Argentina's Fall: Lessons from the Latest Financial Crisis

Argentina's 35 million citizens will not be the only ones to pay a heavy price for that country's latest economic crisis. The fallout may also radically alter economic policies and political relations both within Latin America and with the United States. It is already clear that Argentina will re verse at least some of the favorable eco nomic reforms introduced by President Carlos Menem in the early l990s. Al though Menem's reforms are not respon sible for the current chaos, they are a politically convenient scapegoat. Blam ing them also provides a rationale for re nationalizing Argentine firms, erecting barriers to imports and foreign invest ment, and increasing government spending. The current crisis will weaken the prospects for the Mercosur trading arrangement among Argentina and its neighbors (Brazil, Paraguay, and Uruguay) and may kill any chance of a general Free Trade Area of the Americas. Many Argentines are already blaming their troubles on Washington, claiming that U.S. policies got them into this mess and that the United States then abandoned Argentina because, unlike Turkey, it is not of geopolitical significance. If other emerging-market governments misinterpret Argentina's experience, they too might move away from the promarket policies that hold the best promise of raising future living standards. Gaining a better understanding of the real reasons for the Argentine crisis is therefore essential. Doing so might help Argentina and other emerging countries avoid making the wrong policy choices in the future and reduce the risk of further financial crises.