To answer the question ‘which should be more important?’. War is hugely important for a nation: war provides global economic structure, builds technologies, advances politics and gives nations the opportunity to acquire power. However, how can you balance a nation’s benefits from war with the importance of providing people with basic human rights?

To help gain perspective on this problem I found out how the U.S. and U.K. Governments split their budgets between Military funding and Welfare funding:
UK budget for 2012:

1. Total military spend £47.2 billion.
2. Total welfare spend £58.3 billion.

US budget for 2012:

1. Total military spend $1 trillion.
2. Total welfare spend $500 billion (Chantrill 2011).

America does consider military hardware to be more important, but the U.K. favours a more even split, giving the bigger piece of the budget cake to the Welfare system. There is doubt to whether funding an over-inflated welfare system is the most viable way to stop poverty. It can be argued that a nanny-state welfare system creates citizens dependent on government money, but when the budget is cut back we are left with people who have never held a job in their lives.

At the moment, Britain imports about 25% of its food and drink from around the world, whether it’s broccoli from Spain or Shiraz wine from Australia. Money spent on importing these products, is money that could have been spent on fuelling British food industries. I would be willing to eat potatoes grown in Britain and drink wine made in Britain, especially if it would help Britain out of debt.

However, this is easier said than done. Consuming only British-made produce would mean much less variety in my diet. I would also be limited to certain foods at certain times of year. For instance, I love eating Brussels sprouts, but I would only be able to do so during winter when they are in season. Nevertheless, as a temporary solution to Britain’s economic problem, consuming only British produce, and decreasing our dependence on imports from abroad would be a sacrifice worth making.
Another sacrifice would be changing my holiday habits. Instead of flying abroad and spending my money on water skiing in the Caribbean or the Mediterranean, I could go do the same in Cornwall or Brighton. I’d be able to have a good break from work, save money on plane travel and put my money towards helping the British economy.

        

Happiness is a divine gift that everyone is entitled to. It is natural then for someone to want complete control over it and to defend it from anything that might compromise it. That is the basis of our country’s birth. The early colonists left Britain in search of freedom from the oppression they felt there that ultimately compromised their happiness. Their definition of happiness and the government’s differed and both parties separated. But, even traveling across the Atlantic could not solve their problems and in the end they faced the same problems here that they faced back home. Acts like the Stamp Act, Tea Act, Intolerable Acts, and Quartering Act all coerced the colonists back into the lifestyle that they intended to escape. Eventually living in American became no different than living in Britain; naturally, mutiny ensued. The fundamental reason for the Declaration of Independence was that the colonists felt that their deserved happiness was being compromised by the looming British government. The writers of the Declaration were men who had taken power in the new colony that they had been previously denied in Britain because of their lack of lineage. Being the first wave of leaders in America, they were the idealists that had the freedom to start new and instill any ideas they desired. This shaped the Declaration in such that their ideals, which are so varied in the primary stages of building the nation, is mentioned through the ambiguous idealistic statement of “pursuit of happiness”. Those three words encapsulated their ideals and indicated their desires at the time of a newly forming nation built on the testing of different ideas. It is simply stated in the Declaration of Independence with the clause “all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness.” This reasoning illustrated the belief of the colonists that happiness is an entitlement. Amidst a time of suppression, it was natural to state it since it was a current priority to them. Ultimately after the resolution, the colonists received what was justly theirs and could finally pursue the happiness that they couldn’t otherwise under British rule. At that point, happiness was in their hands and they could control it however they pleased.

