over long periods of time. Both experienced post-stabilisation booms and a surge in exports as their economies recovered from previous crises. These initial booms, however, were not translated into sustained increases in exports and economic growth. Both countries displayed similar vulnerabilities before the outbreak of their major financial crises. Fiscal consolidation was incomplete and political support for government expenditure cuts was fragile and fragmented. An exchange rate anchor, which was implemented in a rigid fashion in Argentina and in a looser fashion in Turkey after 1999 to achieve a rapid reduction in inflation, helped to undermine export competitiveness.

9

Given the inadequacy of export growth, financing the current account deficit at the prevailing exchange rates and levels of demand required substantial capital flows resulting in a pronounced increase in the level of external indebtedness. Furthermore, the pattern of debt-led growth was extremely sensitive to exogenous shocks and deteriorating external conditions. Indeed, the Asian and Russian crises of 1997 and 1998, respectively exercised a negative influence over the economies of both countries. In addition, Argentina was negatively affected by the Brazilian devaluation, Brazil being its major trading partner, while Turkey’s performance deteriorated as a result of the devastating earthquake in 1999 which hit the industrial heartland of the country, of higher oil prices and of the rise in the value of the US dollar in 2000 – 01. Finally, another interesting similarity, this time in the political realm,

involves the critical role played by highly charismatic ‘neo-populist’ leaders in the reform implementation process. Carlos Menem, in his presidential role in Argentina during the 1990s and Turgut Özal, in his quasi-presidential role in Turkey during the 1980s played a key role in the neoliberal restructuring process of their respective countries. Their role was critical in terms of building popular support and overcoming resistance to a potentially difficult and divisive set of economic reforms.

10 What is also interesting, however,

is that both countries experienced a rise and fall in neo-populist leadership,

VARIETIES AND CRISES OF NEOLIBERAL GLOBALISATION

245

T A B L E 2 . N eo li b er a li sm

in A rg en ti n a a n d T u rk ey : a st y li se d co m p a ri so n

S im

il a ri ti es

D iff er en ce s

P re -c ri si s p er io d

. Im

p le m en ta ti o n o f n eo li b er a l p ro g ra m m es

w it h

IM F to

o v er co m e p o p u li sm

a n d m a cr o ec o n o m ic

in st a b il it y .

. A rg en ti n ea n m o d el

w a s m o re

li k e a sh o ck

th er a p y ; T u rk ey

p u rs u ed

a

st a g e- b y st a g e li b er a li sa ti o n .

. Im

p le m en ta ti o n o f fi x ed

ex ch a n g e ra te

re g im

es .

. G ro w th

b a se d o n sh o rt -t er m

ca p it a l fl o w s d u ri n g th e k ey

p h a se s o f th e p re -c ri si s er a .

. P ro b le m s re g a rd in g m a in ta in in g fi sc a l d is ci p li n e.

. V u ln er a b le

b a n k in g se ct o rs .

. V u ln er a b il it ie s to

ex te rn a l sh o ck s (A

si a n , R u ss ia n a n d

B ra zi li a n cr is es )

. A th o u g h T u rk ey

im p le m en te d a fi x ed

ex ch a n g e ra te

re g im

e, it w a s cl o se r

to a m a n a g ed

fl o a t, ra th er

th a n a n ex tr em

e v er si o n o f th e A rg en ti n ea n

ex p er ie n ce

ca ll ed

C u rr en cy

B o a rd .

. T h e ro o ts

o f th e fi sc a l im

b a la n ce s w er e d iff er en t in

b o th

co u n tr ie s

(g o v er n m en t su b si d ie s a n d b a n k in g se ct o r p ro b le m s in

T u rk ey

a n d

fe d er a l st ru ct u re

o f g o v er n m en t in

A rg en ti n a )

D u ri n g th e cr is is

. Im

m ed ia te

b a il -o u ts

b y th e IM

F

. P o li ti ca l in st a b il it y

. D et er io ra ti n g m a cr o ec o n o m ic

en v ir o n m en ts

(d ec re a si n g

g ro w th

ra te s a n d p er

ca p it a in co m es , in te re st

ra te

h ik es ,

in fl a ti o n )

. E v en

th o u g h th e F u n d p ro v id ed

b a il -o u ts fo r b o th

co u n tr ie s, th e d eg re e o f

co n d it io n a li ty

w a s a rg u a b ly

ti g h te r o n th e A rg en ti n ea n si d e (z er o d efi ci t

ru le , st ri ct

ta rg et s fo r th e p ro v in ce s a n d th e m u n ic ip a li ti es ). T h e

a cc o m p a n y in g p o li ti ca l in st a b il it y w a s fa r m o re

p ro n o u n ce d in

A rg en ti n a .

P o st -c ri si s er a

. T h e im

m ed ia te

im p a ct : in cr ea si n g p o v er ty

a n d

u n em

p lo y m en t o n a m a ss iv e sc a le .

. A ch ie v in g h ig h g ro w th

ra te s in

2 0 0 3 . R ec o v er y in

so m e

o f th e k ey

m a cr o ec o n o m ic

v a ri a b le s.

. S ig n ifi ca n t re st ru ct u ri n g in

th e re sp ec ti v e b a n k in g se ct o rs .

. P o st -c ri si s re co v er y co m in g fr o m

u n ex p ec te d le a d er s;

le a d er s w it h p o p u li st b a ck g ro u n d s: R ec ep

T a y y ip

E rd o ğ a n

in T u rk ey

a n d N es to r K ir sc h n er

in A rg en ti n a . In

re tr o sp ec t,

. E rd o ğ a n p ro v ed

to b e m o re

w il li n g to

o p er a te

w it h in

th e

b o u n d a ri es

o f th e o rt h o d o x

IM F a p p ro a ch , w h er ea s

K ir sc h n er

m a n a g ed

to d ev ia te

fr o m

th e IM

F li n e a n d

a d o p te d a h et er o d o x a p p ro a ch

to d eb t re st ru ct u ri n g in

th e

m o re

re ce n t er a .

. B o th

co u n tr ie s h a v e b o u n ce d b a ck , h o w ev er

th e re co v er y

p ro ce ss

is fa r fr o m

co m p le te

a n d th e p o ss ib il it y o f fu tu re

cr is es

ca n n o t b e ru le d o u t co m p le te ly .

. R a d ic a l d iff er en ce s in

th ei r b a si c o ri en ta ti o n s to w a rd s th e F u n d . T u rk ey

w a s m o re

w il li n g to

g o a lo n g w it h th e IM

F p ro g ra m m e.

A rg en ti n a

re lu ct a n tl y a n d in

th e m id st

o f h ea v y p ro te st s a cc ep te d a n

IM F

p ro g ra m m e.

F ro m

2 0 0 3 o n w a rd s A rg en ti n a h a s b ro k en

it s li n k s w it h th e

IM F a n d , fo ll o w in g u n il a te ra l d ef a u lt , h a s ch o se n a n in d ep en d en t p a th

o f

d ir ec t b a rg a in in g w it h fo re ig n in v es to rs .

. A

d o u b le

a n ch o r fo r T u rk ey , w it h st ro n g p re ss u re

fo r re fo rm

fr o m

th e

IM F a n d th e E U , w a s im

p o rt a n t fo r sp ee d y re co v er y . T u rk ey ’s a b il it y to

g o a lo n g w it h th e IM

F w a s, in

p a rt , sh a p ed

b y th e fa ct

th a t IM

F d is ci p li n es

w er e p a rt

o f th e p ro g ra m m e le a d in g to

E U

m em

b er sh ip .

