Argentina's contagion

Like other emerging markets that have endured their own financial crises in recent years, Argentina is frantically negotiating with the International Monetary Fund for a reprieve that might help it get its house in order. Its economy minister, Roberto Lavagna, was in Washington last week to meet with I.M.F. officials and Treasury Secretary Paul O'Neill and make his case for why Argentina deserves new credits that would allow it to roll over its debt obligations for the next two years.

Mr. Lavagna faces an undeservedly uphill battle. The Bush administration has been far too passive, making little effort to exhort the I.M.F. to reach a deal with Buenos Aires.

President Eduardo Duhalde's transitional government is the first to admit that Argentina's problems are the result of the country's own mistakes, but it has made a great deal of progress in meeting its creditors' conditions for further aid. It would be a costly mistake for President Bush and his Treasury secretary to believe that they can continue punishing Argentina —setting an example for other profligate nations out there —without any spillover effects or contagion. Financial markets in Brazil, Chile and elsewhere are starting to show signs of weakness attributable in part to Argentina's ongoing agony.

There is also an emerging political contagion —a dangerous backlash against free markets and economic liberalization —spreading throughout Latin America. Coupled with its failure to make progress on any new trade deals, the Bush administration's perceived callousness toward the suffering of Argentina, long the star pupil of American-style capitalism in South America, could help fan this backlash and give it an anti-American flavor. That would be an unfortunate legacy for a president who took office promising to make improved relations with Latin America a high priority.