By the time of the development of the constitution, a new form of “happiness” had formed. Before, the colonists pursued happiness through the form of freedom from Britain. During the period of the Constitution, they sought happiness through economic freedom. Colonists gained the freedom they desired and thus prospered as a colony. They had become self sufficient and now had to deal with the economic terms of being so. After the Revolutionary War, business and economy began to flourish faster than the government could handle. The Articles of Confederation were no longer able to keep up with the rapid evolution and prosperity of the colonies. A call to create a stronger government was made, not only for benefit of the country that needed it, but for the businessmen who needed one in order for them to continue thriving. War had created an unexpected booming economy as well as a public debt; suddenly, economic interests had become top priority in the post war environment. Eventually, the Constitution was created, although this time more so as a government efficiency and economic document. The Framers of the Constitution were a comparatively different group of men than those that drafted the Declaration. Only seven of the delegates signed both the Declaration and Constitution. The Framers consisted of wealthy, college educated men as well as those trained in legal and business fields. By the time of the Constitution, the fundamental ideas for the government had already been laid down. Instead of focusing on ideals, the Framers worked on the economics of creating an efficient government. This related of course to the fact that by that point many of them had become businessmen. Some of them were slave owners who needed the financial security possible only through the creation of a strong government. Since the colonists already achieved their pursuit of happiness, their interests shifted towards the current interests of economics. This shift in interest is reflected through the change of “pursuit of happiness” to “property” which is a more economical term based on the original terms by John Locke. Their happiness could then be more specified as time progressed to be changed to the word to property which implied possessions which had been acquired as a result of gaining their initial “happiness.” It can be still interpreted that the general pursuit happiness falls into the property category since it is something that the colonists felt they possessed. The change in word choice reflects the current, changing interests of the colonists. This is a prime example of how change is something that is bound to occur and that the government has to be adaptable to the ever changing situation in the country. Amendments are proof of that very change that occurs in the government. Change can happen in an instant and the government must be able to face it in order for our country to survive. On September 11, 2001, one such very change challenged our government in a way no one ever expected.

In the wake of our new era of global terrorism, the government and Constitution have truly been put to the test as to how fast it can adapt to current situations. Such a response to a rapid change is seen in the current and controversial Patriot Act. Just six weeks after the September 11 attacks, Congress passed the “Patriot Act” which expanded the government’s authority over gathering intelligence. Many of the provisions of the Patriot Act have made it easier for the authorities to search through personal records. Section 215 of the Patriot Act allows the FBI to force anyone to turn over records without any reasonable suspicion or without going through a judge. This is a direct violation of the Fourth Amendment, which states that the government cannot conduct a search without probably cause of committing a crime. Also, no form of due process breaches the rights guaranteed by the Fifth Amendment. Inadvertently, it also manages to infringe on First Amendment rights since the free speech of others often triggers an investigation. In Section 213 of the Patriot Act, it unconstitutionally amends the Federal Rules of Criminal Procedure to allow the government to conduct searches without notifying the subject. This gives them the privilege to also search without warrant and seize any items desired. The Fourth Amendment clearly outlines the rules of “search and seizure” to include notification and obtaining a warrant, since it is crucial for authorities to work in the open and go through judicial process so that no error will be made. Section 213, however, completely disregards that and jeopardizes the public’s privacy. Another breach of the Fourth comes to play with the expansion of intelligence through the usage of wiretaps. In 1978, a law called the Foreign Intelligence Surveillance Act created an exception to the Fourth Amendment’s requirement for probable cause when the usage of wiretaps had become increasingly vital to gather foreign intelligence. This evidence was not meant to put someone on trial or for domestic affairs and therefore did not contravene on citizen’s rights. The Patriot Act, though, expanded on this confined exception to now include gathering intelligence for regular domestic cases. These are just a few examples of the recent Act’s threats against civil liberties.

