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Market-Based Policies under Threat in Latin America – IMF

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By Lesley Wroughton

Reuters
November 13, 2003

Poorly implemented economic plans by a line of ineffective Latin American governments are the main cause of protests there against free-market policies, the new IMF chief economist said. Violence in the Dominican Republic this week left at least six dead and 20 injured in the latest demonstrations this year against Andean and Caribbean governments and their economic agendas that were backed by the International Monetary Fund.


In a Reuters interview on Wednesday, Raghuram Rajan said aid packages from multilateral lenders, such as the IMF, would be little use without proper governance and if they did not help disadvantaged groups. "What we're seeing in the Andean countries and in the Caribbean is the consequence of long periods of, to a great extent, ineffective governments and -- to some extent as a consequence -- policies that have not been well-implemented and have not performed as advertised," Rajan said.

He said the biggest risk in Latin America was that groups discouraged by persistent low growth and poverty would give up market-based development for unproven economic models. "The danger is that there is a general feeling that this is because the market doesn't work and a movement away from a market-based model of development toward something that is less tried, or has been shown possibly less successful," he said.

In Bolivia last month, at least 74 people died in rioting by indigenous groups unhappy with the government's plans to export natural gas to the United States. Rajan said the pipeline would benefit Bolivia but the people did not trust their leaders. The world needs "to find ways that governments can be more trusted and more sort of participatory in those countries," he said. "It may not be an outside force, those countries themselves have to find ways to evolve toward more participatory, more broad-based governments, because I think that will be the strongest catalyst for growth," Rajan added.

The former academic economist and banking expert said he was hopeful that Argentina would pull out of its financial crisis after a record sovereign debt default in early 2002. Addressing gaps in the country's banking system and fiscal imbalances, which led to the crisis, were key, he said. "I would love to see more effort at reviving the banking system because I think a banking system which is not working is a huge drag on the economy," he said.

He said Argentina would also benefit from dealing fairly with international creditors in talks on restructuring about $88 billion in defaulted debt. Bondholders are locked in acrimonious negotiations with Buenos Aires after Argentina proposed a restructuring that would cut the value of the defaulted debt by 75 percent.

Rajan said economic prospects were looking up in Brazil, which last week said it would seek a new $14 billion IMF loan deal as insurance against financial shocks. The accord, which allows new social spending, is seen as further evidence of the pro-market policies of Brazil's President Luiz Inacio Lula da Silva, who used a $30 billion IMF loan last year to stabilize Latin America's largest economy. "Brazil has certainly indicated through their past actions and through their plans they intend to continue the process of reform, while at the same time paying some attention to people who haven't had as much benefit from the market economy," he said, adding, "And I think that is a very wise move."


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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.