A few years ago it was the samba. Today it's the tango.
International financial analysts dubbed the repercussions of Brazil's economic woes in 1998 the "samba effect," and American investors realized a globalized economy meant this was one dance they'd better understand.
Now Argentina's deep financial crisis and economic stagnation threaten to set off a "tango effect," with an impact far beyond what is already being felt in neighbors Brazil and Chile.
As Latin America's third-largest economy, Argentina may not carry the international weight of Brazil, or of those Asian countries and Russia whose difficulties threatened a global financial meltdown in 1998. But analysts say the ripple effect of a collapse in Argentina is cause for concern - and a bailout.
Stopping those ripples before they happen - or at least reducing them - is why rescue plans like the ones the International Monetary Fund approved for Argentina and Turkey this week make sense, analysts say.
Because Argentina holds a high percentage of total bonds for developing countries, a default would be particularly onerous for the developing world.
Argentina also has a high level of US investment, especially considering the size of its economy.
Additionally, Argentina is a major player in South America, one of the few regions of the world where the US runs a trade surplus.
The IMF program for Argentina is actually a revision of a $40 billion rescue package spearheaded by the international stabilization institution last December.
The revision was prompted by Argentina's announcement this week that it would miss an IMF-negotiated deficit-reduction target for the first quarter by about $4 billion - news that only deepened international gloom about prospects for the home of tango.
Financial-crisis flashpoints in the 1990s taught the world that hefty international rescue packages can work.
Infusions of large amounts of cash in places where private lenders will no longer tread helps restore confidence among investors so that private lenders can return, analysts say. That means a return to attractive conditions for international investment funds, ranging from the local teacher's union to individual accounts. And with growth restored, developing countries return to the international marketplace - for US and other countries' goods.
But the packages work best when they are preventive instead of a response to a full-fledged collapse. And their success ultimately depends on measures taken and stuck to domestically.
"With the US involved in an increasingly globalized economy, it's in the US interest to operate in and help guarantee a certain amount of order," says Sidney Weintraub, a Latin America specialist at the Center for Strategic and International Studies in Washington.
International action in the 1990s demonstrated that "it's a lot cheaper to address these problems before they become a real crisis," he adds, "than to pay to pick up the pieces afterwards."
Working through the IMF and the World Bank, the US has been able to "make these packages work," says Peter Hakim, president of the Inter-American Dialogue in Washington, "and in the end, it hasn't cost American taxpayers any money."
Fears of being left in the lurch led the US Congress to balk at a $50 billion US-led package to bail out Mexico in 1995, after a full-fledged currency collapse.
Then-President Bill Clinton sidestepped Congress to rescue Mexico with US money, and ultimately the plan worked: A feared "tequila effect" was stopped in its tracks, and Mexico not only returned to financial stability but paid back the US loans plus about $1 billion in interest.
A neighbor's experience
Brazil is a case of a country that came very close to collapse, but stepped back from the brink with a combination of IMF-led intervention and domestic belt-tightening.
With debt soaring, a devaluation of the Brazilian real that was expected to be 20 percent instead reached nearly 60 percent.
Analysts feared the world's ninth-largest economy would shrink as much as 5 percent in 1999, but the international rescue package restored confidence, and Brazil instead ended the year with very minimal but still surprising growth.
Argentina is proving to be a tougher nut to crack.
After nearly three years of recession with nearly 5 percent shrinkage of the economy, Argentines are sinking into poverty even as the government racks up huge debt.
Public debt is about $150 billion, or more than half of the country's GDP. Argentina's deficit target for 2001 was originally $2.5 billion, then $4.7 billion, and now the IMF has accepted an increase to $6.5 billion. But even with the increase, nearly half of the target was reached in just the first quarter.
Meanwhile, Argentina's economic jitters are spilling over into Brazil, where the real is taking a plunge.
The IMF wants above all for Argentina to return to growth. Speaking last week at spring meetings of the IMF and World Bank, IMF Managing Director Horst Koehler called for developed and developing countries to pursue "growth-oriented polices." Without growth, he said, "it will be much more difficult for countries like Indonesia, Turkey, and Argentina to come out of the mess."
The emphasis on growth is something of a switch for the IMF, which has come under attack in the past for pushing spending cuts and deficit reduction at the expense of growth.
"There's more attention to appropriate remedies, after many [specialists in and outside the international institutions] concluded the IMF was wrong to have the Asian countries tighten belts [in 1998]," says Mr. Hakim.
"They weren't running heavy deficits, but what they and the world needed was for them to grow."
But economists say no amount of international intervention can save a country that isn't taking appropriate measures at home, and many think Argentine policy is still not on the right track toward recovery.
This week's IMF announcement on Argentina "didn't calm the markets because the country's economic program remains very unclear," says Juan Luis Bour, chief economist with the Foundation for Latin American Economic Studies in Buenos Aires.
Argentina needs to grow, but so far the thrust of Economic Minister Domingo Cavallo's program is to increase tariffs to protect national industry and raise taxes, he says.
Tax figures released Wednesday showed that tax revenues in April fell 9.1 percent from April a year ago.
"Cavallo's program is essentially one of short-term vision, with an element of waiting for world growth to pick up so you can export more," says Mr. Bour.
"But for a country that is teetering on the edge, it's a dangerous policy that is unlikely to restore international confidence."
(c) Copyright 2001. The Christian Science Monitor