The processes of globalisation and its effects on Argentina's economy
(by Lady B.)
In today's political climate the term 'globalisation' has become a metaphor for many of the problems facing countless countries of the world, particularly poor countries, which many feel are being exploited by their rich and usually Western neighbours. This representation is one, which many would consider as the main feature of globalisation. However, globalisation is a rather broad and indefinable term absorbing all aspects of society and essentially far deeper and underlying currents can be felt, which the above description does not elude too. Globalisation is a process, which merges distinct and separate entities into a global network of markets, communications, cultures and identities.
These issues are proving extremely contentious with the present political climate. Never before has there been such a collective voice of dissent echoing from all corners of the world. Evidence of this can be seen with the anti-globalisation protests, which have occurred in all major cities of the world since 1997. Culminating in the Genoa protests of 2001 where we witnessed the most horrific event of these turbulent years with the death of the young Italian protester Carlo Giuliani killed by the Italian police.
With this in mind, the following will focus on the economics of globalisation with particular attention paid to Argentina, a country whose recent economic collapse has been widely attributed to the processes of globalisation. Argentina can be seen as a laboratory of the great Western powers (particularly the U.S), which used Argentina as a microcosm of the virtues globalisation has to offer and as will be seen, was initiated with dire consequences.
The following will look at globalisation, providing a descriptive definition and considering also, the roles of certain agencies such as the World Trade Organization (WTO), the World Bank and the International Monetary Fund (IMF) and will additionally look at the economic collapse, which occurred in Argentina in 2002, considering how and why this financial disaster happened. Finally, a conclusion will be provided highlighting the main points of this article and suggesting what can be done to avoid such catastrophes in the future.
Globalisation, WTO, World Bank and IMF
According to David Held et al (1999) globalisation can be conceived of "as a process (or set of processes) which embodies a transformation in the spatial organization of social relations and transactions, assessed in terms of their extensity, intensity, velocity and impact-generating transcontinental or interregional flows and networks of activity, interaction, and the exercise of power." (Held, D, McGrew, A, Goldblatt, D, Perration, J, 1999).
In other words, globalisation is a process that attempts to create a more integrated and interdependent world economy. National economies that used to be fairly self-contained units and separated from each other by cross-border trade and from barriers to foreign investment have now become integrated global economies in which there are fewer taxes, tariffs or other kinds of restrictions for trade and commerce. Rapid progress in transportation technology such as the development of commercial jet aircraft and the introduction of containerisation, which easies and lowers the cost of shipping goods over long distances in addition to advances in communications, information processing, the emergence of the Internet and the World Wide Web, all have contributed to the increasing international integration of markets and of national economies.
Supporters of globalisation, namely economists, politicians and business leaders, emphasise the benefits of free flow of goods, capital and ideas and claim that these attributes drive the global economy towards greater prosperity and even peace and democracy. They argue that increased international trade and foreign direct investment (FDI) will result in lower prices for goods and services and that globalisation stimulates economic growth, raising the incomes of consumers and helps to increase employment in all countries that take part in the global trading system. But this view does not take into account the social and political tensions, which may result because of this process.
Critics such as Ohmae (1990) believe that in such an increasingly integrated and interdependent world any country's prosperity depends more than ever on the economic performance of other countries and on the continuation of an open and stable global economic environment. As a result, financial crises, when they erupt, tend to spread more quickly among countries, as can be seen in the Latin American countries, Brazil and Argentina, which are examples of this. Individual countries follow economic and financial policies that show how well or how poorly the world trade and payment system operates. With no restrictions on international investment, firms, especially multinational corporations (MNCs) that operate on a scale that exceeds the gross domestic product (GDP) of most nations of the world, will force countries to compete against one another. Every country and community is pressured to lower wages and taxes on business, to liberalise FDI controls and to reduce environmental regulations if they want to attract and hold existing foreign businesses. Held notes, "In 1996, a third of all bilateral investment agreements were concluded solely among developing countries.
In part such developments reflect the way developing countries have been under pressure from the World Bank and other multilateral agencies to liberalise FDI controls." (Held et al 1999, p.258.) Some critics such as Ohmae (1990) see globalisation as the supremacy of Western economic and cultural interests over the rest of the world; meaning the extension of inequality between rich and poor countries and regions, also described as the "New World Order". This extension of inequality between rich and poor countries can be shown by using statistical evidence taken from "International Business" by Hill (2002), it shows that in 1870 the average income per capita in the world's seventeen richest nations was 2.4 times that of all other countries. In 1990 the same group was 4.5 times as rich as the rest. The statistics also show that a quarter of the countries with a GDP per capita of less than $1,000 in 1960 had growth rates of less than zero from 1960 to 1995, and a third had growth rates of less than 0.05 %. This proves that globalisation has been beneficial for only some nations, mainly the developed nations, with the exceptions of the fast growth economies of Southeast Asia (China, Thailand, Malaysia, Taiwan and South Korea) and less beneficial for the rest of the world, as the statistics show.