. T h e im

p o rt a n ce

o f 1 1 S ep te m b er

a n d th e Ir a q w a r. A s C a v a ll o a ls o

re co g n is ed , g eo p o li ti cs

m a tt er s a n d th e g eo p o li ti ca l co n te x t h a s b ee n m o re

fa v o u ra b le

to T u rk ey .

ZIYA ÖNIS

246

and the post-Menem phase in Argentina and the post-Özal phase for Turkey have been associated with a significant degree of political instability, with negative repercussions on the reform process. While the Menem and Özal phases, with their charismatic and top-down style of policy making in an environment of weak checks and balances, had the advantage of accelerating the reform process, they also had the negative effect of undermining the institutionalisation and consolidation of reforms.

11 In comparative terms

Argentinean democracy was characterised by a greater degree of political turmoil in the post-crisis era, whereas Turkey experienced, rather ironically, a return to a certain degree of political stability, with a single party, the Justice and Development Party, managing to establish a parliamentary majority for the first time for a period of over a decade.

The recent crises: underlying similarities and contrasts

The combination of short-term success and longer-term instability has been present in both the cases under consideration. Starting with the Argentinean case a major cause of the crisis was the rigidity of the convertibility plan itself. The immediate advantages of the plan were counterbalanced by its longer-term disadvantages. Inflation had been reduced to single digit levels by the late 1990s at the expense of a complete loss of flexibility of monetary policy. As a result, the authorities were unable to respond to the emergence of a recession towards the end of the decade through an expansionary monetary policy. To make matters worse, as the economy continued on a downward slide and inflows of dollars slowed down, the ‘one to one rule’ involving the peso and the dollar placed a further restriction on the use of monetary policy. A deflationary bias was injected into the economy. Furthermore, the rigidity of the plan rendered the economy particularly

vulnerable to external shocks, which also played a key part in precipitating the crisis of 2001. During the late 1990s the US dollar appreciated against other currencies; this was immediately translated into an appreciation of the peso, a development that clearly undermined the competitiveness of Argentinean exports. Similarly, after the devaluation of the Brazilian real, following the outbreak of a crisis in Brazil in 1999, the peso became seriously overvalued in real exports. Considering that Brazil is Argentina’s major trading partner, this also constituted a major blow to Argentinean exports. An observation from the Argentinean experience that is also valid for the Turkish case is that export competitiveness and current account performance matter. Neglect of these elements, based on the assumption that large capital inflows and buoyant international reserves provide the necessary protection, represents a clear invitation to a crisis. Moving beyond the convertibility plan, a complete appraisal needs to

integrate additional elements into the picture. In retrospect, the privatisation programme in Argentina played a role which was rather similar to the convertibility plan. Its impact was positive in the early stages; yet it helped to disguise growing fiscal disequilibrium over time. Argentina experienced one of the most intense and far-reaching privatisation programmes of the recent

VARIETIES AND CRISES OF NEOLIBERAL GLOBALISATION

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era. Privatisation receipts served an important function in terms of counteracting fiscal and current account imbalances and maintaining a fixed exchange rate. Privatisation revenues, however, do not constitute a continuous source of government revenue. The end of the privatisation programme entailed two major implications. First, Argentina could no longer attract significant inflows of long-term foreign investment. Conse- quently, it had to seek refuge in portfolio capital in order to sustain the momentum of capital inflows. Second, it became increasingly difficult to sustain fiscal equilibrium over time, especially in an environment where municipal governments that enjoyed a high degree of fiscal autonomy were willing to incur large deficits. During the early 1990s the positive signals provided by the opening up of

the economy, the privatisation drive and the high domestic interest rates relative to US interest rates helped to attract foreign capital on a massive scale. The currency board experiment helped to reduce the risks and contributed further to the process generating large inflows of capital. These capital flows originating from the USA and Europe gave a strong boost to economic growth. Although foreign direct investment had slackened by the mid-1990s, inflows of portfolio capital were maintained at high levels, notably through the purchase of Argentinean bonds denominated in dollars. Pleased with this strategy, the IMF was ready to protect it with back-up credits taking into account the inherent volatility of portfolio capital. This line of defence worked during the 1995 – 96 crises, but repeated injections of emergency credits failed to revive private capital inflows or the economy following the Brazilian crisis of 1999. By the end of the decade the strategy appeared to be at a dead end. Looking back to the Argentinean experiment, the good times of the mid-1990s were built on weak foundations. Economic growth during this period, substantial by earlier Argentinean standards, had largely been the result of the accumulation of external debt, a domestic consumption associated with a large increase in the share of imports, and one-time injections in government revenues from the sale of state enterprises. It was not a paradox, therefore, that by the end of the decade this initially rosy picture was substantially reversed. At this point it is important to draw attention to the social and

distributional impact of neoliberal restructuring. A wave of privatisations during Menem’s presidency had already resulted in a significant increase in unemployment. Considering the fact that many of the privatised companies were utilities, prices for such basic services as electricity and telephones registered massive increases, contributing to greater income inequality.

12

Furthermore, as Argentina’s recession became deeper in 1999, the collapse of domestic demand resulted in additional bankruptcies and unemployment. In this type of environment it became progressively more difficult to sustain broad social and political support for the overall programme and particularly for the component involving fiscal discipline. During the course of 2001 Argentina’s recession became deeper. Although

the IMF was willing to help through additional funding, this was under the condition that Argentina would eliminate its budget deficit. With the

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economy in recession and tax revenues declining drastically, the only way to balance the budget was to engineer a massive cut in government spending. Attempts by the Congress to accomplish this objective, however, met with a massive wave of protests. This, in turn, generated a major crisis of confidence on the part of investors and resulted in capital flight. This clearly was the proximate cause of the crisis, although it is clear that fundamental structural factors were at work that created the basis of the crisis in the first place. Turning our attention to the Turkish crisis of 2001, at the heart of this

process was heavy domestic borrowing to finance large fiscal deficits and a lop-sided pattern of growth that was heavily dependent on inflows of short-term capital.

13 Policy makers in Turkey failed to display the kind of

commitment to fiscal stability and inflation control in the early 1990s that their Argentinean counterparts had shown during this period. The fragmented political order characterised by successive coalition governments that followed the quasi-presidential regime of the Özal era contributed to this pattern of instability. The opening of the capital account in August 1989, however, provided the kind of temporary breathing space which allowed policy makers to maintain high growth by recourse to short-term borrowing in an environment of endemic fiscal disequilibrium. Hence, unlike Argentina, Turkey appeared to be trapped in a vicious circle. Lack of commitment to fiscal stabilisation and inflation growth provided a distorted set of incentives to both domestic and foreign investors. Consequently privatisation was slow and not much success was achieved in terms of attracting the much needed long-term foreign investment. Indeed, the growth spurt of the early 1990s could not be maintained as Turkey found itself confronted with its first crisis of the neoliberal era in the early months of 1994. With the assistance of the IMF the country was able to emerge from the

1994 crisis. without major dislocation. Nonetheless, swift recovery was to prove costly from a longer-term perspective, in the sense that the basic imbalances that characterised the Turkish economy during the pre-crisis era remained largely intact. The signing of the Customs Union with the EU, an arrangement that became effective at the beginning of 1996, provided a further impetus to trade liberalisation and regulatory reforms. However, the customs union without the prospect of full EU membership failed to prove a sufficiently powerful external anchor to radically alter the underlying behaviour of the economic and policy-making actors and help to correct the basic imbalances built into the operation of the economy. By 1999, given the size of the domestic and external debt problem and the

depth of fiscal disequilibrium, it was increasingly clear that the Turkish economy was on an unsustainable course. It was interesting that an agreement was concluded with the IMF which was unique in the Turkish experience, in the sense that it was agreed upon without the economy actually experiencing a crisis. The December 1999 programme essentially focused on fiscal stabilisation, banking sector regulation and also involved a softer version of the pegged exchange rate policy as judged by the standards of the Argentinean plan. In addition, the programme focused on structural reform in a wide range of areas. Yet it became clear that the IMF was not able to

