Job Guarantee success in Argentina

In the New York times article (December 26, 2004), from Larry Rohter – Argentina’s Economic Rally Defies Forecasts – it is reported that the Argentinian economy has made a surprising comeback. Rohter writes “When the Argentine economy collapsed in December 2001, doomsday predictions abounded. Unless it adopted orthodox economic policies and quickly cut a deal with its foreign creditors, hyperinflation would surely follow, the peso would become worthless, investment and foreign reserves would vanish and any prospect of growth would be strangled. But three years after Argentina declared a record debt default of more than $100 billion, the largest in history, the apocalypse has not arrived. Instead, the economy has grown by 8 percent for two consecutive years, exports have zoomed, the currency is stable, investors are gradually returning and unemployment has eased from record highs – all without a debt settlement or the standard measures required by the International Monetary Fund for its approval.”

The recovery is clearly evident in Real GDP as shown in this graph.

Further statistical material is available in the – Argentinian Economic Indicators February 2004 – provided by the Economic Ministry of Argentina.

Rohter continues:

Argentina’s recovery has been undeniable, and it has been achieved at least in part by ignoring and even defying economic and political orthodoxy.

Rather than moving to immediately satisfy bondholders, private banks and the I.M.F., as other developing countries have done in less severe crises, the Peronist-led government chose to stimulate internal consumption first and told creditors to get in line with everyone else.

There has also been a strong bounceback in employment with more than two million jobs created since early 2002.

Evidence of the Argentinian government’s challenge to economic orthodoxy is seen in its bold decision, against all the advice from the world economic institutions, to implement a Job Guarantee program which it calls Jefes de Hogar (Heads of Household) program.

The decision was prompted by civil riots which demanded that the government underwrite the security of households.

The Heads of Household program is designed to provide a social safety net for poor households with children and has used the work of CFEPS and CofFEE to help provide the conceptual foundations of the program.

The program provides a wage of 150 pesos per month to a head of household for a minimum of 4 hours of work daily in a variety of community services and small construction or maintenance activities.

Alternatively, participants can elect training which might include completion of basic education. To be eligible, the household must contain children under age 18, persons with handicaps, or a pregnant woman.

That is enough for today!

(c) Copyright 2004 William Mitchell. All Rights Reserved.