Just a day before the second anniversary of September 11, Attorney General and Patriot Act front man John Ashcroft gave a speech in lower Manhattan defending his position on the Act and attempting to rally support for his stance on expanding government powers. His speech reflected the situation of growing bipartisanship in Congress concerning the Act and its violations of civil liberties. Even the general public is becoming wary towards the Act and questioning its necessity. The audience was mute and a crowd of several hundred protesters formed outside with signs saying “Defend the Constitution!” and “Leave our Civil Liberties Alone” (New York Times, September 10, 2003). But it seems that the public’s opinion is not making a difference as the Patriot Act is only the beginning of a current trend of expansion of government powers. The Bush administration is already pushing and new expanded version dubbed the Patriot Act II. It continued on the same principles of giving the government broad powers to seize documents and force testimonies without a court order, none of which directly fight terrorism as it is presented to do (New York Times, September 22, 2003). A panel has even been created recently to set up an agency to focus on domestic intelligence due to the September 11 attacks (New York Times, September 24, 2003). A combination between such an agency and the Patriot Act seems like a deadly combination for the already fading civil liberties in America. Nowadays, nothing can be private and not even the government trusts its own citizens. In turn it is alienating itself but treating everyone as a suspect, yet ironically for the sake of everyone’s safety. September 11 truly challenged the government to respond quickly to a sudden event that changed the world. Whether the response is successful for the country can only be determined later.

Changes are inevitable and the government should be ready for it. The war on global terrorism right now may not be a concern in the next fifty years and it could be all but forgotten. It does however put in question the government’s duty of maintaining the right of “pursuit of happiness” and whether or not it is doing a good job of it. Society changes, leaders change, problems change. It is up to the government though to stay up to date to all of this and learn to change as well to fit the time.

        

Eventually that began to change as industry became a huge part of the country and the rich industrialists gained political power. The new industry also worked against the farmers as it provided technological innovations that increased production so much, the market was flooded with farmers’ products, drastically reducing prices and profits. Also, with the monopoly of the railroads and the lack of competition, transportation and storage rates of goods skyrocketed to levels that were impossible for farmers to make any profits. They eventually came to have many debts to equipment vendors and other banks & lenders.

Furthermore, as the value of money deflated, the amount of their debts increased along with a drop in earnings. All of this combined to anger American farmers, and they created the Populist Party. In the Platform of the People’s (Populist) Party of 1892, representatives of the farmers express their anger with these trends. Also, political cartoons began to show up around the country, such as the drawing in The Farmer’s Voice, a Chicago newspaper, which shows the poor farmer being locked in chains by an eastern aristocrat teamed with the government. Life was hard for the American farmer during the Gilded Age. Valuable agriculturalist demands for reform were shut down by corrupt government officials that worked for immoral industrialists, meanwhile, overproduction and monopolies continued to harm valuable farming interests. Even though industrialists and President McKinley disagreed, one of the most important issues to farmers was the reinstatement of silver as official currency.

A major objective of the growing Populist Party was the restoration of silver as currency. The farmers of America, and the Populists that represented them, felt that the loss of silver as legal tender had been the major reason for the economic hardships most farmers were feeling. Between 1865 and 1870 U.S. government data shows that the U.S. population rose by more than 4 million; however, the money in circulation dropped more than 308 million (Document C). This dropped the currency level to below a billion dollars, a level it would not regain until 1885, thirty years later. The American farming community was convinced that this deflation was the cause of their woes. They thought that inflation would better help them by reducing the value of the loans they took out and making them easier to pay back. President McKinley disagreed, in his acceptance speech in Canton, Ohio he stated, “Free silver would not mean that silver dollars were to be had freely without cost or labor…It would not make labor easier, the hours shorter, or the pay better. It would not make farming less laborious or more profitable” (Document B). People that followed McKinley’s beliefs were convinced that overproduction was the key issue that was hurting the farmers. They felt the production had exceeded the possible market. J Lawrence Laughlin said that, “The sudden enlargement of supply without any corresponding increase in demand produced that alarming fall in the price of wheat which has been the farmer’s excuse for thinking that silver is the magic panacea for all his ills” (Document E). This was a valid point as the amount of farmland being cultivated had increased rapidly along with technological innovations allowing farmers to cultivate more land effectively. However, the strong deflation had so much of an effect on the farmers by raising the cost of farm equipment and other seasonal goods, as well as making it very difficult to pay back loans that had been taken out in a time of high inflation, that it became more important than simply producing less food.

