Varieties and crises of neoliberal globalisation: Argentina, Turkey and the imf

Abstract

Argentina and Turkey are two important ‘emerging market countries’ that experienced a major economic crisis during the same year. Focusing on the period leading up to the respective 2001 crises in the two countries, this article attempts to place the two experiments in historical perspective and provide an understanding of the common elements as well as the diversity of the neoliberal restructuring process in semi-peripheral settings. The article also attempts to identify some of the key mistakes made by the imf, which was, in part, responsible for the crises experienced. A central conclusion is that ‘new’ or unconsolidated democracies find themselves particularly vulnerable when they are suddenly and prematurely exposed to financial and capital account liberalisation. The outcome is a highly fragile, debt-led growth path with costly consequences. Indeed, although both countries have managed to accomplish impressive recoveries in the post-crisis period, given their past trajectories and the heavy debt burden that they face, it is too early to say that the recovery process will be translated into sustained and crisis-free growth. The regional environment in which the two countries find themselves might be particularly important in this context, with the powerful EU anchor a possible important advantage in the Turkish context.

Notes

The author would like to thank Fikret Şenses for his extremely valuable comments on an earlier draft and Evren Tok and Koray Mutlu for their excellent assistance.

1 On postwar Argentinean development, see M Peralta-Ramos, The Political Economy of Argentina: Power and Class since 1930, Boulder, CO: Westview Press, 1992.

2 On the nature of the neoliberal experiment in Argentina, see CH Acuna, ‘Politics and economics in the Argentina of the 1990s (or why the future is no longer what it used to be)’, in William C Smith, Carlos H Acuna & Eduardo Gamarra (eds), Democracy, Markets and Structural Reform in Latin America: Argentina, Bolivia, Brazil, Chile and Mexico, Miami, FL: North–South Center, University of Miami and Transaction, 1994, pp 31–73; and FA De La Balze, Remaking of the Argentine Economy, New York: Council on Foreign Relations Press, 2004. See also EL Gibson & E Calvo, ‘Federalism and low maintenance constituencies: territorial dimensions of economic reform in Argentina’, Studies in Comparative International Development, 35 (3), 2000, pp 32–55; and C Lewis, ‘Argentina’, in J Buxton & N Phillips (eds), Case Studies in Latin American Political Economy, Manchester: Manchester University Press, 1999, pp 33–61.

3 On general characteristics of the Turkish development experience, see R Owen & Ş Pamuk, A History of the Middle East Economies in the Twentieth Century, London: IB Tauris, 1998.

4 On the convertibility plan and the currency board experiment, see W Baer, P Elosequi & A Gallo, ‘The achievements and failures of Argentina's neo-liberal economic policies’, Oxford Development Studies, 30 (2), 2002, pp 63–85.

5 On the early success of the Argentinean experiment, see M Mussa, Argentina: From Triumph to Tragedy, Washington, DC: Institute for International Economics, 2002; and T Geithner, ‘Lessons from the crisis in Argentina’, IMF Working Paper, 8 October 2003, at http://www.imf.org.

6 On the achievements and limitations of the privatisation programme in Argentina, see D Azpiazu & A Vispo, ‘Some lessons of the Argentinean privatization process’, cepal Review, 54, 1994, pp 129–147; and P Calvert, ‘Privatization in Argentina’, Bulletin of Latin American Research, 15 (2), 1996, pp 145–157.

7 For detailed investigations of the Turkish neoliberal experiment, see Z Öniş, State and Market: The Political Economy of Turkey in Comparative Perspective, Istanbul: Boğaziçi University Press, 1998; and E Alper & Z Öniş, ‘Financial globalization, the democratic deficit and recurrent crises in emerging markets: the Turkish experience in the aftermath of capital account liberalization’, Emerging Markets, Finance and Trade, 39 (3), 2003, pp 5–27.

8 On the pattern of unstable growth and recurrent economic crises in Turkey, see the collection of essays in Z Öniş & B Rubin (eds), Turkey's Economy in Crisis, London: Frank Cass, 2003. A major study of the recent economic crisis in Turkey is Y Akyüz & K Boratav, ‘The making of the Turkish financial crisis’, World Development, 31 (4), 2003, pp 1549–1566. Akyüz and Boratav, however, place disproportionate emphasis on the role of the imf, downplaying the role of domestic institutional and political forces in the process.

