Wednesday, January 23, 2013

Another Example of Why Government Bailouts Dont Work: Case Involving Argentina!

            The International Monetary Fund is one of the most controversial international institutions of our time.  It has been accused of anything from bailing out rich investors to forcing countries to open up to foreign companies.  In “Argentina and the Fund: From Triumph to Tragedy” by Michael Mussa another flaw is made apparent, and that is the IMF’s ineptness in enforcing its own policies.
            The Argentine crisis of the late nineties and early 21st century was a clear example of the complex nature of international trade.  As was mentioned in the reading, I do believe that sovereign default is a necessary occurrence in capitalism.  While I do think that Mussa was a little biased toward the fund, he did make clear some of the shortcomings that occurred in the IMF’s policies.  One of the main flaws that nearly jumped off the page was the continued lending by the Fund even when there was little hope that the help would change the course that the country was headed in.  With all the knowledge that resides at IMF headquarters you would think that a red flag would have been raised before lending the additional billions of dollars.
            One idea I don’t think Mussa dealt with effectively is that of corporate inertia.    The pride that was initially felt with the ‘triumph’ of the Funds efforts in Argentina must have solidified its purpose in the minds of its directors, but I’m sure that changed once things began to take a turn for the worst.  With Argentina facing possible insolvency and the restructuring of its debt the directors of the fund were probably willing to throw as much money at the problem as was necessary, because if their efforts failed there would be questions as to usefulness of the fund.  So as happens in many companies, the executives will do just about anything to prove their necessity and legitimacy. 
            Since the fund was Mr. Mussa’s former employer it is understandable that he maintains a little bias in favor of the Fund, but many readers of his work will ask the question of whether its existence is necessary.  In my opinion it is not.  Countries of the world need to enact more effective fiscal and monetary policies, and if they fail to do so there should not be the parachute that is the fund there to save them.


Jeffrey Brandon Lee

No comments:

Post a Comment