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Friday, January 26, 2007

Commodity-financed time delay fields

by Marcelo Rinesi: Buenos Aires

While Argentina and Venezuela are, like China, among a number of developing countries that have been adding to their reserves (Arg., Ven.) thanks to growing trade surpluses (Arg., Ven.), the drivers of these trends in Latin America are fundamentally different.

China's surge in the world economy has been driven, besides the effects of scale involved, by its quick and through gearing up as a manufacturing base for increasingly sophisticated products. The country's population, political and even cultural dynamics had to shift in order to make this possible. Internal Chinese politics -not to mention banking policies, education, etc- can be seen as the attempt by the Chinese government to "ride the tiger" they let free.

By contrast, the "success cases" of Argentina and Venezuela are mostly due to high prices for key commodities, and little if any internal reconversion was needed for the country, mostly the governments, to cash in the windfall. The countries' fiscal situation, and even the political viability of their governments, wasn't predicated on any improvement to economic processes, methods or tools, but rather on external factors.

In fact, contemporary politics in both countries are, at the level of discourse, ideologically conservative, in the sense that they hark back to questions and issues from decades ago. Much of the Argentinean government's public activities, for example, seem to be related to legal proceedings related to the so-called "Dirty War" of the '70s (although a morally praiseworthy cause, an economic non-issue), and in a weakly nationalistic conflict against Uruguay over the paper plants in construction over the shore of the Uruguay river.

In this they seem in tune with their populations. Argentina's taste of economic re-engineering in the '90s was neither painless nor unambigously successful, and the government's basic strategy of using the windfall from commodity exports to finance a sort of "societal stabilization" via price controls, politically-driven unemployment benefits, etc, has given the Kirchner administration a near complete political hegemony, as well as being the main enabler of Chavez' policies.

It's interesting, and disquieting, to note that this has also been essentially the political strategy of oil-rich countries in the Middle East; if their example is relevant at all, the long-term results of this policy is the growth of increasingly restless, alienated groups that find it hard to meaningfully interact with the international economy. Which shouldn't be a surprise, as their governments have kept them in a time delay field -an expensive one, for sure- for so long.

Of course, long-term alarmism over the prospects of Argentina and Venezuela is at this point unwarranted; neither Chavez nor Kirchner have had yet time to radically affect the societal and economic makeup of their countries (the former not for lack of trying). But it's also true that, were commodity prices to drop tomorrow, neither Argentina nor Venezuela would find themselves with better tools (in technology, infrastructure or management) that they had six or seven years ago.

In a world like ours, that's a long time to sit still.