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provide adequate protection for Turkey given the depth of the disequilibrium that had developed over the course of the 1990s. Although an attempt was made by the authorities to reduce the fiscal deficit, the commitment of the coalition government appeared to be half-hearted. Similarly, attempts to introduce a new autonomous institution for the proper regulation of the banking sector were confronted with serious resistance from the domestic political process. It was also clear that the resources provided by the IMF during the 1999 – 2001 period were quite limited, especially judged by the standards of the post-crisis era. As emphasised earlier, the on-going programme of stabilisation and reform was also not helped by a series of negative domestic and external shocks, such as the earthquake and the Asian and Russian crises, as well as higher oil prices and the rising value of the dollar during the course of 2000. The pegged exchange rate regime also contributed to a rising current account deficit that helped to undermine investor confidence. Ultimately, what appeared to cause the crisis of February 2001 (and the

preceding crisis of November 2000) was the weaknesses of the under- regulated banking system that helped to undermine confidence and resulted in massive capital flight in the Argentinean fashion. The November 2000 crisis reflected the weakness of the private banking system, whereas the February 2001 crisis was associated with the large losses of the public banking system which were not properly reflected in the government’s fiscal accounts. Hence the Turkish economy, like its Argentinean counterpart, was characterised by fundamental on-going disequilibria. The specific event, involving the conflict between Prime Minister Ecevit and President Sezer was also a triggering mechanism that was able to precipitate the 2001 crisis, given the underlying weaknesses of the Turkish economy. The broad overview presented suggests that there exist both common

elements as well as some important differences in the two major crises in the two countries. A more systematic and detailed comparison highlighting these similarities and contrasts is presented in Table 3.

Post-crisis dynamics: paths of convergence and divergence

The two countries experienced quite different trajectories in the aftermath of the drastic crises that they experienced in the same year. Turkey has been fortunate in avoiding the kind of massive social and political unrest and dislocation that Argentina experienced in the post-crisis era. In Argentina the economic crisis has been accompanied by a massive wave of protests directed at both the government and the IMF. In the Turkish case, in contrast, the IMF has not been a major target of attack, at least not to the same degree, with the principal responsibility being placed on the shoulders of the coalition government in office.

14 The relative absence of massive protests, in spite of

the fact that the crisis was the deepest economic crisis in the country’s postwar economic history, inflicting hardships on all segments of society, may, in part, be explained by the strength of informal networks. The communitarian elements that exist in Turkish society, based on informal ties

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T A B L E 3 . T u rk is h a n d A rg en ti n ea n cr is es

a n d ex p er ie n ce s in

co m p a ra ti v e p er sp ec ti v e

A rg en ti n a ( 2 0 0 1 )

T u rk ey

( 2 0 0 0 – 0 1 )

N a tu re

o f th e cr is is

T w in

cr is es . B a la n ce

o f p a y m en ts

cr is is , tr ig g er ed

b y th e

ri g id it y o f th e C o n v er ti b il it y P la n . D ep le ti o n o f re se rv es .

O u tfl o w s o f ca p it a l o n a si g n ifi ca n t sc a le .

T w in

cr is es

(fi sc a l a n d fi n a n ci a l) . B a la n ce

o f p a y m en ts

cr is is ca u se d b y ex ce ss iv e ca p it a l o u tfl o w s le a d in g to

th e

co ll a p se

o f g ro w th

a n d o th er

k ey

m a cr o ec o n o m ic

in d ic a to rs

O ri g in s (p re -c ri si s p er io d ))

C o m m it m en t to

a ri g id

v er si o n o f fi x ed

ex ch a n g e ra te

re g im

e. C o n si d er a b le

fa ll in

ex p o rt s th a n k s to

o v er v a lu a ti o n a n d d ev a lu a ti o n o f re a l a ft er

th e 1 9 9 8

B ra zi li a n cr is is . F is ca l d et er io ra ti o n ca u se d b y th e

fe d er a l st ru ct u re

o f g o v er n m en t a n d ir re sp o n si b le

b eh a v io u r o f m u n ic ip a l le a d er s.

P ri m a ri ly

th e re su lt o f d is eq u il ib ri u m

in th e b a n k in g se ct o r

(p ri v a te

b a n k s in

2 0 0 0 a n d p u b li c b a n k s in

2 0 0 1 ).

In te rr el a ti o n b et w ee n th e b a n k in g se ct o r a n d th e fi sc a l

im b a la n ce s sh o u ld

b e u n d er li n ed .

E x te rn a l d im

en si o n s

A si a n a n d R u ss ia n cr is es

n eg a ti v el y a ff ec te d th e

A rg en ti n ea n a n d T u rk is h ec o n o m ie s a li k e.

B ey o n d th a t,

re a l d ev a st a ti n g im

p a ct

ca m e fr o m

th e d ev a lu a ti o n o f th e

re a l, w h ic h m a d e a d ee p im

p a ct

o n ex p o rt s to

B ra zi l.

A ls o , g lo b a l a p p re ci a ti o n o f th e d o ll a r le d to

a n o th er

im p a ss e fo r A rg en ti n a b ec a u se

o f th e o n e- to -o n e p a ri ty

b et w ee n p es o a n d d o ll a r in

a cc o rd a n ce

w it h th e

C o n v er ti b il it y P la n .

H ig h ly

v o la ti le

ex te rn a l en v ir o n m en t ch a ra ct er is ed

b y

re cu rr en t cr is is in

em er g in g m a rk et s a n d re v er sa l o f

ca p it a l fl o w s, es p ec ia ll y a ft er

th e A si a n cr is is o f 1 9 9 7 .

E x p o rt

p er fo rm

a n ce

n eg a ti v el y a ff ec te d b y th e R u ss ia n

cr is is a n d w ea k g lo b a l d em

a n d .

T h e In v o lv em

en t o f In te rn a ti o n a l A ct o rs

A rg en ti n a h a d st a rt ed

th e 1 9 9 0 s w it h a n

IM F -b a se d

n eo li b er a l p ro g ra m m e a n d co n ti n u ed

to co ll a b o ra te

w it h

th e F u n d b y a ch ie v in g lo w

in fl a ti o n a n d h ig h g ro w th

ra te s. M a n y co m m en ta to rs

b la m ed

th e F u n d fo r n o t

st ep p in g in

a n d w a rn in g o f th e v u ln er a b il it ie s o f it s

p ro g ra m m e.

T h e IM

F p re fe rr ed

a m o d e o f ‘s ta te

o f

in a ct io n ’. T h e IM

F b a il -o u t w a s sm

a ll er

th a n th e o n e fo r

T u rk ey . A s th e IM

F d em

a n d ed

a d d it io n a l re fo rm

s a n d

p re ca u ti o n a ry

in te rv en ti o n s fr o m

th e g o v er n m en t, th e

b a il -o u t fo r A rg en ti n a a ls o in co rp o ra te d a h ig h er

d eg re e

o f co n d it io n a li ty .

T h e IM

F w a s th e m o st

cr u ci a l a ct o r d u ri n g th e p re - a n d

p o st -c ri si s er a . T h e IM

F ’s le g it im

a cy , d es p it e ex p er ie n ci n g

a cr is is en

ro u te , p re se rv ed

a n o n g o in g

IM F p ro g ra m m e

th a n k s to

it s d ev ia ti o n s a n d fa ct s h id d en

fr o m

th e IM

F .

