Argentina is considered an economic basket case due to its default on its international loans, especially to the International Monetary Fund (IMF). While the blame is often squarely put on the borrower, in the context of international political economy, the fault actually lies on both ends. It is not Argentina alone that is to be blamed but IMF and other banks too. Paul Blustein, having looked at Argentina’s financial historyright up to the year 2001 when the crisis happened made this case in a very compelling manner.
It is also a perspective drawn from the cluster of cases in the 1980s Latin American debt crisis, especially one involving Mexico. Whenever the international banking system is infused with excess liquidity, usually due to petrol dollars from the Middle East or Gulf sheikhdoms, the international financial institutions will lower their requirements on emerging economies, enticing them with cheap credit which they find too difficult to resist. Once the loans are originated and syndicated across various banks to that country orregion, the entire train wreck is set in motion.
This is a problem not unique to Latin America, but toAsiaand other countries with poor central banking oversight. In 1998, legions of Indonesian banks, unbeknownst to the central bank of Indonesia, were found to have heavily borrowed on the US dollar. When the Indonesian rupiah was attacked and shorted by international financial speculators, that operate in hoards, these banks faced the inevitable: they collapsed. Their collapse immediately created a cesspool of social and political crisis, which in turn, brought the IMF in. The very presence of IMF, with Michael Camdessus’s hands folded, while he saw President Suharto sign the financial rescue package, put paid to any chance of the Indonesian autocrat having any more moral standing to remain as the president. Less than a year later, President Suharto was forced to resign, and Indonesia was engulfed in systemic, constitutional and social crisis, that killed thousands of people, when the ethnic cauldron between the locals and the Indonesian Chinese, was unleashed.
By looking closely at the Argentina case, one can see that the problem lies with borrower and lender. The press, however, tends to leave IMF out of the blame game. This is why for every financial problem, the two sides of the coin must be thoroughly examined and understood. Looking across the international horizon now, China is perpetuating this phenomenon in the heart of the developing world. While it purportedly offers to build various infrastructure services in the guise of One Maritime Belt, and One Silk Road, there is no feasibility study if each and every country connected by this endeavor can absorb the investment, potentially opening a pathway for future collapse of their economy through over capacity.