JAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I’m Jaisal Noor in Baltimore. And welcome to this latest edition of The Henry Report.
We’re now joined by James Henry. He’s a leading economist, attorney, investigative journalist. He’s written extensively about global issues.
Thank you so much for joining us.
JAMES S. HENRY, SENIOR ECONOMIST, TAX JUSTICE NETWORK: You’re very welcome.
NOOR: So can you explain what’s happening in Argentina? It’s all over the headlines. There’s a huge inflation crisis, the currency plunge, and this is one of its greatest crises in the last decade. Talk about what’s happening and how Argentina got here, because about a decade ago, things looked kind of promising for Argentina.
HENRY: Well, part of the story is that Argentina is just one of maybe a dozen or so emerging markets, so-called—I prefer to call them submerging markets, because they never fail to provide entertainment. And in this situation they’re all devaluing their currencies. We’ve had about 12 countries devalue. Just this week, Kazakhstan devalued by 19 percent.
And part of the story is that they are reacting to two recent developments elsewhere. One is the decision by the Federal Reserve to taper its quantitative easing, its purchases of bonds every month, which—it tried to hold interest rates low. And the second is some indication that China may be slowing down its purchases of imports, which has helped developing countries, like Argentina and Brazil and South Africa, that are exporting commodities enormously in the last decade. So those are two external factors that are at play across the board here.
But the only way to really account for, you know, the fact that Argentina is experiencing by far the largest devaluation here, about 15 to 16 percent, is that this crisis, the change in the world conditions, has basically exposed some unsolved problems in Argentina.
Argentina, as you know, back in 2001, basically 2001, 2002, defaulted on its foreign debt, and a new government came in that basically relied much more heavily on state action, got rid of some of the—and reversed some of the privatizations that had been going on, did much less foreign borrowing, and, on the other hand, continued to promote exports and the state sector as a source of growth. And that’s worked pretty well. Contrary to what the IMF predicted, the Argentine economy has grown at 3, 4, 5 percent—that’s on average in real terms—up until last year.
But the problem was that during this period, the Kirchner government neglected to take some basic structural changes. And that’s kind of caught up with it.
The main problems, I’d say, right now are in the area of the surging public deficit, which is back to about 4 percent of national income. And that means that in order to control inflation, which is driven by that deficit in this small economy, they need to do two things. They need to control public spending, cut a lot of the subsidies that have been going to energy and to other influential sectors in the economy, and then raise taxes. Argentina’s losing a lot of tax revenue, and they’ve failed to collect taxes from some of the largest companies in the economy, especially grain exporters. There’s an enormous amount of hidden grain export going on from Argentina right now to avoid currency controls, and to avoid taxes as well.
So I would argue that, you know, this crisis is a good thing if they can use it to motivate some of these basic structural reforms.
But they don’t have much time. Two thousand fifteen is the presidential election, and the right wing, which basically ran the economy into the ground a decade ago, is salivating. My old classmate Domingo Cavallo is writing now about how if they don’t basically put his kind of official in office and restore neoliberal economists to control, they’ll be facing 40 percent inflation, a peso that’s 100 percent cheaper than it is now, and the real economy will have a major recession.
I don’t think anybody really believes those doom forecasts, and they certainly don’t have much credibility coming from him, but this is definitely a warning to the center-left that’s been running the economy that they need to tackle some of these major reforms.
NOOR: James Henry, thank you so much for joining us.
HENRY: You’re welcome.
NOOR: You can follow us @therealnews on Twitter. Tweet me questions and comments @jaisalnoor.
Thank you so much for joining us.