T h e sp ee d y in te rv en ti o n o f th e IM

F w it h a h u g e b a il -o u t

w a s si g n ifi ca n t in

te rm

s o f ex p la in in g th e fa st

re co v er y .

T h e ro le

o f th e E U

is d ec is iv e fo r th e fi rs t ti m e.

T h e

W o rl d B a n k is a ls o in v o lv ed

a s a se co n d a ry

a ct o r.

(c o n ti n u ed

)

VARIETIES AND CRISES OF NEOLIBERAL GLOBALISATION

251

T A B L E 3 . (C

o n ti n u ed

)

A rg en ti n a ( 2 0 0 1 )

T u rk ey

( 2 0 0 0 – 0 1 )

E co n o m ic , p o li ti ca l a n d so ci a l im

p a ct s

T h e cr is is p ro v o k ed

th e la rg es t so ci a l p ro te st s o f re ce n t

y ea rs , a p tl y d es cr ib ed

a s so ci a l ex p lo si o n , w h ic h en d ed

w it h th e co ll a p se

o f th e D e L a R u a g o v er n m en t

S u b se q u en tl y , a m o ra to ri u m

w a s d ec la re d o n th e ex te rn a l

d eb t a n d th e C o n v er ti b il it y P la n ca m e to

a n en d . O n e o f

th e m ea su re s w h ic h ex a sp er a te d p eo p le

a n d tr ig g er ed

th e

fa ll o f th e g o v er n m en t w a s th e im

p le m en ta ti o n o f th e

‘c o rr a li to ’, w h ic h co n si st ed

o f im

p o si n g a n u p p er

li m it o n

d ep o si t h o ld er s’ w it h d ra w a ls . F o ll o w in g th e d ev a lu a ti o n ,

p eo p le

h a d b eg u n to

w it h d ra w

th ei r d ep o si ts

o n a la rg e

sc a le

a n d th is ca u se d a fi n a n ci a l cr is is . A m o n g a d d it io n a l

fa ct o rs

th a t le d to

th e so ci a l ex p lo si o n w er e h ig h

u n em

p lo y m en t ra te s, p u b li c sp en d in g , a n d cu tb a ck s

a im

ed a t fi sc a l eq u il ib ri u m

a n d co n fi d en ce .

T h es e cr is es

w er e th e d ee p es t T u rk ey

h a s ex p er ie n ce d in

m o d er n ti m es . G D P d ec li n ed

b y a m a ss iv e 9 .4 %

in 2 0 0 1 .

U n li k e th e 1 9 9 4 cr is is , th is cr is is re su lt ed

in m a n y

ed u ca te d a n d sk il le d p eo p le

lo si n g th ei r jo b s. S m a ll a n d

m ed iu m -s iz ed

en te rp ri se s w er e n eg a ti v el y a ff ec te d

th ro u g h b a n k ru p tc ie s. A t a m o re

fu n d a m en ta l le v el , th e

tw o co n se cu ti v e cr is es

h el p ed

to h ig h li g h t th e to ta l

ex h a u st io n o f a m o d el

o f d ev el o p m en t b a se d o n

cl ie n te li st ic

ti es

a n d p a tr o n a g e n et w o rk s. T h e la tt er

w er e

th e ro o t ca u se s o f th e p ro b le m s o f ch ro n ic in fl a ti o n a n d a

m a ss iv e b u il d -u p o f d o m es ti c a n d ex te rn a l d eb t, a s w el l a s

o f h ig h le v el s o f co rr u p ti o n b y in te rn a ti o n a l st a n d a rd s.

A g en ts

a n d in st it u ti o n s re sp o n si b le

fo r th e cr is es

T h e a m b it io u s,

IM F -b a se d p ro g ra m m e im

p le m en te d u n ti l

th e o u tb re a k o f th e cr is is h a s b ee n h ea v il y cr it ic is ed

b y

m a n y sc h o la rs

a n d co m m en ta to rs . C ri ti ci sm

s ce n tr ed

a ro u n d th e p ro g ra m m e’ s in si st en ce

o n ri g id it ie s a n d

fa il u re

to a n ti ci p a te

th e v u ln er a b il it ie s cr ea te d b y th e

n a tu re

o f th e p ro g ra m m e.

D o m es ti c fa ct o rs

su ch

a s th e

fi sc a l im

b a la n ce s cr ea te d b y th e fe d er a l st ru ct u re

o f th e

g o v er n m en t w er e a ls o cr u ci a l. T h e fe d er a l st ru ct u re

w a s

h ig h ly

p ro n e to

m a n ip u la ti o n th ro u g h p o p u li st

p o li ci es

a n d a ls o o th er

ty p es

o f cl ie n te li st

a n d n ep o ti st

m a lp ra ct ic es . T h er e is n o d o u b t th a t, a lo n g w it h th e

ex te rn a l fa ct o rs

h ig h li g h te d a b o v e,

th e b u rd en

sh o u ld

b e

sh a re d b et w ee n th e IM

F a n d th e fe d er a l st ru ct u re .

IM F a ct io n is o p en

to cr it ic is m

o n th e fo ll o w in g g ro u n d s.

F ir st , th e IM

F fa il ed

to p ro v id e a n a d eq u a te

m ix

o f

co n d it io n s a n d in ce n ti v es

fo r p ro g ra m m e

im p le m en ta ti o n . G iv en

th e d em

a n d in g co n d it io n s

im p o se d a n d th e sc a le o f a d ju st m en t re q u ir ed , th e sc a le o f

a ss is ta n ce

w a s ra th er

in a d eq u a te . T h e p ro b le m

w a s, in

p a rt , ca u se d b y a la ck

o f in fo rm

a ti o n o n th e p a rt

o f th e

IM F . F o r ex a m p le , th e IM

F d id

n o t h a v e fu ll in fo rm

a ti o n

co n ce rn in g th e si ze

o f th e d is eq u il ib ri u m

in th e p u b li c

b a n k in g se ct o r a n d , h en ce , o f th e tr u e d ep th

o f fi sc a l

d is eq u il ib ri u m

in T u rk ey .

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of reciprocity, have historically played an important role in preventing the worst forms of poverty and deprivation. The strength of the informal economy proved to be a key element in containing violent forms of reaction also in the post-crisis context in the recent era.

15

An important point to emphasise, however, is that in both countries democratic regimes proved to be resilient to massive economic shocks. This is a point of critical significance in the sense that, in the past, economic crises have been accompanied by the collapse of the democratic order, with costly consequences in terms of human rights extending well beyond the realm of economic well-being. Nevertheless, existing governments or political leaders have been severely punished for their failure to prevent the respective economic crises in the two countries. In Turkey the coalition government in power experienced a major defeat in the early elections of November 2002, even though it was responsible for undertaking an unprecedented set of economic and political reforms during the three-year period that it was in power.

16

The two countries also differed sharply in their relations with the IMF. In the Turkish context relations with the IMF were strengthened even further than before. Indeed, the crisis helped to increase the IMF’s bargaining power significantly vis-à-vis domestic political actors. The IMF was able to commit considerably larger resources to Turkey compared with its lending during the 1999 – 2001 era.