Although the Populists wanted to put a large political platform in place, they wanted to do it through due political process, not through radical revolution. One of their main issues was the unfair practices of powerful businesses. The farmers felt that they had been taken advantage of by big business in America. The cost of farm equipment had risen dramatically at a crucial time when new technology was allowing farmers to produce more than ever. Also, the big trusts in the country ruled their industries with ruthless efficiency. James Weaver claims, “that they are monopolies organized to destroy competition and restrain trade” (Document F). He goes on to say that they wish to impoverish the producer and overcharge the consumer just to increase the wealth of a few. They used threats, intimidation, and bribery to have their way and create a political climate that was very comfortable for them. People like Teddy Roosevelt, the hero of the common farmer, where the enemies of the trusts. He had set out to attack these powerful companies and destroyed more than forty of them. T.R. helped to further the cause of the Populists and their pro-farmer economic agenda.

Many of the powerful corporations during the Gilded Age were merciless competitors, willing to do anything or destroy anyone to make money. Railroads seemed to be the worst of the monopolies, and the most hated by American farmers. These railroads charged many different shipping rates that all depended on the highest possible amount they could squeeze out of the poor farmers. Sure George Parker told the Senate Cullom Committee that a regulation of rates at reasonable prices would mean, “Bankruptcy, inevitably and speedily” (Document G). But that probably wasn’t true. The reason railroads didn’t want to regulate prices was that they wanted to create regional charges, and get the most money possible out of each area. This caused some farmers to bring their goods to railroad depots, only to find out that the price they had negotiated yesterday was no longer available and that they had to pay twice as much. The federal government attempted to regulate the railroad rates on interstate commerce, but the monopolies had a lot of political power on their side and the laws were rarely enforced. The Populists were extremely angry with this and it is reflected in popular literature of the time. In Frank Norris’ book The Octopus he tells the story of a farmer who is ruined by a sudden rate hike on shipping costs. He writes, “All his calculations to a profit on his little investment he had based on a freight rate of two cents a pound. He was under contract to deliver his crop. He could not draw back. The new rate ate up every cent of his gains. He stood there ruined” (Document H). The two hundred and fifty percent increase in shipping cost, from two cents a pound to five cents, cost a farmer his only profit for the year. This was not uncommon during the Gilded Age. The Populists had had enough from the railroads and the other powerful monopolies, they vowed to push their agenda and gain respect for the American farmer.

The industrialists and anti-Populists of the time made a few valid arguments. They believed that overproduction was the key problem facing the farmers, and it was a huge wound to the prosperity of the farmers. Also, they believed that the government should leave the economy alone, not spend its time busting trusts. Many popular politicians over the history of the United States would agree with that, too. However, the Populist Platform made many more persuasive arguments that worked to improve conditions for farmers much more than any ideas that the businessman had. First, the return of silver as accepted currency would help reduce the pain of paying back loans and give more money to the farmers when they sold their crops. Second, The destruction of trusts was good for the economy and Americans because it allowed for competition. Also, regulation of railroad rates would benefit all and prevent corrupt railroad officials from taking advantage of farmers. These points were much more valuable and well thought out than the ideas of the capitalists, and would much better benefit the farmers the Populists represented. This was a democratic solution to a capitalist problem, not a corrupt solution catering to the rich minority.

        

The Argentine population has one of the lowest growth rates in Latin America (1.5%). The 80% of the population reside in urban areas of more than 2000, with more than 1/3 of the population living in the metropolitan Buenos Aries.

Argentina has impressive human and natural resources, but political conflict and uneven economic performance since World War II have impeded full realisation of its considerable potential. Nonetheless, in the past it remained one of the richest countries in Latin America.

Good farmland is Argentina’s greatest natural resource, and the crops and livestock of the fertile pampas have long provided the country with abundant food for domestic consumption, in addition to unusually plentiful exports.

