"I have an important political mission," Eduardo Amadeo said on being appointed Argentina's ambassador to Washington. "I must explain our transition." But diplomatic explanations are not what Argentina needs. It does not need to waste scarce money on diplomacy of dubious value--not when the country lacks an agency dedicated to helping Argentine businessmen sell their goods abroad. Indeed, the sum Argentina spends on its diplomats is what tiny Ireland spends on its Export Promotion Agency, an institution Argentina never bothered to create.
Instead of talking to fellow diplomats, Argentina's ambassador to the US should talk to US supermarkets, convincing their managers to buy Argentine goods and arranging for them to meet with small businessmen from his country. He should not be duplicating what Argentina's President and Foreign Minister are capable of doing. Export diplomacy is important, but export promotion , visiting stores and talking to buyers, is even more vital. European grocery shops are full of products from Israel, but how often do you see Argentine beef or other goods?
Argentina's economy opened up significantly in recent years, notwithstanding a strong exchange rate, which made exporting difficult. Total exports doubled in 1991-2001, from US$12 billion to $25 billion, with industrial exports growing from $3 billion to $8 billion.
But the numbers remain very small. In fact, Argentina is amazingly closed for an economy its size. Exports do not exceed 10% of GDP, and manufactured goods account for only about a third of total exports. Brazil, a country eight times the size, exports 12% of its economy's output, and 57% of Brazilian exports are manufactured goods. Chile exports almost 30% of its output. Some small European countries come close to 50%.
Little wonder, then, that Argentina's current crisis is so harsh: the portion of its economy that can generate the export revenues necessary to repay foreign debt is too small. When a country reaches the point that it needs all its exports to service its national debt, and the size of the export sector is fixed, nothing is left to pay for imports. So imports dry up and the economy stops. The more open an economy is, the more easily it can avoid this trap.
Of course, all countries eventually overcome crises. The question is how. Argentina now faces a choice that is both economic and political. The path of development that it chooses as it emerges from its crisis will determine the country's future for many years to come. So it is surprising that this choice is not at the center of the political debate in the campaign for the presidency now underway.
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There are two ways out of the current morass. One is the old model: a recovery in real wages and a resumption of consumption. Viewed from the despairing perspective of today's crisis, this model seems like a dream. But if it is implemented, in 3-5 years Argentina will look exactly like the country we have always known: a largely closed economy that remains dangerously vulnerable to external shocks.
The alternative is to capitalize on the unique opportunity that this year's devaluation of the peso offers by making the competitiveness gains last long enough to shift resources into the export sector. Of course, this will depress real wages and consumption, because the rise in peso revenues will be used instead to finance the investment needed to expand the export sector. This will lead to the creation of new firms and the retooling of existing ones to make them fit to export. Eventually productivity gains in a larger export sector will drive up real wages and consumption.
In short, Argentina's economy must open up or risk shutting down. Policy can help open it up. By keeping the price of public services frozen, the government would win on two fronts: inflation would be held in check and altered incentives would shift investment from the domestic sector towards exporting firms.
In the old model returns come quicker, but the long-term implications are gloomy, because the economy would remain saddled with the same problems it has confronted for decades. The alternative is to look forward and asks what type of country Argentines want to leave to future generations. There should be no doubt as to the answer to this question, except in the minds of politicians who fail to raise it because they refuse to think beyond the coming presidential election.
Perhaps it is not by chance that Argentina has the largest number of psychology students in the world. If you are a closed and inward-looking country, you are bound to need lots of psychologists. The minister for education would do her country a profound service if she were to re-allocate resources to courses designed to train export promoters. Teach young people some basic marketing skills and then send them out to Argentina's embassies. They will work wonders, unlike the cheap talk of Ambassador Amadeo at Washington dinner tables.
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Many countries’ recent experiences show that boosting manufacturing employment is like chasing a fast-receding target. Automation and skill-biased technology have made it extremely unlikely that manufacturing can be the labor-absorbing activity it once was, which means that the future of “good jobs” must be created in services.
shows why policies to boost employment in the twenty-first century ultimately must focus on services.