17 This also highlights the fact that IMF involvement in the

so-called emerging markets is not a politically neutral process. Certainly, important geopolitical considerations are at stake that naturally tie IMF lending to broader considerations of US foreign policy. Certainly, in the post-11 September global environment, US foreign policy was increasingly orientated towards the Middle East. The economic and political stability of Turkey was an important consideration from this perspective. In contrast, Latin America became a more peripheral region for US foreign policy during this period, despite the obvious economic significance of key countries of the region such as Argentina and Brazil for the international economy. There are clearly two sides to this story. The Turkish policy makers, in contrast to their Argentinean counterparts, did not seriously consider the possibility of an independent path that excluded the IMF. They also envisaged continuity in their relations with the IMF as part of a broader foreign policy stance that involved closer relations with the USA and the European Union. The IMF, in return, and in line with US foreign policy, was willing to lend significant sums of money to Turkey, several multiples of the its quota at the Fund, to facilitate the country’s recovery and reform process. In terms of economic performance the recovery process in Turkey has been

a much smoother process, although given the size of the domestic and external debt burden the recovery is far from complete. To be fair, the IMF has contributed to this process through its conditionality, involving fiscal discipline and tighter regulation of the banking sector. Furthermore, the government in power after November 2002 has also, on the whole, displayed a stronger degree of commitment to fiscal discipline and reform, which helped to raise investor confidence, creating the basis of a pronounced

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253

recovery process (see Table 1). The fact that Turkey has been able to benefit from a second external anchor, namely the prospect of EU membership, has also created a serious impetus for economic as well as political reforms.

18

Indeed, Turkey has increasingly found itself in a virtuous circle in recent years, with political and economic reforms and the stronger prospects for EU membership providing a strong basis for economic recovery, although it is rather premature to suggest that the virtuous circle will continue uninterrupted in the course of the next decade. In contrast, Argentina’s recovery process has been more protracted and

relations with the IMF have been far more problematic. Clearly, one major disadvantage that Argentina faces is that, in spite of its close cultural and historical links with Europe, it has nonetheless not been exposed to the kind of EU pressure that Turkey or the Eastern European countries faced over the direction of economic reform and the associated material benefits that this process entails.

19 In addition, in the immediate aftermath of the economic

crisis, the IMF was discredited in Argentina to a far greater degree than it was in Turkey. Nevertheless, more recently, Argentina has also been experiencing a recovery process, with growth picking up in 2003. Furthermore, there has been a conscious attempt to mend relations with the IMF. In this respect, one can observe a certain convergence in the path adopted by Argentina and Turkey in the more recent era, following the sharp divergences in their trajectories in the immediate aftermath of their respective 2001 crises.

The negative aspects of IMF involvement

Both the Argentinean and Turkish experiences raise deep question marks concerning the role of the IMF in semi-peripheral settings in the era of financial globalisation and capital account openness. The experience of Argentina is the more striking in the sense that Argentina, more than any other emerging economy, adhered to and applied the neoliberal logic in a vigorous and consistent manner within the framework of democratic institutions. Admittedly, there is an on-going debate on whether the type of rigid convertibility plan implemented in Argentina was a plan imposed by the IMF or a plan developed by Domingo Cavallo, the architect of the programme, which went beyond the recommendations of the IMF itself.

20

Without aiming to resolve this controversy, we can argue that there was a certain logic to the ‘Cavallo Plan’, engineered in close co-operation with the IMF. Cavallo was trying to build confidence and credibility for a programme in a country whose past history had been characterised by pervasive macroeconomic instability. By trying to stick to a rigid version of the convertibility plan, he was trying to illustrate the depth of commitment towards the implementation of a radical programme of stabilisation and reform. Certainly, there was no vocal public criticism of the shortcomings of the programme by the IMF or the World Bank during the period leading up to the crisis of 2001. In evaluating the role of the IMF in the two cases, one is confronted with a

problem of interpretation in the sense that there was over-implementation

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and over-commitment in the Argentinean case, and under-commitment and incomplete implementation in the Turkish case, which contributed to the onset of their respective crises. Hence, the IMF is in a position to defend itself by arguing that both Argentina and Turkey deviated from the Fund norms, the former by being too rigid, the latter being too flexible in the implementation of key measures. Nevertheless, a balanced assessment has to take into account the fact that

there are enough common elements in the two cases to allow us to offer some broad critical judgements on the IMF’s role without necessarily placing all the blame on this particular institution (see Table 4). A central lesson in this context concerns the risks associated with exchange rate-based disinflation strategies. Both Argentina and Turkey pegged their exchange rates, rigidly in the first case and within a band in the second, to bring down inflation in a swift manner. To a certain extent this policy was justified in the sense that, as part of the requirement of stopping high inflation, solving the credibility and co-ordination problems and pegging the exchange rate are an obvious means of ensuring that the programme is credible. It is also a way of ensuring that politically difficult measures involving fiscal and monetary discipline can be implemented in the presence of a powerful external anchor. The evidence suggested by our two cases is that, in the absence of measures designed to increase domestic savings capacity and export competitiveness, exchange rate-based stabilisation appears to generate stability in the short-run at the cost of amplifying instability in the future. To lend credibility to its stabilisation programme, Argentina adopted a

dollar-based currency board. While this helped to maximise credibility and commitment to price stability in the short-run, it also rendered the economy vulnerable to fluctuations in the relative value of major currencies. In the Turkish context the crawling peg adopted in conjunction with the IMF restricted the devaluation of the lira to 15% a year. An explicit ‘exit strategy’ was also introduced in the sense that, in July 2001, 18 months after the adoption of the crawling peg, the country would be in a position to begin widening the systematic bands around the central parity. The intention was to buy time for strengthening the banking system, getting the banks accustomed to the environment of greater exchange rate flexibility in the process. The downfall of the strategy, however, was that the incentive to strengthen balance sheets, on the part of the banks, and supervision, on the part of the government, was diminished. In the present context the key lesson to extract is that even a soft version of a pegged exchange rate strategy is able to pose major problems. A second major insight concerns the fact that achieving a significant

surplus on the primary fiscal accounts fails to insulate emerging market economies from possible crises in the presence of excessive short-term debt that needs to be refunded. Both Argentina and Turkey, in the second quarter of 2001, had undertaken concrete steps in the direction of reform, shifting their primary fiscal deficit to surplus. Yet these steps proved to be inadequate in terms of protecting them from the risk of a potential crisis considering that both had substantial amounts of short-term debt that needed to be refunded.

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This, in turn, raises a deeper problem concerning IMF involvement and this time from a longer-term growth perspective. The pattern of economic growth generated on the basis of IMF-induced neoliberal restructuring is a pattern that seems to be heavily based on external debt and inflows of foreign capital, notably short-term capital. This pattern constitutes a serious shortcoming in so far as it fails to address two central problems, namely,

TABLE 4. Additional lessons

Lessons for

IMF Turkey Argentina

Exchange rate

(ER) regime

While the choice of ER

regime belongs to the

country authorities, the

IMF must exercise firm

surveillance to ensure that

the choice is consistent

with other policies and

constraints.

Transition to the flexible

exchange rate regime

could have been earlier.

Although Turkey did not

implement a rigid version,

the ER regime in 2000

was partially responsible

for the crisis. Also, the

Central Bank’s

interventions in the recent

period may be

detrimental to the

functioning and

credibility of the current

regime.

The initial positive

outcomes of the 1990s

were mainly thanks to

the Currency Board (CB)

system (inflation, growth,

real wages). However,

the same regime played

an important role during

the later stages of

devastation. Thus, an

exit strategy should have

been an option. One

should remember,

however, that the CB

experiment was

‘internalised’; a domestic

coalition built around

and favouring this

strategy over time

rendered the exit option

difficult.

Fiscal policy The Fund could have placed

more emphasis on the

fiscal imbalance before

the outbreak of the crisis.

Provincial spending

was evident and the

IMF’s support of the

Convertibility Plan could

be more conditional

during the boom period.

