Argentina's crisis was analyzed at a seminar organized by the IDB's Research Department. The finance ministers of Argentina, Chile, Mexico and Peru took part in the morning session. In the photograph, l to r, Argentine Economy Minister Jorge Remes Lenicov, IDB President Enrique V. Iglesias and Chile Finance Minister Nicolas Eyzaguirre. (Foto by W, Heinz)

The finance ministers of Argentina, Chile, Mexico, and Peru today examined the Argentine crisis and the lessons it offers other Latin American and Caribbean economies in a seminar held in conjunction with the IDB Annual Meeting.

In his opening remarks, IDB President Enrique V. Iglesias emphasized the efforts the government of Argentine President Eduardo Duhalde has made to emerge from a recession that has affected Argentina’s economy for nearly four years.

“It must be said that in 70 days a great deal has been done,” Iglesias said. “This demonstrates the Argentine government’s resolve to carry out measures to address the difficult situation confronting the country.”

In his presentation, Argentine Economy Minister Jorge Remes Lenicov noted that his country is confronting its most serious crisis since the middle of the 19th century. At the present time, he said, nearly a third of the population has employment problems and more than 40 percent of Argentines live below the poverty line.

Remes said that the government of President Duhalde, who took office in January after the resignations of his four predecessors, is taking financial, monetary, fiscal, exchange, and social measures to address the chaotic situation that led to the devaluation of the Argentine peso and a paralysis of the country’s financial systems.
In his remarks, Mexico’s Finance Minister, José Francisco Gil Díaz, provided seminar participants with a comparison of the economic crises that affected his country in 1983 and 1995.

It took the Mexican economy six years to recover from the 1983 debt crisis. In contrast, recovery from the 1995 crisis was achieved in scarcely seven months. The major difference, said Gil Díaz, was the degree of economic opening in these periods. At the time of the first crisis, Mexico’s markets were much more closed than in the second crisis, when industry was able to channel its output into export markets.

Chilean Finance Minister Nicolás Eyzaguirre noted that his country suffered a financial crisis in 1982 that was similar to the current Argentine crisis. That setback cost Chile a 15 percent drop in its gross domestic product and a reduction of 30 percent in domestic demand.

Thanks to reforms carried out since then, Chile has been able to weather several international crises with increasing degrees of success. In 1998, the Asian crisis cost the Chilean economy a drop of a little more than 1 percent of its GDP, while domestic demand fell by 10 percent. More recently, in the midst of the crisis that has struck Argentina, Chile’s economy was able to grow by 3 percent and domestic demand remained steady.
The Minister of Economy Finance of Peru, Pedro Pablo Kuczynski, voiced his concern over the effects that the losses suffered by foreign commercial banks and public utilities companies in Argentina could have in other Latin American countries.

Among the lessons he drew from the Argentine crisis, Kuczynski said it was essential to maintain open markets to ensure a rapid recovery. In this regard, the Peruvian minister said that he expected that the export taxes imposed recently by the Argentine authorities would be temporary measures for covering essential fiscal necessities.

“It is tempting to close the economy by taking protectionist measures, but this delays the recovery, ” said Kuczynski.

At the closing of the session, Iglesias said the agreements Argentina is currently negotiating with the International Monetary Fund will serve as a platform for further cooperation.

“Argentina, on the basis of a coherent and sustainable program as the one that is starting to take shape with the steps taken by its government, can obtain an adequate response from international cooperation. I think we are heading in that direction,” he said.

Mexico and IDB sign $1.6 billion in loans

Authorities of Mexico and the Inter-American Development Bank today signed the contracts of three loans totaling $1.6 billion for an anti-poverty initiative, a decentralization program and a labor training and employment project.

Mexico’s Finance Minister José Francisco Gil Díaz and IDB President Enrique V. Iglesias signed the contracts for a $1 billion loan for the Human Development Opportunities Program and a $300 million loan for a labor training and employment program. The program is based in actions aimed at the roots of extreme poverty and attempts to break the vicious cycle of structural poverty, which is transferred from generation to generation.

The human development program promotes the co-responsibility of benefitting families, who are required to keep their children in school, utilize basic health services, and improve their nutrition.

President Iglesias and the director of Banco Nacional de Obras y Servicios Públicos, SNC (BANOBRAS), Tomás Ruiz González, signed the contracts for another $300 million loan, which will support the Program to Strengthen States and Municipalities.

Italy held as a model for small and medium-sized business

Italy—and particularly Lombardi—was held up as a model of how the strong small and medium-sized business sector can benefit a region’s economy and society as a whole by speakers at a seminar held today in Fortaleza, Brazil.

“In Lombardi, the small and medium-sized businesses have created a cohesive society based on a strong economy and strong families,” said Roberto Formigoni, president of the Lombardi region, at the site of the IDB’s Annual Meeting.

Lombardi will host the Bank’s 2003 Annual Meeting, which will take place in its capital of Milan.
Speaking for the host state for this year’s Annual Meeting, Ceará Governor Tasso Jereissati also hailed the benefits of small- and medium-sized businesses as an engine of economic growth. He described his state’s efforts to adapt the Italian model to the local social and historical environment.

In particular, he expressed interest in how Ceará could create mechanisms to meet the sector’s needs for financing. A decade ago, he said, there were 10 regional banks operating in Ceará where businesses could apply for credit. But these banks were bought or absorbed by national and international firms, and no longer offer credit to medium-sized firms at reasonable terms.

Jereissati also called for the formation of a partnership between his state and Lombardi. Formigoni accepted the proposal, and said that the partnership be carried out “on a basis of equality.”

Infrastructure is a key to integration

Physical integration, the building of infrastucture linking neighboring countries, is a keystone for Latin America’s integration, Inter-American Development Bank President Enrique V. Iglesias said yesterday.

At the opening of the seminar Physical and Regional Integration: Plan Puebla Panama and South America Plan, held here ahead of the 43rd annual meeting of the IDB’s Board of Governors, Iglesias also underscored the advantages offered by integration to speed up economic and social development.

In his speech Iglesias noted that physical integration was long regarded as an ancillary issue to trade negotiations. “Today we know that, as we move forward with these efforts, that physical integration is a fundamental issue. It is more than just an adjunct, it is a basic fulcrum for integration. It was one for Europe, and it will certainly be one for us,” he added.