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Arg1996

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<s>[INST] Mr. Harberger was widely [/INST] criticized for aiding Mr. Pinochet's often-brutal regime. </s>

<s>[INST] During the late 1970s, a letter-writing campaign prevented him from being elected to [/INST] the vice presidency of the American Economic Association, or AEA, despite the high regard in which his writings on public finance are held. </s>

<s>[INST] But the policy goals adopted by the Chilean Chicago Boys -- [/INST] fiscal discipline, low inflation, stable currency, rising foreign investment and freer trade -- have since won adherents across the region. </s>

<s>[INST] And they are now being adopted in a more [/INST] democratic context from El Salvador to Argentina, often with the help of Mr. Harberger himself. </s>

<s>[INST] "The tune we've been singing all along has become a chorus," says [/INST] Mr. Harberger, an ambling bear of a man who eschews the Italian suits favored by his students for an ink-smudged safari suit. </s>

<s>[INST] One measure of vindication: Mr. [/INST] Harberger is now president-elect of the AEA. </s>

<s>[INST] Mr. Harberger hasn't stopped selling the practice [/INST] of "using simple tools artfully and wisely," as he puts it. </s>

<s>[INST] During the 1980s, he supervised a team of young technocrats who drew [/INST] up detailed plans for reforming the economies of Central America and offered their output to all the presidential candidates competing for office. </s>

<s>[INST] A couple of weeks back, he was in Ecuador, trying to [/INST] persuade members of a newly elected populist government not to stray too far from the reformist path taken by its neighbors. </s>

<s>[INST] "Al isn't an ideological character," says Sebastian Edwards, [/INST] a Chilean and a former student who now teaches alongside Mr. Harberger at UCLA. </s>

<s>[INST] Although Mr. Harberger says he is pleased by the changes that have swept [/INST] Latin America over the past decade, he worries about his former students' penchant for occasionally overselling the social gains that come with free-market conversion. </s>

<s>[INST] "We have to dispel the myth that our [/INST] children will always do better than us, and that's true everywhere," he says. </s>

<s>[INST] The adoption of market reforms ought to be predicated on the idea, [/INST] adds Mr. Harberger, "that if you don't end up making hard choices, you are certainly going to end up a loser". </s>

<s>[INST] ___ Document 61 of 500 Argentina Minister Pushes Austerity Plan --- New Official Doesn't [/INST] Sugarcoat How Tough It Will Be Author: By Jonathan Friedland Publication info: Wall Street Journal , Eastern edition [New York, N.Y] 03 Sep 1996: A12. </s>

<s>[INST] accountid=28034 Abstract: For a man suffering the political equivalent [/INST] of a death by a thousand cuts, Argentina's new economy minister, Roque Fernandez, is one cool customer. </s>

<s>[INST] Congress is trying to make [/INST] mincemeat of his plan for balancing the government's books. </s>

<s>[INST] His boss, President Carlos Saul Menem, himself [/INST] facing political problems because of a recession, has repeatedly slighted him. </s>

<s>[INST] And he has suffered a torrent of abuse from everyone from [/INST] trade unionists to bishops, who accuse him of being insensitive to a working class bruised by the year-long recession. </s>

<s>[INST] But Mr. Fernandez, a University of Chicago-trained economist on the job [/INST] for a month now, is moving ahead calmly to clean up the loose ends left by his charismatic predecessor, Domingo Cavallo. </s>

<s>[INST] He promises a deepening of the free-market reforms [/INST] that made Argentina one of the world's best-performing economies during the early 1990s. </s>

<s>[INST] And unlike Mr. Cavallo, he is [/INST] pressing ahead without sugarcoating how tough it will be to succeed. </s>

<s>[INST] Full text: BUENOS AIRES -- For a man suffering the [/INST] political equivalent of a death by a thousand cuts, Argentina's new economy minister, Roque Fernandez, is one cool customer. </s>

<s>[INST] Congress is trying to make [/INST] mincemeat of his plan for balancing the government's books. </s>

<s>[INST] His boss, President Carlos Saul Menem, himself [/INST] facing political problems because of a recession, has repeatedly slighted him. </s>

