erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

Convertibility and Other Neoliberal Excesses in Argantına

Leopoldo Rodriguez (Eastern Mediterranean University, TRNC)

Abstract

Argantina is currently undergoing one of the deepest economic crises of its history. After more than a decade of stringent neoliberal economic adjustments, unemployment has reached record highs and growth is sparodic at best. The current malaise originated in the Brazilian devaluation of last year, undermining demand for Argantine products and causing a significant readjustment of price competitiveness between the two trading partners. Argantina tied by the Law of Convertibility to exchange parity with the US dollar, cannot devalue the peso. As a result, the policy options available to rectify the resulting mounting balance of payments and public sector deficits require significant deflation. The newly inaugurated president, Fernando De La Rua, has decreed a reduction in the salaries of state employees ranging between 10 and 15%. The immediate impact is expected to be forther economic contraction and has already led to increased labor militancy. First, I analyze the current crisis of the Argentine economy and find the Law of Convertibility at its root. Originally meat to provide price stability and gurantees to investors, convertibility precludes government action to spur external or internal aggregate demand, standing as a barrier to the reestablishment of growth. Second, I discuss the politics of convertibility and other neoliberal reforms in Argentina. Convertibility is widely credited with the eradication of decades-long high rates of inflation. Its simultaneous implementation with privatisation, deregulation and trade liberalization has resulted in the progressive erosion of the economic welfare and the political power of the poorer two thirds of Argentines. Third, I study the effect of neoliberal policies, particularly convertibility, on social partcipation in decision-making. Convertibility clearly diminishes the discretionary powers of policy-makers in favor of pre-established rules, depoliticizing key decisions with dire economic consequences. I conclude that the excessive depolitization of economic decisions may have grave economic and political consequences. In the push to undo all vestiges of the Keynesian State, neoliberalizm may be forgetting hard learned lessons from the Great Depression.

Economic Research Center
Middle East Technical University
06531 Ankara Turkey
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e-mail: metuerc@metu.edu.tr