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The IMF's Agreement with Argentina Could Be a Game Changer

After long pushing failed belt-tightening policies, the International Monetary Fund has agreed to a deal that will allow Argentina's government to pursue a pro-growth strategy. The task now will be to manage the inevitable shocks that will come from today's tumultuous global economic environment.

NEW YORK – A new draft agreement between Argentina and the International Monetary Fund has eschewed austerity. Pending approval by Argentina’s congress and the IMF board, it will allow the Argentine economy to grow while the government continues its efforts to reduce poverty and gradually bring down inflation. With so many countries facing debt distress from the pandemic, the IMF will need to adopt similar changes to its policies elsewhere.

It is well known that the old model of austerity does not work. Not only does it cause the economy to contract and inflict excessive hardship on the population; it also fails to meet even the narrow objectives of reducing deficits and increasing a country’s capacity to repay creditors.

Advocates of austerity have claimed success in a few countries. But these were small economies lucky enough to have trading partners that were enjoying a boom at the time that austerity was being implemented. Those positive spillover effects offset the cutbacks in public expenditure, but these same economies might have grown even more if they had they not embraced Herbert Hoover-style austerity policies.