The anti-globalisation movement, which consists of mainly workers, environmentalists, human rights activists, farmers, religious activists, native peoples and youth, comes together to demonstrate against a wide range of issues, including loss of employment in industries threatened by foreign competitors, pressure on the wage rates of unskilled workers, environmental degradation and the cultural imperialism of global media and multinational companies, which force American values of "free competition, fair rules, and effective enforcement," to the rest of the world.
Now I want to introduce some of the supranational organisations, which have been immensely critiqued for their politics and activity in the global economy.
Founded in 1994, the World Trade Organisation (WTO) is an international organization of more than 140 member countries that controls the international trade system. The WTO is responsible for the privatisation of education, health, welfare, social housing, and transport. This supranational institution followed the "Uruguay Round"(1993), and prior to that the General Agreement on Tariffs and Trade (GATT) aimed at promoting world trade by pressuring countries to reduce tariffs and to lower barriers to the free flow of foreign investment. (Hill 2002, p.28.) According to many critics (Klein), the WTO through economic means represses governments and populations on behalf of corporate profits. In every case that has been brought to the organisation challenging environmental or public safety legislation on behalf of corporations, the corporations have won. For example, when it was Venezuelan oil interests versus the U.S. Environmental Protection Agency's air quality standards for imported gasoline, the interests of the oil industries won or when the European Union tried to ban the import of hormone-treated beef from the U.S, the European consumers lost and the list goes on.
The U.S. environmentalist and consumer rights advocate Ralph Nader argues that "under the new system, many decisions that affect billions of people are no longer made by local or national governments but instead, if challenged by any WTO member nation, would be deferred to a group of unelected bureaucrats sitting behind closed doors in Geneva (which is where the headquarter of the WTO is located). This is further supported by a statement from Held who believes that the Organisation for Economic Cooperation and Development (OECD), the WTO, or regional bodies like the European Union (EU) or the North American Free Trade Agreement (NAFTA) progressively control national competition policy. "It is now commonplace for American or European competition authorities to intervene, either diplomatically or legally, in what might before have been regarded as purely domestic issues concerning major business mergers or acquisitions which could potentially undermine the competitive position of their own industries or corporations." (Held et al 1999, p.259)
Contrary to the critics of the WTO, the supporters such as Hirst and Thompson (1996) think that the power of supranational organisation such as the WTO or the IMF (International Monetary Fund, which will be discussed later) is restricted because individual governments of the member states still maintain control and influence and argue that the supranational organisations are there to serve the interests of each member state and not to harm them in any way. Before discussing these assumptions it is necessary to introduce another major global economy control institutions.
The International Monetary Fund (IMF) and the World Bank were formed at the conference held at Bretton Woods in 1945. The IMF is the central institution of the international monetary system and the World Bank is the international institution for the promotion of general economic development in the world's poorer countries. The IMF is headquartered in Washington, D.C., and it is governed by its almost global membership of 184 countries. The IMF's role is promoting the balanced growth of world trade, the stability of exchange rates, the prevention of competitive currency devaluations, and the systematic correction of a country's balance of payments problems. The IMF has now become the main institution for promoting the liberalisation or deregulation of the international economic system.
John Pilger (2002) writes in his book The new rulers of the World that the "WTO and the IMF obtain their controlling power principally from an unrepayable debt that make the poorest countries pay $100 million to western creditors every day resulting in a world where an elite of less than a billion people controls 80 % of humanity's wealth." (Pilger, John, 2002, p. 2-3.) This statement can be verified by using the example of Argentina whose disastrous financial situation has been widely attributed to the actions of the WTO and the IMF.
Argentina's economic collapse
On December the 19th 2002, Argentina's unemployed, workers, and middle class finally had enough with years of government cuts, layoffs, privatisation, and other schemes designed by the WTO and the IMF to shift Argentina away from state planning toward a free market. This resulted in massive food riots, a state of emergency imposed by the government, thousands of shops looted, deaths of thirty people (including a small girl shot for stealing a bag of pasta) and four administrations brought down. (http://www.challengeglobalization.org/)
Since the early 1970s Argentina's external debt has increased from $7.6bn to $132bn. Unemployment has risen from 3 percent to 20 percent, the number of people in extreme poverty from 200.000 to 5 million, those in poverty from 1 million to 14 million. Whereas the corrupt politicians and some union leaders who cooperated with the government's adjustment policies and industrialists who invested in this economy confiscated a fortune of around $120bn, millions of Argentinean citizens, who deposited their life savings in for example HSBC bank accounts could not access their money anymore because it was gone. http://www.thenation.com
Nobel prize-winning economist Joseph Stiglitz truly remarks "The IMF led a whole series of mistakes, from exchange rate policy, to fiscal policy, to the privatisations, that resulted in disaster in Argentina." To understand the reasons for Argentina's economic crisis better, we have to discuss in more detail what actually happened in a country that was until recently the richest in Latin America.