Agricultural products constitute the major source of foreign exchange earnings. Grains (principally wheat, corn and sorghum) and oilseeds (soya beans and sunflowers) are the major export items. In a good years of the past, grains and oil seeds harvests totalled some 40 million metric tons. Argentina has been selling its export crops to a variety of worldwide buyers. In the early 1980s the Soviet Union became the major purchaser of grains, while later the Middle East and the European Community, as well as United States, became the major markets.

Argentina was a net energy importer in 1987. It has important reserves of petroleum and natural gas, which are the target of a more intensive exploration and exploitation effort. It also has a large electrical production capacity.

There was a military coup in March 1976 as a result of a deteriorating economy, caused by declining production and rampant inflation. The military government set out to tackle those immediate problems and in 1978 embarked on a new development strategy centering on the establishment of free-market economy. The strategy also featured the removal or reduction of restrictions in the manufacturing sector and financial markets and the search for foreign and domestic investment. Despite these efforts, by the late 1980, Argentina entered a period of recession with declining production and real wages. After a notable economic recovery in 1986, economic growth has again slowed down.

Up to the beginning of the 1990

Faced with healing a scarred society and a worsening foreign debt crisis, the government OF Raul Alfonsin was slow to tackle the root causes of the economic problems when it took office in December 1983. By mid-1985, the country was suffering from an annual inflation rate of more than 1 000%. In attempt to control inflation and set the country on a prudent fiscal base, the government introduced a shock economic plan in June 1985. The Austral Plan succeeded temporarily in reducing inflation by introducing wage and price controls. (The Austral succeeded the Peso as Argentina’s unit of currency). Annual inflation in 1986 was in double digits, 86%, for only the second time since 1972. But in 1987, with the significant increase in the public sector deficit accompanied by very large price and wage increases, inflation returned to triple digits, closing out the year at 177%. The 1988 inflation rate was in excess of 280%. The nation’s burdensome external dept grew to $59 billion and the government had to suspend interest payments.

By 1990, the Argentine economy faced serious economic crisis. Inflation has surged to an all-time high. The economy had been in a deep recession since mid-1988 and the up-turn in inflation had exacerbated the decline. Prospects for an economic turnaround were uncertain. Economic policy making was affected by events in the political arena, where the country was in the midst of the first transition between the democratically elected administrations since 1928.

Carlos Menem had won the presidential elections of 14 May 1989 and had taken office on 8 July. The new government was intent on stabilising the economy through fiscal austerity, privatisation and greater reliance on market forces. His administration sought emergency economic legislation from Congress that would provide authorisation to curtail government subsidisation of industry and to privatise many state-owned companies.

The creation of the new economic strategy (the Plan Primavera) in 1988 brought some important changes in Argentina’s economy. The programme, which relied on an overvalued austral, negotiated price controls and tight monetary policy, reduced the monthly inflation rate from 30% in August to 6% in January. A series of exchange market crises in the ensuring months produced a devaluation of over 1000% in the free exchange rate. The government responded with a series of short-term measures designed to blunt pressure on the exchange rate and to restore some price stability to the economy. However, the Alfonsian administration was unable to stabilise the economy, which led to the early transfer of power to the Menem government.

In the 90s Argentina’s external accounts were market by uncertainty. Foreign exchange reserves were low. Arrears on debt payments totalled $2.7 billion at the end of 1988 and reached almost 7 billion at the end of 1990. Prospects for substantial recovery during the 1990s were not promising for this ‘developed’ economy.

After 1990

At the core of the economic crisis is the Argentina’s currency, the peso, which was pegged to the U.S. dollar in 1991. The president Carlos Menem and the economy minister Domingo Cavallo artificially tied the peso to the dollar at one to one parity through a currency board in order to generate financial stability, restore confidence and combat hyperinflation.