After 2001 the IMF was

right to impose rigid

targets like zero deficit

rule, etc. However, such

steps should have been

taken at an earlier stage.

Both countries have

experienced the

problem of

asymmetric information.

State – business relations

need to be revised and

linkages between the

banking sector and

politics, or in other

words the politicisation of

the banking sector,

should be prevented.

The recent structural

reforms are promising

steps in this direction.

Similar lessons are valid

for Argentina. The

Federal Structure in

Argentina, which was an

avenue for populism and

corruption, could have

been more transparent

and effective.

Programme

ownership

The IMF typically focuses its attention on a limited number of issues. Countries themselves

should be made more accountable on a broader range of issues. The Fund should be

prepared to be more vocal in its criticisms, if it judges that reform implementation in

certain key areas is inadequate.

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the need to raise competitiveness of the real economy and the problem of domestic resource mobilisation. The IMF clearly has to share the blame by failing to focus on these two key sources of sustained economic growth.

21

The lack of competitiveness of the real economy, in general, and the export sector, in particular, as well as the extraordinarily low domestic savings ratios were at the heart of the Argentinean crisis of 2001 (see Table 1). Similar problems were evident in the Turkish case.

22 Consequently, neither

of the two countries was in a position to overcome the debt trap associated with the type of growth trajectory based disproportionately on foreign borrowing and inflows of external capital. It was perhaps not surprising, therefore, that this pattern of growth has also rendered the economies concerned particularly vulnerable to external shocks with rather negative ramifications. This observation clearly suggests that countries need to extend their time

horizons beyond the standard IMF advice and develop their domestic capacities in key areas such as building research and development capabilities and human capital formation which would allow them to address the question of low competitiveness. Perhaps the relatively swift recovery of South Korea from its major crisis in 1997 was not that surprising given the strength of the real economy and unusually high domestic savings capacity.

23

Needless to say, these are difficult objectives to achieve in an environment of fiscal austerity, with a key portion of fiscal cuts falling on public investment. Unless such problems are effectively addressed, however, countries like Turkey and Argentina will find it difficult to accomplish a radical break away from the low-growth, high-inequality syndrome that they found themselves in following their respective crises. Moving one step further, our two cases clearly highlight the dangers of

premature capital account liberalisation in an environment where highly volatile and under-regulated short-term capital flows are posing a major threat to long-term growth prospects, especially in the context of the weakly regulated financial systems of semi-peripheral economies. While the IMF has been promoting regulatory reforms, notably in the aftermath of the Asian crisis, aiming to strengthen domestic banking and financial systems, it has so far been quite impervious to heterodox recommendations involving controls on short-term capital flows on a national, regional or global basis which would help to insulate the countries concerned from the risks of a major financial crisis. Hence the IMF is open to major criticism on the grounds that the institution has so far refrained from dealing with the systemic causes of financial crises, the negative consequences of which fall on countries of the semi-periphery.

24 There is no doubt the IMF’s recent focus on the need to

strengthen regulatory institutions constitutes a positive element and an improvement on its single-minded focus on short-term adjustment during the previous era. Yet there is also no doubt that the IMF appears to severely underestimate the political and institutional problems associated with the construction of strong regulatory institutions needed to cope with the pressures of financial globalisation. The implicit assumption made by the Fund is that, once the capital account regimes and financial systems

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are liberalised, the required regulatory institutions will automatically follow. This is clearly a weak assumption to make, especially in countries where the economic reform process goes hand in hand with the equally difficult process of consolidating nascent democratic regimes in the presence of powerful income re-distributional pressures. Finally, it is important to draw attention to a more recent line of criticism

levelled at the IMF, for which the Argentinean and Turkish cases provide a strong foundation. The key question is to what extent the IMF provides ‘ownership’ of the programme being implemented, especially when the relationship continues in a relatively loose form.

25 Stated somewhat

differently, the central issue involved is the extent to which the IMF is actually able to provide an effective and credible anchor for the country concerned once the country is able to bounce back from being in crisis and feels that it is in a relatively safe and secure position. This was certainly a problem for Argentina in the second half of the 1990s, when the relationship with the IMF continued in a relatively loose form, given that the country had accomplished a strong recovery from its earlier crises of the early part of the decade.

26 A similar point can be made about Turkey when the country

adopted an IMF programme, for the first time, without actually experiencing a major crisis in December 1999. Looking to the future the issue raised is of considerable practical relevance given that Turkey, having recovered from the crisis, is planning to continue its relationship with the IMF in a looser form, beyond the existing stand-by agreement after 2005. The danger here is that the explicit presence of the IMF in non-crisis settings may provide false protection against possible crises in the future. In such environments the domestic policy makers may relax their commitment to reform and the IMF officials, similarly, may adopt a more relaxed attitude towards the monitoring of the implementation of the reform process, the combination of which may prove to be costly for the country concerned in terms of avoiding a possible crisis in the future.

Conclusions and lessons of comparative analysis

A rich agricultural country in the early part of the 20th century, the postwar development performance of Argentina has been unimpressive judged not only by East Asian but also by Latin American standards. What distinguishes Argentina from other countries at a similar stage of development, like Turkey, is that the country has lived through the extremes of hyperinflation as well as prolonged phases of economic stagnation and authoritarian rule. Perhaps with this background it was not a paradox that Argentina would go through one of the most drastic experiments of neoliberal restructuring of recent times under the close scrutiny of the IMF. What made the Argentinean experience even more interesting was that the experiment was conducted at a time when the country was also trying to consolidate its nascent democratic order. Turkey during the postwar period also experienced periodic economic crises coupled with breakdowns of democratic rule. Yet a fair assessment has to conclude that the Turkish case

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has been less extreme judged by Argentinean standards. Turkey has, on the whole, experienced higher rates of economic growth during the postwar period. Furthermore, inflation in Turkey has not reached hyperinflationary proportions; periods of military rule have been costly but of comparatively short duration. In a similar vein Turkey’s neoliberal experiment, while a drastic experiment in its own right, has been a longer process implemented in a stage-by-stage fashion, judged by the standards of its Argentinean counterpart. Taking into consideration its extreme nature and close conformity to

textbook principles, the Argentinean experience is illuminating in terms of highlighting the potential and limits of neoliberal restructuring in an age of open capital account regimes. Argentina’s recent experience has clearly and dramatically exposed the inherent fragility of a development strategy based to an excessive degree on short-term capital flows and foreign borrowing. The Turkish experience, in turn, also provides support for this observation, even though the neoliberal model has not been implemented with the same degree of vigour and consistency as in the initial years of the Argentinean experiment. Furthermore, the recent Argentinean case, perhaps even more so than the recent Turkish case, has highlighted the fundamental social and political challenges that confront radical models of neoliberal restructuring in middle-income economies which are also new democracies. One interesting generalisation that follows from our analysis is that typically it is the countries in the middle, namely those which are neither authoritarian nor fully democratic, which find themselves in a particularly unfavourable position when they are exposed to the tides of the neoliberal globalisation process. At this point we need to be balanced in our assessment of the IMF. The IMF

has typically been involved at the tail end of the emergence of new market economies, focusing its attention on the problematic cases. The more successful cases, with a few exceptions like South Korea, have by and large avoided financial crises and, hence, could act independently of the IMF. The more problematic cases, in turn, have been confronted with serious problems of governance given the deep deficiencies in their domestic political and institutional environments. Consequently, it would be rather misleading to attribute all the responsibility for the outbreak of recent financial crises in Argentina and Turkey or similar crises elsewhere to the IMF. From a policy standpoint some of the key implications of our

comparative inquiry are the following. The strength of the real economy and the competitiveness of the export sector constitute key ingredients of long-term success, but these are not issues which are directly addressed by IMF-style programmes. More recently, the IMF has been focusing on longer-term issues as opposed to a single-minded concern with short-term adjustment. However, the focus on longer-term issues is typically confined to developing the regulatory capacities of the semi-peripheral states As a result, the developmental role and capacities of the state, in such key areas as the build-up of research and innovation capacity, crucial from the point of view of long-term growth, tend to be under-emphasised. Given the