In 1991, the then president, Carlos Menem, negotiated a multibillion-dollar deal with the International Monetary Fund, stating that the IMF would help the Argentinean country to overcome hyperinflation by introducing a currency board and "pegging" the peso at one-for-one to the US dollar.
The Argentinean government, on its part, would implement privatisation schemes, the opening of trade borders to allow foreign capital to flow in and out of the country in addition to laborious efforts to balance the state budget. Argentina had trustfully followed the instructions of the International Monetary Fund. The World Bank supported the privatisation of state enterprises. Ninety percent of its banks and forty percent of its industry including phone companies, gas, water, electricity, railroads, airlines, airports and the post office (which is now facing bankruptcy) and Argentina's social security system all belong to foreign companies. http://www.theguardian.co.uk/
In the early to mid-1990s, huge sums of foreign capital, particularly from Spanish firms, which bought many privatised institutions like banks and pension funds, flew into Argentina. The Argentine government decided to accumulate enormous dollar reserves to be able to run the peg by taking loans from either the IMF or from international bond markets, which meant immense debt. At first this measure seemed successful as it ended hyperinflation, but it also meant the end for Argentina's government's ability to set its own monetary policy. Instead, interest rates in Argentina were those set on the U.S.dollar by the U.S. Federal Reserve.
This was fine with the Argentinean government as long as the global economy flourished but it did not. In 1997-98, the Thailand, Indonesia, South Korea, Malaysia, Russia and Brazil like many of the "emerging markets", had to abandon pegs against the U.S. dollar and let their currencies float freely; floating exchange rates depend on the laws of supply and demand. Finally, Argentina's financial flows came to an end, its foreign debt holders' demanded higher interest payments on its debt, which led to higher deficits and which resulted in default and devaluation. This meant Argentinean's economy went into recession. The IMF pressurized the government of Argentina under President de la Rua to maintain the peg and to avoid devaluation, to pay the foreign debt and to balance the budget by implementing austerity measures.
On the other hand Brazil slowly recovered due to its drastic currency devaluation measures but Argentina's overvalued currency meant its goods and services sold to the global economy were uncompetitive and could not be further exported. The central banks of Argentina could not lower interest rates to encourage foreign investment because of its peso pegged to the US dollar. In addition, the implemented austerity measures decreased domestic demand, which worsened the recession.
And to top this all, now the World Bank has decided to delay a $700 million loan for Argentina's poor and unemployed, because it waits for the IMF's approval. The International Monetary Fund just announced that it is only willing to lend Argentina enough money to repay its debt to the IMF and other multilateral lenders such as the World Bank. http://www.zmag.org/ (Updated 30/12/02)
This shows that the IMF and the WTO were not interested in the economic recovery of Argentina but were only serving the interests of the developed countries and foreign investors often at the expense of third world countries.
2001 was an important year for Argentina and its people. In December of that year, Buenos Aires (the Argentinean capital) witnessed a peaceful demonstration by thousands of people, who were aggrieved by the situation they were placed in by the WTO, IMF and their own corrupt government. This uprising provided a voice for a downtrodden people who seemingly overnight became politicised, and gave an empowerment and control of their own lives, giving glimpses of a never before seen democracy. Although Argentina's political future is still uncertain, at least the population has some capacity to effect change. The efforts of America to assert its political and economic might, in the form of globalisation has had dramatic and disastrous consequences. If Argentina is to be seen as the child of globalisation then its intentions to create a wealthier and prosperous nation have yet to be realised. If indeed Argentina has witnessed any benefits from globalisation, the poor and middle-class that make up the majority of the population have yet to receive their share and as Naomi Klein rightly notes in her new book Fences and Windows, "the Argentinean population should not be begging for loans; it should be demanding reparations." Klein, Naomi (2002),"Fences and Windows-Dispatches from the front lines of the globalisation debate", p.55, published in Great Britain by Flamingo 2002, printed and bound in Great Britain by Clays Ltd, St Ives plc.
Held, David, McGrew, Anthony, Goldblatt, David and Perraton, Jonathan, (1999), Global Transformations-Politics, Economics and Culture, Second Edition, published by polity Press, printed in Great Britain
Hill, Charles, (2003), International business: competing in the global marketplace, Fourth Edition, McGraw-Hill Higher Education, New York
Ohmae, K (1990),"The Borderless world", London: Collins
Klein, Naomi, (2002), Fences and Windows-Dispatches from the front lines of the globalisation debate, published in Great Britain by Flamingo, printed and bound in Great Britain by Clays Ltd, St Ives plc
Pilger, John, (2002), The new rulers of the world, published by Verso, printed in the UK by the Bath press, Avon and printed in Australia by Griffin Press, p.2-3.
World Wide Web
http://www.zmag.org/ (Updated 30/12/02)