SYNOPSIS: Krugman discusses Argentina and possible but unnecessary default on its debt
DOBBS: Mr. Clinton was invited to speak by the University School of Foreign Service. He used the occasion to talk about terrorism and its roots, saying it dates back to the First Crusade when Jews and Muslims were slaughtered by Christians. Argentina is suffering from its fourth year of recession and is on the verge of one of the biggest defaults in history. "New York Times" columnist, MONEYLINE contributor Paul Krugman says Argentina should ignore the International Monetary Fund, and instead follow his advice. Professor Krugman joins us now from Princeton. Good have to you with us.
PAUL KRUGMAN, "NEW YORK TIMES" COLUMNIST: Good to be on.
DOBBS: The Argentines facing a very difficult situation tonight, after repeated assurances by their government that they would not default, that the situation was at hand. Nearly everyone now is prepared for default. What do you think will happen?
KRUGMAN: I'm afraid they will default, but that's going to be a tragedy because they are -- it's not really a debt problem. This is a situation some of us have been watching for a while. And it's become increasingly bizarre. What we've got is a country that doesn't have a big debt burden by the standards of most other countries in the world. Doesn't have a big budget deficit. Has a depressed economy. And what they're doing, more or less, on -- you know, on the advice of a lot of people, including -- I don't think the IMF is particularly to blame here. But what they seem to be doing is they seem to be -- you know, they're afraid to do the normal things, which is to devalue their currency. They're afraid of shooting themselves in the foot. And so, they're shooting themselves in the head instead. Extraordinary and disastrous events are now unfolding.
DOBBS: What is the likelihood that there is a risk of contagion for the other countries of South America and Central America in particular?
KRUGMAN: I think actually it's not very large. And the reason is that Argentina has put itself in a unique straitjacket. Argentina has -- it's the last of the Latin American countries to cling rigidly to a one-for-one peg between its currency and the dollar. It's the last to say we cannot take our destiny into our own hands. And so, you know, Brazil, which has a history that is just as bad as Argentina's for economic policy, had a devaluation, followed independent monetary policies, got itself out of its crisis two years ago. Argentina now really stands alone. And I think the markets understand that now. They understand that Argentina is not Brazil. It's not Mexico.
DOBBS: Very quickly, what's the likelihood there's time for them to follow your advice, Paul?
KRUGMAN: They have -- the answer is I think they're going to do this. I think in the end they're going to drop the currency peg, but they're going to go through a lot of unnecessary hell first.
DOBBS: OK. Paul as always, good to have you here.
KRUGMAN: Good to be on.
DOBBS: Fewer Americans filing for unemployment assistance last week. That's very good news, but job cuts are still rising. Employers are cutting jobs to save money and to boost sagging stock prices. But some job cuts don't turn out to be quite as severe as originally reported.
Originally broadcast, 11.8.01