9 For further details about the nature and functioning of the exchange rate regime in Turkey associated with imf programme of 1999, see O Yıldırım, ‘Kura dayali istikrar politikasi çerçevesinde enflasyonu düşürme programi ve Türkiye ekonomisinde yeni istikrar arayişları’ (Exchange rate-based anti-inflation programme and search for stability in the Turkish economy), Undersecretariat of the Ministry of Foreign Trade, Working Paper, 2003, at http://www.dtm.gov.tr; and Turkey–imf Stand-by agreement in December 1999, at http://www.tbb.org.tr/turkce/arastirmalar/yap%FDsal_reformlar.htm.

10 The term ‘quasi-presidential’ is used for Özal in the sense that Özal tried to play the role of a Latin American-style president in an otherwise parliamentary system. Both countries, during the more successful phases of their neoliberal restructuring, enjoyed significant concentration of executive power. Turkey had a military regime during 1980–83, followed by a limited transition to parliamentary democracy in November 1983, indeed the same year as Argentina's transition to democracy after an extended period of military rule. Turkey's full transition to democracy occurred in November 1987. Turgut Özal, however, was the key figure in the context of the Turkish neoliberal experiment throughout the 1980–89 period, initially as the minister responsible for the economy during 1980–82 and subsequently as prime minister during 1983–89. Özal clearly benefited from the highly concentrated nature of the executive power until 1987. Indeed, his major aim was to establish a presidential system in Turkey. What he had in mind as he occupied the presidential office during 1989–93 was to institute a kind of Latin American presidential system without strong checks and balances, very much the type of system that Carlos Menem was able to capitalise on in the Argentinean setting. He was not able to accomplish this objective, however, given Turkey's strong parliamentary traditions.

11 Both neoliberal experiments were characterised by serious deficiencies in the implementation of the rule of law and rise of corruption. Indeed, Menem personally and Özal through his family were confronted with major allegations of corruption during the later stages of their respective periods of office, significantly undermining their popularity in the process. For further elaboration, see Z. Öniş, ‘Turgut Özal and his economic legacy: Turkish neo-liberalism in critical perspective’, Middle Eastern Studies, 40 (4), 2004, pp 131–134.

12 For critical appraisals of the negative income distributional consequences of Argentinean neoliberalism during the 1990s, see M Teubel, ‘Structural adjustment and social disarticulation: the case of Argentina’, Science and Society, 64 (4), 2000–2001, pp 460–488; and Lewis, ‘Argentina’. For critical appraisals of the Argentinean privatisation experiment, see Azpiazu & Vispo, ‘Some lessons of the Argentinean privatization process’; and Calvert, ‘Privatization in Argentina’. Various appraisals of the Argentinean privatisation experience suggest that policy makers did not pay any attention to the problem of regulating monopoly power in the post-privatisation era. The Argentinean experience clearly illustrated the fact that, in the absence of competitive pressures, mass privatisation is not necessarily welfare-enhancing.

13 For a broad overview of the unbalanced growth trajectory in the second phase of Turkish neoliberalism in the 1990s, see Alper & Öniş, ‘Financial globalization, the democratic deficit and recurrent crises in emerging markets’.

14 There were certainly criticisms originating from left-wing intellectuals, journalists and the labour unions highlighting the failures of the imf in the Turkish setting. There was also a major shopkeepers' strike in the capital city, Ankara, during the crisis. See http://www.aksam.com.tr/arsiv/aksam/2001/04/11/guncel/guncel5.html.

15 On the importance of reciprocal ties and informal networks for the functioning of the Turkish economy, with their positive and negative consequences, see A Buğra, ‘The place of the economy in Turkish society’, South Atlantic Quarterly, 102 (2/3), 2003, pp 457–470. Analysts like Buğra remain sceptical about the future ability of informal networks to provide an adequate cushion against poverty and the negative consequences of crises in the future.

16 For details of the coalition government in action, see chapter 1 of Öniş & Rubin, Turkey's Economy in Crisis.

17 One can find the details of Turkey's recent relations and financial situation with the Fund at the imf website. One of the largest disbursements of the imf in the recent period was made to Turkey in 2001, with a bail-out of some US$8 billion. Another huge loan of $9 billion was made to Turkey in 2002 which was even greater than the initial one. In addition, the Fund provided favourable conditions to Turkey in terms of the repayments by extending the spreads. See http://www.imf.org/external/np/tre/tad/exfin2.cfm? memberKey1 = 980.

18 This anchor became particularly important following the announcement of Turkey as a candidate country at the EU Council's Helsinki Summit of December 1999.

19 Argentina has also been involved in regional experiments such as the Mercosur. However, such schemes, involving relatively poor, capital-scarce economies, have failed to provide the kind of push that the EU has been providing to its potential members.

