Friday, July 3, 2020

OPINION AND ANALYSIS | 07-09-2019 01:44

Steady as it goes: The World Bank and Argentina

The World Bank lent some US$8 billion in over 50 credits to both the tail end of the 1976-1983 military dictatorship and the elected Raúl Alfonsín Radical government.

For several decades now Argentina has been branded as a country where everything changes to stay the same and the last five weeks have been an extreme confirmation of that paradigm – not so much a free fall as a roller coaster, with weeks of calm and chaos in strict alternation since the prelude to the PASO primaries. This week has proved a second eye of the storm since the new Finance Minister Hernán Lacunza’s honeymoon a fortnight ago, with plenty of volatility and turbulence lurking on the horizon amid the longer-term backdrop of stagflation forecast for both this year and next.

So with this week’s relative news vacuum, which international organisation steps up to the plate today? Obviously the International Monetary Fund retains the cusp of attention but “been there, done that” – the IMF had the first word of this new series on Argentina and the world two Saturdays ago (not that it will be the last). No lack of candidates for the near future with President Mauricio Macri attending his (last?) United Nations General Assembly in mid-month ,while an Argentine fancies his chances of reaching the helm of the International Atomic Energy Agency in the IAEA elections of early October. But just when this columnist was stuck, the World Bank sprang to his rescue on Thursday with a US$395-million credit to clean up the Riachuelo. Good enough for today, even if not Ivanka Trump and even if the IMF’s poor cousin in virtually every sense (the IMF lends on approximately fivefold the scale while commanding an even bigger margin of media attention).

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The World Bank might not count for much here but Argentina is important for the World Bank – historically it’s within the Top 10 of credit recipients among its 189 member countries (identical to the IMF).

Although the World Bank has been devoted from the outset to aiding developing nations, the focus in practice has been tended to be threshold economies – that Top 10 (headed by Mexico) includes seven Asian and three Latin American countries but no African. Despite containing almost all the world, the World Bank is restricted in its lending to creditworthy developing countries, excluding both the richest and the poorest – the latter (those with per capita incomes under four bucks a day) are the responsibility of its sister organisation, the International Development Association (IDA).

Like the IMF, the World Bank was a child of the 1944 Bretton Woods Conference, although formally starting life half a year later than the IMF in mid-1946. Both organisations had their baptism of fire propping up France’s Fourth Republic in 1947 but when the Marshall Plan took over the post-war reconstruction of Europe, the World Bank started turning its attention to the rest of the world, especially developing countries. With this sequence the World Bank was being true to its formal name at birth – the International Bank for Reconstruction and Development (IBRD). The latter goal is the key to its division of labour with the IMF, whose focus is monitoring the balance of payments around the world (a fireman role which hits the headlines with far greater frequency than the long-term development pursued by the World Bank).

Another difference between the World Bank and the IMF is that while the latter has invariably been headed by a European (usually French), the former’s president has always been a United States citizen (even when bearing names like Jim Yong Kim). The longest-serving of these was Robert McNamara (1968-81), the Pentagon boss who switched to the World Bank when he wearied of losing the Vietnam War and who fathered the concept of “sustainable development” – the only other presidents serving a decade or more were Eugene Black (1949-63) and Australian-born James Wolfensohn (1995-2005). And sustainable development has been the paramount objective ever since even if the Mexican debt crisis of 1982 prompted a tougher monetarist line for a few years and even if in this century the UN Millennium Goals against poverty have led to a focus on social services and individual living standards (such as the fight against AIDS) alongside the more traditional infrastructure.

Time to turn more specifically to the World Bank and Argentina. Entry dates back to the same year as the IMF – 1956 by the junta overthrowing Juan Domingo Perón as a message rejecting populist nationalism – and the first loan dates back to the same president (Arturo Frondizi) although three years later than the first from the IMF, in 1961. During the two decades between Frondizi’s exit and the 1982 Mexican debt crisis the interaction between Argentina and the World Bank was sparse but that crisis jerked the World Bank into preventive action against its spread in the region with Argentina as the first guinea pig.

Between 1982 and 1988 – on both sides of the return of democracy in late 1983 – the World Bank lent some US$8 billion in over 50 credits to both the tail end of the 1976-1983 military dictatorship and the elected Raúl Alfonsín Radical government. Instead of supporting infrastructural projects in the World Bank tradition, this money was directed towards bolstering fiscal solvency and sternly conditioned on structural reforms in a style much more typical of the IMF. Indeed the World Bank’s chief economist in those years was Anne Krueger who was perhaps rehearsing her later role at the IMF (where she was a hawkish power behind the throne in the first years of this century as its second-in-command).

The World Bank was more than happy with the enthusiasm so unexpectedly shown by the Peronist Carlos Menem in plunging into privatisation and with the fiscal and monetary flanks apparently covered by convertibility, they reverted to infrastructural and technical assistance, supported by some 50 credits. Inheriting the 12-digit default of late 2001, Eduardo Duhalde reserved brinkmanship for the IMF, paying the World Bank the quarter billion US dollars needed to avert default in his brief presidency. Néstor Kirchner famously severed ties with the IMF at the start of 2006 but World Bank co-operation continued through the three Kirchnerite presidencies (especially environmental projects).

And also, needless to say, into this presidency. In mid-2017 Jim Yong Kim pledged US$2 billion for areas like renewable energy, infrastructure, agriculture and poverty reduction although the first US$950 million last year ended up being for general financial assistance against crisis with a further open-ended half billion a couple of months ago (with US$100 million last June to improve public services in low-income neighbourhoods).

But then who notices such sums when coming alongside the US$56 billion of the IMF package? Yet perhaps the long march of infrastructural development is the way – rather than the stop-go of mega-crises.

Michael Soltys

Michael Soltys

Michael Soltys, who first entered the Buenos Aires Herald in 1983, held various editorial posts at the newspaper from 1990 and was the lead writer of the publication’s editorials from 1987 until 2017.

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