Waging Economic Warfare

The fleet heading toward the Falkland Islands is not the only weapon that the British can use against the Argentines. London has already launched an economic attack on its opponent. At Britain's request, the ten nations of the European Community last week took one of the most dramatic steps in the organization's 25-year history and agreed to close their ports to Argentine goods until May 17. Said one surprised E.G. official: "We have done in a day what it usually takes a year to do."

The other big financial gun that Britain has at its disposal is based on the pivotal role that London plays in world finance. The day after the Argentine invasion, the Bank of England froze $1.4 billion in Argentine assets held by London banks. Last week the bank put out clarifications about how the freeze would be administered and indicated that it would not be too heavyhanded. That calmed worried bankers and showed that Britain was not about to declare total economic war. International bankers are very nervous about the stability of world finance because of the heavy loans to troubled countries in Eastern Europe.

Britain's attempts at economic warfare stand a good chance of working because Argentina is in such a vulnerable position. Its ineptly managed economy is already suffering from 147% inflation, 13% unemployment and a weak currency. The ten European Community countries buy nearly 20% of Argentina's exports, about $1.8 billion worth in 1981. Half of this is in food and animals, largely beef, and another quarter is in such raw materials as hides and oilseeds. Argentina cannot afford to lose those markets for long.

Moreover, Argentina is one of the biggest borrowers on world money markets, owing about $34 billion, and it does not want to lose its credit rating with international moneymen. Just after the crisis started, a team of the country's bankers flew to the U.S., where their country owes $9.2 billion, to reassure ten American banks. The U.S. officials listened politely, but remained nervous nonetheless. Said one financier, whose bank is owed more than $1 billion: "The longer this crisis goes on, the worse things are going to get."

One of Argentina's few important economic friends at present is the Soviet Union. So far this year, the Soviets have bought 2.6 million tons of Argentine wheat, 68% of the amount available for export. The Soviets also will continue being big customers for Argentine corn, sorghum and soybeans.

Even though economic warfare has usually not been a useful weapon in diplomacy, especially in the short run, Britain is now in a particularly good position to wage it. Economic sanctions now, deftly managed, could, as the Observer of London said, turn out to be "deadlier than the navy."

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