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limitations of the IMF programmes in this respect, the domestic authorities need to be concerned with growth based on competitiveness in order to render debt repayment sustainable and reduce the risks of speculative attacks. This requires a long-run strategy that aims to increase long-term foreign investment as well as an improvement in the capacities of domestic firms. Similarly, the authorities involved ought to pay greater attention to

domestic resource mobilisation. The common denominator of countries that typically find themselves in a debt trap concerns a striking deficiency in domestic savings capacity. At this point one is clearly confronted with a dilemma: do the types of states under consideration possess the political and institutional capacity as well as the fiscal resources needed to extend their horizons beyond the typical IMF scenario? A key hypothesis advanced in the present study is that countries with a firm EU anchor find themselves in a more favourable position in this respect which, in turn, allows us to view the post-crisis experience of Turkey in a more optimistic light. Yet another lesson is that reform experiments that ignore social and distributional repercussions and pay insufficient attention to the problem of constructing broad-based political support are unlikely to succeed. Indeed, one of the key lessons that could be drawn from both the Argentinean and the Turkish experience is that there have been phases of recovery and growth. Yet these have not been translated into a durable, crisis-free process of growth over time. Finally, we end with a paradoxical conclusion. Countries facing a heavy

debt burden do not enjoy the luxury that the more successful countries possess in terms of avoiding the IMF completely and following an independent path over a long stretch of time.

27 Clearly, choosing this

option for countries like Argentina and Turkey would mean turning their back on the globalisation process altogether, with costly ramifications. At the same time there is no guarantee that a continuous process of IMF involvement in the country’s restructuring process will provide the kind of protection needed against a possible crisis in the future. Hence countries like Argentina and Turkey find themselves in a situation of knife-edge equilibrium. They need the IMF for the process of obtaining additional financial resources for the recovery process, as well as for accomplishing difficult regulatory reforms. At the same time, they need to go beyond the IMF in developing the domestic capacities and competitiveness of their economies in order to be able to sustain crisis-free growth in the long-run. They should not simply assume that signing an agreement with the IMF will necessarily bail them out of a difficult process of fiscal discipline and economic reform.

Notes

The author would like to thank Fikret Şenses for his extremely valuable comments on an earlier draft and Evren Tok and Koray Mutlu for their excellent assistance. 1 On postwar Argentinean development, see M Peralta-Ramos, The Political Economy of Argentina: Power and Class since 1930, Boulder, CO: Westview Press, 1992.

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2 On the nature of the neoliberal experiment in Argentina, see CH Acuna, ‘Politics and economics in the Argentina of the 1990s (or why the future is no longer what it used to be)’, in William C Smith, Carlos H Acuna & Eduardo Gamarra (eds), Democracy, Markets and Structural Reform in Latin America: Argentina, Bolivia, Brazil, Chile and Mexico, Miami, FL: North – South Center, University of Miami and Transaction, 1994, pp 31 – 73; and FA De La Balze, Remaking of the Argentine Economy, New York: Council on Foreign Relations Press, 2004. See also EL Gibson & E Calvo, ‘Federalism and low maintenance constituencies: territorial dimensions of economic reform in Argentina’, Studies in Comparative International Development, 35 (3), 2000, pp 32 – 55; and C Lewis, ‘Argentina’, in J Buxton & N Phillips (eds), Case Studies in Latin American Political Economy, Manchester: Manchester University Press, 1999, pp 33 – 61.

3 On general characteristics of the Turkish development experience, see R Owen & Ş Pamuk, A History of the Middle East Economies in the Twentieth Century, London: IB Tauris, 1998.

4 On the convertibility plan and the currency board experiment, see W Baer, P Elosequi & A Gallo, ‘The achievements and failures of Argentina’s neo-liberal economic policies’, Oxford Development Studies, 30 (2), 2002, pp 63 – 85.

5 On the early success of the Argentinean experiment, see M Mussa, Argentina: From Triumph to Tragedy, Washington, DC: Institute for International Economics, 2002; and T Geithner, ‘Lessons from the crisis in Argentina’, IMF Working Paper, 8 October 2003, at http://www.imf.org.

6 On the achievements and limitations of the privatisation programme in Argentina, see D Azpiazu & A Vispo, ‘Some lessons of the Argentinean privatization process’, CEPAL Review, 54, 1994, pp 129 – 147; and P Calvert, ‘Privatization in Argentina’, Bulletin of Latin American Research, 15 (2), 1996, pp 145 – 157.

7 For detailed investigations of the Turkish neoliberal experiment, see Z Öniş, State and Market: The Political Economy of Turkey in Comparative Perspective, Istanbul: Boğaziçi University Press, 1998; and E Alper & Z Öniş, ‘Financial globalization, the democratic deficit and recurrent crises in emerging markets: the Turkish experience in the aftermath of capital account liberalization’, Emerging Markets, Finance and Trade, 39 (3), 2003, pp 5 – 27.

8 On the pattern of unstable growth and recurrent economic crises in Turkey, see the collection of essays in Z Öniş & B Rubin (eds), Turkey’s Economy in Crisis, London: Frank Cass, 2003. A major study of the recent economic crisis in Turkey is Y Akyüz & K Boratav, ‘The making of the Turkish financial crisis’, World Development, 31 (4), 2003, pp 1549 – 1566. Akyüz and Boratav, however, place disproportionate emphasis on the role of the IMF, downplaying the role of domestic institutional and political forces in the process.

9 For further details about the nature and functioning of the exchange rate regime in Turkey associated with IMF programme of 1999, see O Yıldırım, ‘Kura dayali istikrar politikasi çerçevesinde enflasyonu düşürme programi ve Türkiye ekonomisinde yeni istikrar arayişları’ (Exchange rate-based anti- inflation programme and search for stability in the Turkish economy), Undersecretariat of the Ministry of Foreign Trade, Working Paper, 2003, at http://www.dtm.gov.tr; and Turkey – IMF Stand-by agreement in December 1999, at http://www.tbb.org.tr/turkce/arastirmalar/yap%FDsal_reformlar. htm.

10 The term ‘quasi-presidential’ is used for Özal in the sense that Özal tried to play the role of a Latin American-style president in an otherwise parliamentary system. Both countries, during the more successful phases of their neoliberal restructuring, enjoyed significant concentration of executive power. Turkey had a military regime during 1980 – 83, followed by a limited transition to parliamentary democracy in November 1983, indeed the same year as Argentina’s transition to democracy after an extended period of military rule. Turkey’s full transition to democracy occurred in November 1987. Turgut Özal, however, was the key figure in the context of the Turkish neoliberal experiment throughout the 1980 – 89 period, initially as the minister responsible for the economy during 1980 – 82 and subsequently as prime minister during 1983 – 89. Özal clearly benefited from the highly concentrated nature of the executive power until 1987. Indeed, his major aim was to establish a presidential system in Turkey. What he had in mind as he occupied the presidential office during 1989 – 93 was to institute a kind of Latin American presidential system without strong checks and balances, very much the type of system that Carlos Menem was able to capitalise on in the Argentinean setting. He was not able to accomplish this objective, however, given Turkey’s strong parliamentary traditions.

