Although professional media outlets are so uninterested in Argentina’s latest default that the AP Mobile Daily Briefing prioritized news about the potential collapse of the Uruguayan pot marketplace above a full analysis of the fallout of the world’s 23rd largest economy and G20 member the day after the actual default, there is much to be discussed. A large part of Argentina’s problems stem from both a history of bad fiscal dealings as well as more recent experiments into counterproductive isolationist and socialist policies that include the nationalization of the Spanish oil company YPF and irrationally devised import-export controls that only restricted the follow of goods instead of favoring strong Argentinean industries in exchange for favoring superior imports. The nation’s current problems are largely centered on trust instead of the natural resource rich country's ability to generate wealth, but the impact of the debt default relates to broader fiscal and ecnomic issues shared by many countries.
Quite frankly, no one knows if they can invest in the Argentinean economy and see a return, especially given this latest debt default. While corruption is a major driving force behind the mishandling of public policies and funds, widespread poverty thanks to severe economic disparity can be blamed for the politics behind the bad governance. More recently, efforts to appease the poor with giveaways instead of real economic development have lead to counterproductive economic policies. At the same time, the reason wealth distribution is such a problem is that Argentinean economy is built to serve the affluent instead of everyone. Only by finding ways to create opportunities for the impoverished and boost wages across the board can the Argentinean economy be expected its debts.
The greatest fault of most social welfare programs is that they simply hand large sums of cash to people, who have never been trained to handle money wisely, or they mistake spending money for investing. Governments spend money on infrastructure, national security, hospitals, fire departments etc., because these are needed to govern a society and create an environment conducive to economic development. Just as the financial services sectors of all economies do not produce anything, yet provide invaluable services that allow modern economies to function, governments only provide for the general welfare and common defense of their Peoples.
As such, organizations like the World Bank and the International Monetary Fund have spent decades financing and refinancing underdevelopment countries as they hope their governments will be able to earn enough revenue from economic development to pay back those loans. With that in mind, smart investors pick investments that they belief will be successful after a fully analysis; whereas, the World Bank and IMF hand governments money to fulfill human and broad social needs. Consequently, finance organizations need to stop selling public spending in countries like Argentina as investments when they are really selling bad loans, thus the IMP and World Bank should not continually bailout out countries like Argentina when they default on debt obligations as it does no good.
Looking at Bill Clinton's economic plan for Haiti, which was making a positive impact and doing more than other efforts to build an actual Haitian economy before the 2010 Earthquake, the essence of his vision was to provide subsidies that ensured locally high wages in an effort to build a textile industry capable of later sustaining itself at the expense of US and other foreign textile manufactures. Unfortunately, the plan followed the Clinton era globalization vision, i.e. economies should be built to service global demand with each country offering a selection of specialized goods. Because this model creates a fragile global market built on global pricing of overly relied upon goods and price suppression, which is often experienced in the form of lower wages and suppressed tax revenues, it can only sustain poverty with marginal improvements in living standards, until the system collapses. National economies must be built on industries that serve the local needs of a people with locally plentiful resources that are as local as possible with excess production being used to participate in the global economy. Only when Argentina’s economy is more balanced and its government funded by such a stable economy will Argentina’s fiscal troubles go away.
Read old posts