Minxin Pei
doubts China’s government is willing to do what is needed to restore growth, describes the low-tech approaches taken by the country’s vast security apparatus, considers the Chinese social-credit system’s repressive potential, and more.
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"I have an important political mission," Eduardo Amadeo said on being appointed Argentina's ambassador to Washington. "I must explain our transition." But diplomatic explanations are not what Argentina needs. It does not need to waste scarce money on diplomacy of dubious value--not when the country lacks an agency dedicated to helping Argentine businessmen sell their goods abroad. Indeed, the sum Argentina spends on its diplomats is what tiny Ireland spends on its Export Promotion Agency, an institution Argentina never bothered to create.
Instead of talking to fellow diplomats, Argentina's ambassador to the US should talk to US supermarkets, convincing their managers to buy Argentine goods and arranging for them to meet with small businessmen from his country. He should not be duplicating what Argentina's President and Foreign Minister are capable of doing. Export diplomacy is important, but export promotion , visiting stores and talking to buyers, is even more vital. European grocery shops are full of products from Israel, but how often do you see Argentine beef or other goods?
Argentina's economy opened up significantly in recent years, notwithstanding a strong exchange rate, which made exporting difficult. Total exports doubled in 1991-2001, from US$12 billion to $25 billion, with industrial exports growing from $3 billion to $8 billion.
But the numbers remain very small. In fact, Argentina is amazingly closed for an economy its size. Exports do not exceed 10% of GDP, and manufactured goods account for only about a third of total exports. Brazil, a country eight times the size, exports 12% of its economy's output, and 57% of Brazilian exports are manufactured goods. Chile exports almost 30% of its output. Some small European countries come close to 50%.
Little wonder, then, that Argentina's current crisis is so harsh: the portion of its economy that can generate the export revenues necessary to repay foreign debt is too small. When a country reaches the point that it needs all its exports to service its national debt, and the size of the export sector is fixed, nothing is left to pay for imports. So imports dry up and the economy stops. The more open an economy is, the more easily it can avoid this trap.
Of course, all countries eventually overcome crises. The question is how. Argentina now faces a choice that is both economic and political. The path of development that it chooses as it emerges from its crisis will determine the country's future for many years to come. So it is surprising that this choice is not at the center of the political debate in the campaign for the presidency now underway.
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Access every new PS commentary, our entire On Point suite of subscriber-exclusive content – including Longer Reads, Insider Interviews, Big Picture/Big Question, and Say More – and the full PS archive.
Subscribe Now
There are two ways out of the current morass. One is the old model: a recovery in real wages and a resumption of consumption. Viewed from the despairing perspective of today's crisis, this model seems like a dream. But if it is implemented, in 3-5 years Argentina will look exactly like the country we have always known: a largely closed economy that remains dangerously vulnerable to external shocks.
The alternative is to capitalize on the unique opportunity that this year's devaluation of the peso offers by making the competitiveness gains last long enough to shift resources into the export sector. Of course, this will depress real wages and consumption, because the rise in peso revenues will be used instead to finance the investment needed to expand the export sector. This will lead to the creation of new firms and the retooling of existing ones to make them fit to export. Eventually productivity gains in a larger export sector will drive up real wages and consumption.
In short, Argentina's economy must open up or risk shutting down. Policy can help open it up. By keeping the price of public services frozen, the government would win on two fronts: inflation would be held in check and altered incentives would shift investment from the domestic sector towards exporting firms.
In the old model returns come quicker, but the long-term implications are gloomy, because the economy would remain saddled with the same problems it has confronted for decades. The alternative is to look forward and asks what type of country Argentines want to leave to future generations. There should be no doubt as to the answer to this question, except in the minds of politicians who fail to raise it because they refuse to think beyond the coming presidential election.
Perhaps it is not by chance that Argentina has the largest number of psychology students in the world. If you are a closed and inward-looking country, you are bound to need lots of psychologists. The minister for education would do her country a profound service if she were to re-allocate resources to courses designed to train export promoters. Teach young people some basic marketing skills and then send them out to Argentina's embassies. They will work wonders, unlike the cheap talk of Ambassador Amadeo at Washington dinner tables.