Their actions effectively ended rampant inflation in the country and attracted billions in foreign investment. However, the currency board limited monetary growth by only allowing as many pesos to circulate in Argentina’s economy as dollars held in the Argentine Central Bank’s reserves. When foreign investment flowed in, as occurred during the mid-1990s, this had the effect of accelerating Argentina’s economy by increasing the monetary supply. However, the artificial peg led to an overvalued currency that eventually made Argentina’s exports uncompetitive while simultaneously encouraging high levels of imports. As long as foreign investments poured in, Argentina could cope with this situation, but once foreign investment dried up in the late 1990s, it was a recipe for disaster. Foreign debt swelled to pay for Argentina’s imports, and national debt was compounded by the free-spending habits of provincial governments, who often took on unrealistic debt loads in the expectation that they would be bailed out by the national government. As Argentina’s economy became uncompetitive, the currency board had the effect of deepening the four-year recession by shrinking the monetary supply as the country spent more on imports than it earned through exports. The slump sent unemployment spiralling to levels over 18%, creating the conditions for political unrest to reach dangerous levels.

In December 2001, the IMF signalled that it had lost confidence in the country administration’s economic program by shutting off a crucial $1.3 billion bailout when Argentina failed to meet budget-cutting targets. That prompted Argentina to announce days later that it was suspending payments on its foreign debt amounting to $141 billion dollars. The new president Fernando de la Rua, in order to halt a run on the Argentine banking system, which is largely dominated by foreign financial institutions, imposed a $250 limit on weekly withdrawals. Besides nearly freezing economic activity, this action provoked street protests around the country. Demonstrators attacked banks and looted supermarkets. In Buenos Aires, thousands marched on the presidential palace demanding food, jobs, and an end to the banking freeze. Over a dozen people died in confrontations with riot police or other demonstrators. The result was the resignation of the deeply unpopular de la Rua as president.

Argentinians were increasingly becoming used to living in a society of empty cash machines, where barter clubs begun to replace shops, and where credit cards were no longer accepted. The society and the businesses were devastated.
One of the shop owners in Buenos Aires said that time:
“I don’t know if the banks that issue the cards will still be there next week. So for the time being I am only taking cash.”

During the December 2001 holidays, it quickly became apparent that few Argentine politicians had the necessary political backing or popularity to lead their country successfully out of its economic crisis. After a false start under interim president Adolfo Rodriguez Saa, the Argentine congress appointed Eduardo Duhalde, a leader of the Peronist opposition, to serve out the remainder of de la Rua’s presidential term. Duhalde took office announcing an end to the peso’s parity with the U.S. dollar and creating a multi-tiered exchange rate to take its place. Although the rules have been shifting since the devaluation, there is now an official exchange rate of 1.4 pesos to the dollar for major international financial transactions, and a free floating exchange rate for most personal or individual needs. This devaluation could have potential explosive political implications since most salaries are paid in pesos, while most consumer debts and mortgages are valued in U.S. dollars.

Duhalde blamed the U.S. backed free-market approach for his nation’s troubles, proclaiming it a “broken model,” and warned that his government will aggressively protect Argentine industry and jobs. Duhalde and his team have since suspended government payment of debts to international creditors, introduced capital controls, and placed extraordinary taxes on oil exports. Commenting on his government’s activities, Economy Minister Jorge Remes Lenikov said:

“We have to lay bare several fallacies that we were getting used to. One is living at somebody else’s expense; the other is having deposited pesos and thinking that they are dollars or that they were converted into dollars in an accounting entry.”

Duhalde’s economic policies are largely short-term measures designed to stabilize the current economic and political situation. However, they risk turning Argentina into a pariah in global investment circles.