<s>[INST] And he has suffered a torrent of abuse from everyone from [/INST] trade unionists to bishops, who accuse him of being insensitive to a working class bruised by the year-long recession. </s>

<s>[INST] But Mr. Fernandez, a University of Chicago-trained economist on the job [/INST] for a month now, is moving ahead calmly to clean up the loose ends left by his charismatic predecessor, Domingo Cavallo. </s>

<s>[INST] He promises a deepening of the free-market reforms [/INST] that made Argentina one of the world's best-performing economies during the early 1990s. </s>

<s>[INST] And unlike Mr. Cavallo, he is [/INST] pressing ahead without sugarcoating how tough it will be to succeed. </s>

<s>[INST] "The economy is on [/INST] solid ground," says the soft-spoken Mr. Fernandez. </s>

<s>[INST] "But despite a real desire on the part of [/INST] the people to know things are going to improve, professional economists shouldn't make promises about the future". </s>

<s>[INST] Current indicators show that Argentina has turned the [/INST] corner on a slump that dragged down gross domestic product by 4.4% last year. </s>

<s>[INST] But many Argentines view this as cold comfort [/INST] in light of near-record unemployment levels and a continuous downward pressure on real wages. </s>

<s>[INST] Rather than devalue its currency after Mexico's December 1994 peso crisis sent investors fleeing [/INST] the region, Mr. Cavallo elected to engineer a deflation to keep the country competitive in international markets while maintaining parity between the dollar and the Argentine peso. </s>

<s>[INST] This ongoing cost-reduction process, says economist Pedro Lacoste, [/INST] means the economy "isn't likely to rebound strongly for the next two years". </s>

<s>[INST] That has resulted in a fraying of the [/INST] political consensus on the need to maintain currency stability, no matter the cost. </s>

<s>[INST] Last month, the country's sharply divided union movement managed [/INST] to mount its first successful general strike since Mr. Menem took office eight years ago. </s>

<s>[INST] And everyone from big industrialists to kiosk owners have [/INST] bridled at a set of hefty tax increases and subsidy cuts introduced by Mr. Fernandez on Aug. </s>

<s>[INST] The austerity plan, which is now before Congress, is designed to close a breach in [/INST] government accounts caused by a recession-induced shortfall in the tax take that was worsened by Mr. Cavallo's bid last year to stimulate the economy by cutting employer social-security contributions. </s>

<s>[INST] Mr. Fernandez, a former central bank president, argues that the [/INST] country's soaring budget deficit must be quickly contained if Argentina is to maintain the confidence of international investors. </s>

<s>[INST] Aides to Mr. Fernandez say they expect the [/INST] austerity package to exit Congress more or less unscathed with Mr. Menem's help. </s>

<s>[INST] But the president himself has raised [/INST] questions about just how much he backs his new economy minister. </s>

<s>[INST] The day he named him to the post, for [/INST] instance, he blithely told reporters that Mr. Fernandez was his third choice for the job. </s>

<s>[INST] And later, the day the belt-tightening plan was [/INST] announced, Mr. Menem publicly forced his new minister to retract part of the package. </s>

<s>[INST] "The market is trying to make sense of the change [/INST] in the political weight of the minister," admits Treasury Secretary Pablo Guidotti, one of Mr. Fernandez's right-hand men. </s>

<s>[INST] That is partly because Mr. [/INST] Fernandez has a very different personality from his predecessor. </s>

<s>[INST] Mr. Cavallo was a brilliant salesman and an astute political operator, [/INST] but by the end of his tenure, his hard-charging ways produced a slew of enemies in the administration and Congress. </s>

<s>[INST] By contrast, "Roque isn't out to burn [/INST] down anyone's hut," says Emilio Cardenas, a director at Banco Roberts SA. </s>

<s>[INST] Whether that will help or hurt him in [/INST] the often brutal world of Argentine politics is still open to question, say analysts. </s>

<s>[INST] But what already is clear is that Mr. Fernandez is working far more closely [/INST] with other cabinet members to push forward some long-stalled reform proposals, including a revamp of Argentina's bankrupt social-security system and a modernization of labor laws. </s>