11 Both neoliberal experiments were characterised by serious deficiencies in the implementation of the rule of law and rise of corruption. Indeed, Menem personally and Özal through his family were confronted with major allegations of corruption during the later stages of their respective periods of office, significantly undermining their popularity in the process. For further elaboration, see Z. Öniş, ‘Turgut Özal and his economic legacy: Turkish neo-liberalism in critical perspective’, Middle Eastern Studies, 40 (4), 2004, pp 131 – 134.

12 For critical appraisals of the negative income distributional consequences of Argentinean neoliberalism during the 1990s, see M Teubel, ‘Structural adjustment and social disarticulation: the case of

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Argentina’, Science and Society, 64 (4), 2000 – 2001, pp 460 – 488; and Lewis, ‘Argentina’. For critical appraisals of the Argentinean privatisation experiment, see Azpiazu & Vispo, ‘Some lessons of the Argentinean privatization process’; and Calvert, ‘Privatization in Argentina’. Various appraisals of the Argentinean privatisation experience suggest that policy makers did not pay any attention to the problem of regulating monopoly power in the post-privatisation era. The Argentinean experience clearly illustrated the fact that, in the absence of competitive pressures, mass privatisation is not necessarily welfare-enhancing.

13 For a broad overview of the unbalanced growth trajectory in the second phase of Turkish neoliberalism in the 1990s, see Alper & Öniş, ‘Financial globalization, the democratic deficit and recurrent crises in emerging markets’.

14 There were certainly criticisms originating from left-wing intellectuals, journalists and the labour unions highlighting the failures of the IMF in the Turkish setting. There was also a major shopkeepers’ strike in the capital city, Ankara, during the crisis. See http://www.aksam.com.tr/arsiv/aksam/2001/04/ 11/guncel/guncel5.html.

15 On the importance of reciprocal ties and informal networks for the functioning of the Turkish economy, with their positive and negative consequences, see A Buğra, ‘The place of the economy in Turkish society’, South Atlantic Quarterly, 102 (2/3), 2003, pp 457 – 470. Analysts like Buğra remain sceptical about the future ability of informal networks to provide an adequate cushion against poverty and the negative consequences of crises in the future.

16 For details of the coalition government in action, see chapter 1 of Öniş & Rubin, Turkey’s Economy in Crisis.

17 One can find the details of Turkey’s recent relations and financial situation with the Fund at the IMF website. One of the largest disbursements of the IMF in the recent period was made to Turkey in 2001, with a bail-out of some US$8 billion. Another huge loan of $9 billion was made to Turkey in 2002 which was even greater than the initial one. In addition, the Fund provided favourable conditions to Turkey in terms of the repayments by extending the spreads. See http://www.imf.org/external/np/tre/ tad/exfin2.cfm?memberKey1¼980.

18 This anchor became particularly important following the announcement of Turkey as a candidate country at the EU Council’s Helsinki Summit of December 1999.

19 Argentina has also been involved in regional experiments such as the Mercosur. However, such schemes, involving relatively poor, capital-scarce economies, have failed to provide the kind of push that the EU has been providing to its potential members.

20 For the debate on the claim that the IMF was, in fact, more flexible in its approach to exchange rate policy in Argentina, see Geithner, ‘Lessons from the crisis in Argentina’. For Cavallo’s own interpretation, see D Cavallo, ‘Argentina and IMF during two Bush administrations’, International Finance, 7 (1), 2004, pp 137 – 150.

21 For a further elaboration of this line of reasoning, see EC Alper & Z Öniş, ‘Emerging market crises and the IMF: rethinking the role of the IMF in the light of Turkey’s 2000 – 2001 financial crises’, Canadian Journal of Development Studies, 24 (2), 2003, pp 267 – 287.

22 Other scholars have also emphasised lack of competitiveness as a major factor in the Argentinean context. See D Rodrik, ‘Reform in Argentina, take two: trade rout’, The New Republic, 2002, at http:// www.trn.com/011402/rodrik011402.html; and N Yentürk, ‘Arjantin krizi: dış borç ile tango’, _Iktisat _Işletme ve Finans, 193, 2002, pp 51 – 66. Broad macroeconomic evidence seems to support these observations not only for Argentina but also for the Turkish case. The rankings reported in the Global Competitiveness Report of 2001 – 02 published by the Global Competitiveness Forum are quite illuminating in this context. The rankings are based on the ‘growth competitiveness index’ for 2001 with the survey covering 75 countries. Both Argentina and Turkey emerge in the bottom half of the table, with their rankings established as 49th and 54th respectively. The report is available at http:// www.wcforum.org. Yet another indicator of export competitiveness involves the high-technology content of manufactured exports. The figures available for 1997 suggest that exports based on high technology constitute a small proportion of total manufactured exports, with the relevant figures emerging as 5% for both countries. These rather aggregate figures may again be considered as broader indicators of weak export competitiveness. The comparable figures for Malaysia and Mexico are 59% and 22%, respectively. Data from World Bank, World Development Report 2003: Sustainable Development in a Dynamic World, New York: Oxford University Press, 2002, pp 240 – 241.

23 For an analysis that emphasises the legacy of the developmental state and the strength of the real economy in South Korea’s relatively smooth recovery from the 1997 crisis, see M Erdoğdu, ‘South Korean state capacity: from development to crisis management’, in KS Jomo (ed), After the Storm: Crisis, Recovery and Sustaining Development in Four Asian Economies, Singapore: Singapore University Press, 2004.

24 For criticisms centred on the inability of the IMF to deal with the systemic causes of financial crises experienced in the semi-periphery, coupled with its inability to play a proper global regulatory role,

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see L Harris, ‘Will the real IMF please stand up: what does the Fund do and what should it do?’, in J Michie & J Grive Smith (eds), Global Instability: The Political Economy of World Governance, London: Routledge, 1999; and J Stiglitz, ‘Globalism’s discontents’, American Prospect, 14 January 2002, at http://www.prospect.org.

25 For further details on the IMF’s responsiblity for the Argentinean crisis by failing to provide adequate ownership of the programme, and hence failing to constitute a viable external anchor, see P Blustein, ‘IMF says its policies crippled Argentina: internal audit finds warnings were ignored’, Washington Post, 30 July 2004, at http://www.globalpolicy.org/socecon/bwi-wto/imf/2004/0730imfargentina.htm. For the actual report, see IMF Independent Evaluation Board, Evaluation Report: The IMF and Argentina 1990 – 2001, 2004, at http://www.imf.org/external/np/ieo/2004/arg/eng/pdf/report.pdf. Also relevant is F Öztrak, ‘Dış çapaların gücü bize bağlı’, Milliyet, 17 September 2004, at http://www.milliyet.com.tr/ 2004/09/17/yazar/oztrak.html.

26 For details about the IMF programme and monitoring arrangements with Argentina beginning from and early 1990s and extending to the end of the decade, see Geithner, ‘Lessons from the crisis in Argentina’.

27 Clearly, the most recent Argentinean experience represents a major challenge in this context considering that Argentina has been trying to follow such an independent path since 2003. It could be argued that the independent path followed so far has been quite successful in two important respects: economic recovery has continued and there has been successful debt restrcturing through direct negotiations with private investors. See E Helleiner, ‘The strange story of Bush and the Argentine debt crisis’, Third World Quarterly, 26 (6), 2005, pp 951 – 969. Helleiner raises the important point of what would have happened if the Bush administration had adopted a tougher line in protecting investor interests. The interesting question is: given the need for additional external resources in the future and the inherent problems of maintaining financial discipline, to what extent will Argentina be able to continue on a totally independent path from the IMF?

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