20 For the debate on the claim that the imf was, in fact, more flexible in its approach to exchange rate policy in Argentina, see Geithner, ‘Lessons from the crisis in Argentina’. For Cavallo's own interpretation, see D Cavallo, ‘Argentina and imf during two Bush administrations’, International Finance, 7 (1), 2004, pp 137–150.

21 For a further elaboration of this line of reasoning, see EC Alper & Z Öniş, ‘Emerging market crises and the imf: rethinking the role of the imf in the light of Turkey's 2000–2001 financial crises’, Canadian Journal of Development Studies, 24 (2), 2003, pp 267–287.

22 Other scholars have also emphasised lack of competitiveness as a major factor in the Argentinean context. See D Rodrik, ‘Reform in Argentina, take two: trade rout’, The New Republic, 2002, at http://www.trn.com/011402/rodrik011402.html; and N Yentürk, ‘Arjantin krizi: dış borç ile tango’, İktisat İşletme ve Finans, 193, 2002, pp 51–66. Broad macroeconomic evidence seems to support these observations not only for Argentina but also for the Turkish case. The rankings reported in the Global Competitiveness Report of 2001–02 published by the Global Competitiveness Forum are quite illuminating in this context. The rankings are based on the ‘growth competitiveness index’ for 2001 with the survey covering 75 countries. Both Argentina and Turkey emerge in the bottom half of the table, with their rankings established as 49th and 54th respectively. The report is available at http://www.wcforum.org. Yet another indicator of export competitiveness involves the high-technology content of manufactured exports. The figures available for 1997 suggest that exports based on high technology constitute a small proportion of total manufactured exports, with the relevant figures emerging as 5% for both countries. These rather aggregate figures may again be considered as broader indicators of weak export competitiveness. The comparable figures for Malaysia and Mexico are 59% and 22%, respectively. Data from World Bank, World Development Report 2003: Sustainable Development in a Dynamic World, New York: Oxford University Press, 2002, pp 240–241.

23 For an analysis that emphasises the legacy of the developmental state and the strength of the real economy in South Korea's relatively smooth recovery from the 1997 crisis, see M Erdoğdu, ‘South Korean state capacity: from development to crisis management’, in KS Jomo (ed), After the Storm: Crisis, Recovery and Sustaining Development in Four Asian Economies, Singapore: Singapore University Press, 2004.

24 For criticisms centred on the inability of the imf to deal with the systemic causes of financial crises experienced in the semi-periphery, coupled with its inability to play a proper global regulatory role, see L Harris, ‘Will the real imf please stand up: what does the Fund do and what should it do?’, in J Michie & J Grive Smith (eds), Global Instability: The Political Economy of World Governance, London: Routledge, 1999; and J Stiglitz, ‘Globalism's discontents’, American Prospect, 14 January 2002, at http://www.prospect.org.

25 For further details on the imf's responsiblity for the Argentinean crisis by failing to provide adequate ownership of the programme, and hence failing to constitute a viable external anchor, see P Blustein, ‘imf says its policies crippled Argentina: internal audit finds warnings were ignored’, Washington Post, 30 July 2004, at http://www.globalpolicy.org/socecon/bwi-wto/imf/2004/0730imfargentina.htm. For the actual report, see imf Independent Evaluation Board, Evaluation Report: The imf and Argentina 1990–2001, 2004, at http://www.imf.org/external/np/ieo/2004/arg/eng/pdf/report.pdf. Also relevant is F Öztrak, ‘Dış çapaların gücü bize bağlı’, Milliyet, 17 September 2004, at http://www.milliyet.com.tr/2004/09/17/yazaroztrak.html.

26 For details about the imf programme and monitoring arrangements with Argentina beginning from and early 1990s and extending to the end of the decade, see Geithner, ‘Lessons from the crisis in Argentina’.

27 Clearly, the most recent Argentinean experience represents a major challenge in this context considering that Argentina has been trying to follow such an independent path since 2003. It could be argued that the independent path followed so far has been quite successful in two important respects: economic recovery has continued and there has been successful debt restrcturing through direct negotiations with private investors. See E Helleiner, ‘The strange story of Bush and the Argentine debt crisis’, Third World Quarterly, 26 (6), 2005, pp 951–969. Helleiner raises the important point of what would have happened if the Bush administration had adopted a tougher line in protecting investor interests. The interesting question is: given the need for additional external resources in the future and the inherent problems of maintaining financial discipline, to what extent will Argentina be able to continue on a totally independent path from the imf?