<s>[INST] His team is also at work on a plan to [/INST] streamline a tax system that Mr. Guidotti says "makes the one in the United States look simple by comparison". </s>

<s>[INST] All of these structural changes will help make Argentina's [/INST] economy more competitive in the long run, but also are likely to exact more short-term social costs. </s>

<s>[INST] That is why Mr. Menem's [/INST] political backing is especially key, say analysts. </s>

<s>[INST] His poll ratings have slumped to an all-time [/INST] low over high unemployment and a widespread perception that corruption plagues his administration. </s>

<s>[INST] What's more, the main aspirant to succeed him in [/INST] 1999, Buenos Aires provincial governor Eduardo Duhalde, has recently become more openly critical of government policies. </s>

<s>[INST] Mr. Duhalde argues for more direct government intervention [/INST] to help industry and workers, an approach Mr. Fernandez derides as costly and unworkable. </s>

<s>[INST] ___ Document 64 of 500 The Americas: More IMF austerity won't cure [/INST] what ails Argentina Author: Edwards, Sebastian Publication info: Wall Street Journal , Eastern edition [New York, N.Y] 30 Aug 1996: A9. </s>

<s>[INST] While achieving this target would give the country stronger [/INST] fiscal accounts than almost every OECD nation, including the U.S., this is neither realistic nor pragmatic. </s>

<s>[INST] One leading newspaper, El Clarin, reported [/INST] that the IMF has even suggested increasing payroll taxes. </s>

<s>[INST] Fortunately, with unemployment bordering on 20%, Finance Minister Roque [/INST] Fernandez and his team have rightly resisted measures that would further distort an already inefficient labor market. </s>

<s>[INST] If the IMF truly wants to [/INST] help Argentina it should follow a radical new approach. </s>

<s>[INST] Instead of insisting on a short-term package based mostly on tax increases, it [/INST] should design a long-term program that combines structural reforms with realistic fiscal measures grounded in reduced expenditures and a more neutral tax regime. </s>

<s>[INST] In this type of program many (if not [/INST] most) of the conditions and quantitative performance criteria would deal with the unfinished structural reforms. </s>

<s>[INST] Formally, this strategy could be accomplished by replacing the [/INST] current stand-by loan -- which has 14 months to go -- with a three-year Extended Fund Facility. </s>

<s>[INST] An EFF program based on long-term growth measures [/INST] would raise investor confidence, increase capital inflows and strengthen the incipient recovery currently under way. </s>

<s>[INST] Of course, labor legislation, provincial management and [/INST] the modernization of the judiciary are not components of a run-of-the-mill IMF program. </s>

<s>[INST] But they are the policies that Argentina urgently [/INST] needs to move forward in order to defeat the current wave of skepticism. </s>

<s>[INST] The IMF should work out a memorable program that [/INST] will drive structural reform, provide broad support to Minister Fernandez and move Argentina toward greater liberalization. </s>

<s>[INST] While achieving this target would give the country stronger [/INST] fiscal accounts than almost every OECD nation, including the U.S., this is neither realistic nor pragmatic. </s>

<s>[INST] One leading newspaper, El Clarin, reported [/INST] that the IMF has even suggested increasing payroll taxes. </s>

<s>[INST] Fortunately, with unemployment bordering on 20%, Finance Minister Roque [/INST] Fernandez and his team have rightly resisted measures that would further distort an already inefficient labor market. </s>

<s>[INST] Achieving growth while maintaining a stable currency and low inflation in Argentina will only be [/INST] possible if there is growing investor confidence by way of key structural reforms -- including labor, judicial and provincial government reform as well as privatization -- implemented rapidly. </s>

<s>[INST] Unfortunately, in recent months the Argentine authorities have focused [/INST] almost exclusively on short-term macroeconomic -- and especially fiscal -- issues, neglecting the crucial longer-run efficiency reforms. </s>

<s>[INST] This "short termism" reflects the priorities of the current IMF lending program, signed [/INST] in April 1996 for 21 months: Every one of the six quantitative performance criteria deals with macroeconomics; there are no long-term structural reform conditions. </s>