The United States and the IMF are taking a dim view of President Duhalde’s tactics, and it does not look as if the United States is willing, at least at this point, to support Argentina during this crisis. The Bush administration has stated that Argentina will only receive U.S. assistance through international financial organizations, and only when it has a solid economic program that includes privatization, deregulation, and fiscal discipline. In a speech in Chile, IMF First Deputy Director Anne Krueger said that:

· IMF support for Argentina is contingent upon the economic plan the Duhalde administration develops.
· Argentina should formulate a new monetary policy, a fiscal policy, and restructure the banking system.
· It would be very unlikely for the IMF to provide a solution for Argentina’s economic crisis in the near term.

Argentina’s largest regional trade partner, Brazil, has been looking for ways to reduce the risk that the economic crisis will spread. Brazilian economists have said that their country’s best protection from contagion by the Argentine crisis is for it to persevere with its own recent macroeconomic policies, including inflation targeting and a floating exchange rate. In fact, Brazil’s 1998 devaluation of its currency, the real, contributed to making the Argentine peso uncompetitive even in trade with its within Mercosur the regional trade bloc led by Brazil.

Remarkably, Argentina’s democracy appears to have survived the political turmoil associated with its economic crisis. Only two decades ago, similar levels of confrontation and popular unrest would have provoked a military coup. This time, the Argentine armed forces have wisely chosen to keep a low profile.

The crisis also has serious implications for Argentine and regional security. In the short term, the heavy strain placed on Argentine police forces by frequent riot control duty in major cities is likely to erode their capacity to deal with other threats to internal security. In particular, terrorist groups linked to Hamas and Hezbollah are strongly suspected of operating in the tri-border region where Argentina, Paraguay, and Brazil meet. These groups are thought to have carried out the bombing of the Israeli embassy in Buenos Aires in the 1990s. A weakened Argentine security presence in this already under-policed region at a time of local political turmoil may create new opportunities for these groups to prosper.

Although the U.S. war on terrorism has shifted the Bush administration’s focus away from Latin America, the Argentine economic collapse is likely to have serious implications for U.S. relations in the region for some time to come. While the Bush administration signalled a new toughness towards economically troubled debtor nations around the world by allowing Argentina to collapse, it may have sent a somewhat different message to Latin American audiences. For years, populist political leaders such as Hugo Chávez in Venezuela and Luis Inácio Lula da Silva (Lula) in Brazil have railed against IMF- and Washington-sponsored economic policies. The economic failure of Argentina, the most devoted follower of these policies during the 1990s, has been interpreted in some circles as evidence supporting the anti-IMF and anti-U.S. claims of populist leaders.

The implications of recent events in Argentina for U.S. trade policy towards Latin America are less clear. Its economic paralysis has deepened the turmoil within Mercosur. . Until now, Mercosur had been pushed by Brazil as a Latin American alternative or precursor to the Free Trade Area of the Americas (FTAA) initiative sponsored by Washington. From the Brazilian perspective, Latin American countries would have more control vis a vis the United States if they integrated into Mercosur first, then negotiated as a bloc over entry into FTAA. Until now, Argentines, deeply resentful of the Brazilian devaluation of its currency which undermined Argentine ability to export to Brazil, had rejected the Brazilian strategy of independence and opted instead to stick to their proven strategy of unabashed support for U.S. policies. On the face of it, Argentina’s crisis may place the United States in a stronger negotiating position by undermining Mercosur as an alternative. The association of the FTAA with Washington – sponsored neoliberal economic policies, however, may make the Brazilian model of greater protection for local markets, currently embodied in Mercosur, more attractive to Latin American countries in the wake of Argentina’s collapse.

After the burst of inflation followed the messy abandonment of Peso parity with the US dollar, price rises have slowed sharply since August 2002. This relative calm, together with more policy stability compared with the massive changes of rules and regulations at the start of the year 2003, has translated into indicators that show the fall in economic activity bottoming out. In spite of the government’s claims, however, it is too soon to state that the economy has started to recover. Only a few sectors, related to exports or to import – substitution, show some improvement, in spite the lack of credit.

