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The Role of Social Security Privatization in Argentina's Economic Crisis
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Mark Weisbrot,
Dean Baker,
Center for Economic and Policy Research,
4/16/2002
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In July of 1994, with the strong support of the World Bank, Argentina partially privatized its Social Security system. In December of last year, Argentina finally removed its currency from its peg with the dollar, and halted payments on its debt, after four years of recession. These moves came in response to a situation that had clearly become untenable. The nation was paying ever higher interest rates to finance a debt that was continually growing, due to the country's extraordinary interest burden. By December it was clear that there was no way out of this vicious circle without both a devaluation of the currency and some reduction of the interest burden. Argentina is currently negotiating with the IMF to allow for a resumption of normal credit relations, but regardless of the outcome of these negotiations, it is generally expected that Argentina will see a further large decline in its GDP. While the decision to peg its currency to the dollar would have created problems in any case, the decision to privatize Social Security made Argentina's situation more precarious. The reason is simple—Social Security privatization deprived the government of a large amount of tax revenue.
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Price: Free
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