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Wednesday, March 26, 2003

Meanwhile, on the Other Side of the Planet . . .

QSI pays a visit to Chile and Argentina, and describes his impression of the two places. What's interesting is not the economic situation, which is well documented, but his perspective on the outlook of the different populations. Describing Argentinians, he says:

A sense of despairing, fatalistic hopelessness lurks in the background here, but there is also a worrying sense of entitlement, the sense that Argentina deserves better. It would certainly deserve better, but it won't get there without doing something to get it. Magic solutions are not going to fall out of the sky. Coming to terms with former glory is a hard thing to do, and current-day Argentina still hasn't entirely vanquished the ghosts of its own past.

You get the impression there that Argentinians are waiting for deliverance from their troubles. Contrast that with this:

Chile is far less conspicuous, but has plodded along calmly without pretension to build a surprisingly solid economy. The price level in Chile is far more appropriate to an economy that's still not quite fully developed, certainly compared to prices in Argentina.

To digress slightly, the World Bank In 1998 publised a report called Assessing Aid. This is a much ignored report, partly by the Bank itself, which still acts, well, like a bank, whose major institutional dynamic is to lend money. The report's overview summarises its conclusion:

Developing countries are to a large extent masters of their own fate. Domestic economic management matters more than foreign financial aid. Economies that lag are held back more by policy gaps and institutions gaps than by a financing gap. Aid as money has a large impact only once countries have made substantial progress with reform of policies and institutions. Poor countries with good policies should get more aid than ones with mediocre policies—but in fact they get less.

Thsi is the principal message of William Easterly's book The Elusive Quest for Growth, and both volumes confirm something that I have thought for a long time: that countries are responsible for their own fates. Sadly, the lessons of Assessing Aid still go unheeded in Argentina's case--in January major creditors pressed the IMF into allowing Argentina to "defer" (default, effectively) on $6.8 billion of outstanding debt to it, inspite of Buenos Aires's failure to meet IMF conditions. Having staved off complete disaster, Argentinians and their government limp on, waiting for an election to bring deliverance. If it were only so simple.