<s>[INST] While achieving fiscal balance is important, generating [/INST] sustained prosperity also demands policies that reduce distortions and encourage private-sector-led growth. </s>

<s>[INST] Mr. Fernandez has recently announced a fiscal [/INST] package aimed at partly narrowing the gap between IMF targets and reality. </s>

<s>[INST] The program, which does not include specifics on reducing [/INST] expenditures, contemplates tax increases, closes some tax loopholes and eliminates special treatment in some sectors. </s>

<s>[INST] It is estimated that this package could [/INST] generate up to $3 billion in revenues in 1997, $600 million this year. </s>

<s>[INST] If the IMF truly wants to [/INST] help Argentina it should follow a radical new approach. </s>

<s>[INST] Instead of insisting on a short-term package based mostly on tax increases, it [/INST] should design a long-term program that combines structural reforms with realistic fiscal measures grounded in reduced expenditures and a more neutral tax regime. </s>

<s>[INST] In this type of program many (if not [/INST] most) of the conditions and quantitative performance criteria would deal with the unfinished structural reforms. </s>

<s>[INST] Formally, this strategy could be accomplished by replacing the [/INST] current stand-by loan -- which has 14 months to go -- with a three-year Extended Fund Facility. </s>

<s>[INST] An EFF program based on long-term growth measures [/INST] would raise investor confidence, increase capital inflows and strengthen the incipient recovery currently under way. </s>

<s>[INST] An EFF program should [/INST] be designed around a visionary labor-market reform. </s>

<s>[INST] Payroll taxes are close to 40%; collective bargaining procedures favor monopolistic behavior by unions and severely limit [/INST] negotiations at the firm level; labor taxes earmarked for social services provided by unions are a source of corruption; and a surrealistic system of severance payments burdens small and medium enterprises. </s>

<s>[INST] This array of taxes and regulations has served well [/INST] a small group of privileged workers, but has greatly hurt the economy and the average citizen. </s>

<s>[INST] It has slowed job creation [/INST] and reduced the international competitiveness of Argentine exports. </s>

<s>[INST] The Argentine authorities have already [/INST] begun the process of labor market deregulation. </s>

<s>[INST] Three important pieces of legislation aimed at adding [/INST] some flexibility at the entry level and in small firms were passed in 1995. </s>

<s>[INST] Although these are welcome [/INST] initiatives, they do not go far enough. </s>

<s>[INST] A number of recent studies suggest that a comprehensive labor [/INST] market reform in Argentina could reduce unemployment at least eight percentage points in a relatively short time. </s>

<s>[INST] In particular, a recent World Bank study estimates that [/INST] a reform and democratization of the highly centralized union system would reduce unemployment by four percentage points. </s>

<s>[INST] Also, it's estimated that a reduction in labor [/INST] costs by 10% through lower payroll taxes would generate an increase in employment of 5%. </s>

<s>[INST] Chile's experience clearly suggests that a visionary labor reform can indeed generate [/INST] robust employment and wage growth: In recent years unemployment in Chile has averaged 6%, while real wages have increased almost 5% per year. </s>

<s>[INST] Some simple budgetary control initiatives and waste reducing [/INST] measures in provincial governments would increase firm competitiveness and contribute to fiscal balance. </s>

<s>[INST] Additionally, the privatization of all banks -- including [/INST] the giant Banco de la Nacion -- would increase the efficiency of the financial sector. </s>

<s>[INST] Finally, Argentina urgently needs to implement [/INST] a sweeping judicial reform, in particular regarding bankruptcy law. </s>

<s>[INST] A recent study by the independent think tank Foundation for Economic Research in Latin [/INST] America (FIEL), in Buenos Aires, suggests that in Argentina the administration of justice is more inefficient and more costly than in other countries in the Western Hemisphere. </s>

<s>[INST] As a result, trials are [/INST] exceedingly protracted, imposing huge costs to the private sector. </s>

<s>[INST] Of course, labor legislation, provincial management and [/INST] the modernization of the judiciary are not components of a run-of-the-mill IMF program. </s>

<s>[INST] But they are the policies that Argentina urgently [/INST] needs to move forward in order to defeat the current wave of skepticism. </s>