The combination of low consumer demand, political uncertainty and an investor unfriendly policy environment caused gross fixed investment to decline sharply in 2002. This has been accompanied by a disappearance of credit and foreign direct investment, as investors continue to grapple with the way in the government reneged on its legal obligations and interfered with private contracts. Unemployment, which already stood at over 21% in May 2002, is likely to remain high and it will be several years before it again reaches single digits (Table 3). Since Argentina has an extremely limited unemployment insurance system, this means that a substantial portion of the population is experiencing great hardship. Official statistics indicate that a record high % of the population are under the poverty line and cannot even meet their basic nutritional needs. An emergency unemployment subsidy has been set up to try and limit the hardship, though the government, in default, does not have the resources to do much.

On the external front, lack of financing has made it difficult for the merchandise exports to benefit from the drastic devaluation of the Peso. In Dollar terms, they fell by about 5.5% in the first 10 months of 2002. However, plummeting imports due to low economic activity, together with the decision of the government and some corporates not to service foreign dept, has benefited the current account on a cash basis.

In the adopted new monetary policy, in 2002 the central bank expanded money supply to aid a financial system under huge pressure from depositors. To avoid excessive inflation and in the absence of other instruments, the central bank absorbed part of these Pesos through the sale of forex reserves. The absorption has been done through central bank bills, at high real interest rates.

Increased policy stability, together with tight capital controls and a relatively conservative monetary policy, made it possible for the central bank to stabilise the value of the peso after its steep depreciation in 2001. The low return offered by cash holdings of US dollars, probably the alternative most preferred by Argentine savers, made bank time deposits relatively more attractive and for the first time in many months, financial institutions benefited from an inflow of funds. Consequently, interest rates have been falling sharply over recent months. Under normal circumstances this would be pre-announcing a return of credit to the economy, as banks sought a profitable application of their funds. Unfortunately, so many fundamental problems remain unsolved, such as the regeneration of sovereign dept, the need to strengthen the financial system and so on. The table 4 presents the exchange rate levels of Peso vs US dollar.

As we could see from the latest news the Argentina’s economy has stopped collapsing – at least for now, and there are some small signs of the recovery.

After the months of negotiation, Argentina seems about to get a new loan from the International Monetary Fund (IMF). The plan is to give Argentina a temporary “transitional” loan” that will see the country through its presidential election, currently scheduled for April 27th, 2003. The fund is not offering any new money in net terms – at just under $3 billion, the loan will be just enough to let Argentina repay the IMF what it already owes up to August. No serious structural changes will be demanded in return.

It is believed that this deal is designed partly to assuage the rich countries’ guilt over the extent of Argentina’s mess, and their role in creating it. And it is partly a capitulation to highly effective Argentine pressure. January the 17th, 2003 was the day that Argentina was due to repay the IMF almost $1 billion, a payment that Buenos Aires was refusing to make without a new IMF agreement.

For some in G7, the goal of loan now should be to mitigate Argentina’s pain, which has seen living standards fall precipitously and millions drop into poverty. It will do nothing about Argentina’s fundamental problems, notably the need to overhaul its public finances and restructure the banking system. It is doubtful that this loan will even provide stability until the election.

The G7’s other motive – to avoid more Argentine defaults to multilateral financial institutions – has even less merit. Since the November 2002, when Argentina refused to honour $800mln repayment to the World Bank, the country has made clear that it would not repay any creditors unless there was a new IMF agreement. Argentina is a big borrower, not just from the IMF but also from the World Bank and the Inter – American Development Bank. A prolonged Argentine default could damage these institutions’ credit ratings. To avoid this, the G& have given out just enough money to avoid default.

An IMF agreement would be a small step towards ending Argentina’s financial isolation, but the government still has to negotiate its debt (of about $100 billion) to private creditors. Even if they accept a huge write-down on their loans, servicing these will require a budget surplus (before interest payments) far bigger than this year’s target of 2.5%. Given this to-do list, it is a little too soon to declare the worst is over for Argentina.