Bush's Policy on Argentina Signals Shift in Approach
Bush's Policy on Argentina Signals Shift in Approach
JOSEPH KAHN with DAVID E. SANGER . NY Times . 05 january 2002
WASHINGTON, Jan. 4 Seven years ago this month, President Bill Clinton's economic advisers told him Mexico was hours away from economic default and perhaps chaos on the streets. Mr. Clinton ordered an unpopular multibillion-dollar bailout, over the objections of Congress, but with the support of a prominent Republican governor, George W. Bush of Texas.
When Argentina barreled toward a similar default in recent weeks, it was Mr. Bush who had to make the bailout call and his decision was to let Argentina suffer the consequences of its own economic mismanagement. His aides argue that the circumstances were somewhat different: Mexico appeared ready to make reforms but needed time and cash, while Argentina had not heeded repeated warnings that its policies were leading to financial disaster.
Still, Mr. Bush's reaction to the biggest international economic crisis so far in his presidency is a telling example of a new and perhaps risky approach to the kind of national economic bankruptcies that dominated Washington's dealings with the world's emerging markets in the late 1990's.
The Clinton administration, fearing "economic contagion," was willing to back loans to teetering governments in Thailand, Indonesia, South Korea and Russia. But Mr. Bush's aides have adopted a policy some call "tough love," meant to reverse the expectation in capitals around the world that if you are big enough, or strategically important, Washington will always find a way to prevent fiscal and political collapse.
Mr. Bush promised just such a policy during his presidential campaign. But the first time his approach was tested, when Turkey ran into deep trouble last spring, Mr. Bush's national security aides warned that it was no time to abandon a well-located ally whose government seemed willing to take the medicine the International Monetary Fund prescribed. Washington joined in the bailout.
"It's fair to say," one senior administration official noted during the last week, "that while we have been clear, we haven't always been consistent."
The hard line on Argentina, White House and Treasury officials say, was calculated to send the message that under the Bush administration, the United States would be a reluctant financial firefighter and that the markets should not bet on a bailout. It is a message that Mr. Bush's aides said in interviews this week that they hoped would force officials of developing countries and foreign investors to work out their problems without relying as much on huge aid packages from the International Monetary Fund and from Washington, which became commonplace after Mexico.
"It is a different approach, but we needed a different approach," said John B. Taylor, undersecretary of the Treasury for international affairs. "We want to follow a policy that does not bail out bondholders and improves the market over all."
There are other new aspects to the Bush policy.
Treasury officials in the Clinton era never shied away from dispensing a steady stream of advice to countries on the condition that they would have to meet to get Western aid. In contrast, during the Argentina crisis, Treasury Secretary Paul H. O'Neill was nearly invisible, rarely commenting on the country's approaching default, or the violent protests that led to the resignation of President Fernando de la Rúa.
Officials say Mr. O'Neill supported the decision by the I.M.F. to cut off Argentina's loans because it had failed to meet the fund's demands for fiscal restraint. And now Washington's message to Argentina's new president, Eduardo Duhalde, is straightforward: Come up with a workable plan, and then we will talk.
"President Bush never talked about specific steps he expected the Argentine government to take," said one White House official familiar with Mr. Bush's periodic calls and letters to Mr. de la Rúa and the series of his successors in recent weeks. "You won't find this administration having those kinds of conversations. Argentina has to come up with what works for them, and if we can support it, we will."
Mr. Bush's approach carries considerable risk. There is every possibility that Argentina's new government will abandon the free-market leanings, tight fiscal and banking controls the country embraced with strong International Monetary Fund support over the last decade. Already there is considerable doubt that Argentina will now agree to the kind of hemispheric free-trade agreement that Mr. Bush himself, with Mr. de la Rúa at his side, said last year was a major goal of his administration.
Both the I.M.F. and the United States, the fund's largest shareholder, have come under some sharp criticism for denying new loans to Argentina after previously approving aid to the country. The last emergency loan was put together in August, with Mr. O'Neill's close supervision.
The critics of Mr. Bush's decision to pull the plug on aid argue that the I.M.F. and the Bush administration were callous for abandoning an ally at a sensitive moment. And some argue that both the Clinton and Bush administrations should have acted sooner to steer Argentina away from its doomed efforts to defend a 1-to-1 peg of its peso to the dollar.
But administration and I.M.F. officials respond that they aided Argentina for as long as they thought there was a reasonable chance that its political leaders were serious about reform. They pulled the plug, one senior administration official said, "only when it became clear that the collapse was going to happen sooner or later, and there was no use spending billions to get a few more weeks before the inevitable happened."
Some longtime critics of the fund applauded the Bush administration's stance. Both left-wing anti-globalization activists and some conservative economists have argued that the fund became too interventionist during the Clinton years. That allowed investors to make reckless bets on the assumption that lending agencies would rescue them when things went wrong.
"I am hopeful that we're in transition to a world in which countries and lenders learn more about risk," said Allan H. Meltzer of Carnegie Mellon University, who headed a Congressional panel two years ago that advocated sweeping changes at the I.M.F. and the World Bank. "You can't just keep throwing money at these problems and hope they will go away."