Getting To The Root Of Why The Bush Administration Is Permitting Argentina To Fall (Part 2)

Our persistent probing and discussions with business interests, government officials and journalists led to a couple of leads, from very reliable sources, that it was the Bush administration's national security nexus that was, in effect, overruling, the president's top economic advisers where Argentina was concerned. Immediately the dots began to connect and we understood that when the preference inside of the Bush administration for Argentina to not devalue was withheld, it was the result of the Treasury Department's deference to the National Security Council. The intelligence community, either from within the Treasury department or from without, was dictating the Bush administration's posture toward the Argentine economic collapse, we were told.

We accepted the premise as plausible and certainly more cogent than the other explanations we heard bantered about, including those that stressed the Bush administration was courageously "anti-bailout", in its outlook on economic matter. That the Bush administration, despite evidence of the institution's mismanagement and ineffectiveness, has backed IMF-led "bailouts" around the world, in countries like Turkey and even Pakistan, contradicts such rhetoric.

But still we were a minority, possibly of one, among media outlets in operating on the knowledge of those in the know and pursuing the deeper reasons for the Bush administration's hands-off approach to Argentina. We kept pursuing the matter, growing more comfortable with the evidence and information that indicated that the U.S. handling of Argentina's economic problems was being directed by the CIA and National Security Agency (NSA) significantly more than it was by the Treasury Department. We were even informed that some of the specialists, at the Department of Treasury, were members of the intelligence community. We were told the same regarding some of those who work for the IMF, in a technical capacity. Independently, we discovered a striking web of connections between academics, members of the Treasury Department and technocrats and economists at the IMF. Interestingly, several key players at Treasury and the IMF, prior to serving in their capacities in government had authored several interesting writings regarding their long-term view of Argentina and Central and South America's economic future, and how the U.S. would benefit and experience loss from such.

That a longer-term benefit to the immediate economic decline of Argentina was in the offing for the United States, became a consistent theme coming from our research and those with whom we spoke, regarding why the President and his administration would walk away from the worsening situation in the Latin American country. And last week we were emboldened in our growing confidence in such assertions by a report from the private intelligence outfit,Stratfor.com, regarding the impact that the Argentine collapse was having on the efforts at internal regional integration. Here is that report:


Argentine Collapse Could Destroy Mercosur
26 February 2002
Summary

The Brazilian government has been increasingly active in trying to prop up the Argentine economy, in part due to fears that its collapse could spell the end for the South American Customs Union. Despite these efforts Argentina is finding itself more and more isolated from the international community. The Bush administration now has the opportunity to shift more South American trade to the United States.


Analysis

Five South American presidents from Brazil, Bolivia, Chile, Paraguay and Uruguay issued a joint statement Feb.18 urging the International Monetary Fund to aid Argentina's crippled economy immediately. While financial contagion from Argentina's economic collapse has not yet spread to other countries in South America, the statement reflects growing worries that the crisis could damage trade and investment flows among the six countries that belong to the South American Customs Union (Mercosur).

Brazil appears to be taking the lead in trying to drum up economic assistance for Argentina, but its efforts will not be enough. With Washington and the European Union both likely to take a hands-off approach, Argentina will find itself more isolated as its problems worsen. This will undermine Mercosur's viability as a regional customs union and strengthen the position of the United States to expand trade ties with South America through the Free Trade Area of the Americas (FTAA).

Brazilian President Fernando Henrique Cardoso declared Feb. 18 that the IMF should not make the implementation of structural economic reforms a condition for any additional aid to Argentina. Cardoso urged the IMF instead to start disbursing aid immediately to the government of Argentine President Eduardo Duhalde.

However, conservative U.S. economist Anne Krueger, the IMF's second in command, warned during a meeting with Argentine officials last week that no assistance would be forthcoming until Duhalde's government unveils a coherent economic plan that imposes strict fiscal discipline on Argentina's 24 spendthrift provincial governments, Argentine daily Clarin reported. The Bush administration is believed to be encouraging the IMF's tough approach.

For years, even during the second-term administration of President Clinton, when the former President assigned his top adviser, Mack McClarty, to advance the Free Trade of the Americas Agreement (FTAA), we had heard of the distaste that the U.S. had for Mercosur and the "hindrance" that many believed it presented to making this hemisphere one. To some, Mercosur was the single greatest impediment to FTAA and indeed, the most prominent political opponent of FTAA, in the Americas, Venezuelan President, Hugo Chavez, has consistently argued that a strengthening of Mercosur was infinitely more important than any acquiescence, among the countries of Central and South America, to the FTAA agenda. Mr. Chavez' position on the trade agreemet, in part, has earned him the designation as the "rogue" of the Western Hemisphere, even more dangerous, in the eyes of many, than Cuba's aging Fidel Castro.

Mr. Chavez places a higher priority on expanding the regional trade integration process (via Mercosur)than he does on the successful conclusion of the FTAA. President Chavez has been vocal in expressing his belief that the US desire to see the FTAA concluded in 2003 or even 2005 is problemtatic technically as well as politically. The Venezuelan president particularly believes that Brazil must be included in Mercosur (on a fast track) before FTAA is concluded, at all. The Stratfor article makes abundandtly clear that the efforts toward regional integration via Mercosur have been severely damaged and maybe fatally crippled by the economic meltdown in Argentina. This is an outcome that in the mid and long-term (3- 10 years) only benefits President Bush's striking advocacy of FTAA, an effort with an intensity that caught many observers off guard, when embarked upon by the President, almost immediately after taking office.

If the IMF, which just yesterday sent a technical team to Argentina, continues to make fiscal austerity a condition for additional aid and if the Bush administration continues to defer to the IMF in its handling of Argentina, even in its questionable view of Argentina's monetary policy options, the result will be an eventual weakening of economies throughout Central and South America, fostering an economic, political and cultural ripple effect that weakens intellectual arguments on behalf of Mercorsur while the same for FTAA are strengthened. Already reports are circulating that the worsening conditions are providing fertile ground for a coup in Argentina -and the ushering into power of a "renown neo-liberal" and more FTAA-friendly economist, the country's former Economy Minister, Ricardo Lopez Murphy. That the still-silent Bush administration has considered such and apparently does not seem to mind the possible outcome(s) of Argentina's political and economic instability is one of the more revealing signs that something greater than what one might have initially thought is at work, at best, in Argentina, and at worst, in Washington D.C.

Wednesday, March 6, 2002