The Golden State may be America's very own banana republic but at least it doesn't have to worry that the International Monetary Fund might come to its "rescue."

In practical terms this means Californians can rest easy that Gov. Gray Davis won't be confiscating dollars and floating a nuevo peso any time soon. Nor can Mr. Davis hope for a truckload of IMF greenbacks -- a "loan" to the state that is -- delivered to Sacramento so he can to ease the effects of his awful policies on voters.

These may seem bizarre thoughts but perhaps not to the 37 million Argentines who have suffered just this fate and are not likely to get relief from IMF interference any time soon.

Just last week, after a meeting in Washington with Argentine economy minister Roberto Lavagna, U.S. Treasury Secretary John Snow suggested that the South American basket case is looking good for another bailout, this one in order to avoid a default to the IMF. The deal is rumored to cover some $12.5 billion in Argentine debt to the IMF that is due over the next three years, $3 billion of it on Sept. 9. This may be good news for Argentine President Nestor Kirchner but it is likely to be extremely harmful to the nation.

The Bush Treasury should be thinking about whether debt relief to Argentina and continued IMF guidance there will accelerate or delay reforms to produce sound money, low tax rates and freer trade policy. All the evidence suggests that these goals are more likely to be achieved if the IMF leaves Buenos Aires permanently and if the U.S. instead adopts a new strategy of promoting these priorities.

By keeping the Argentine government on life support, the Bush administration also displays disrespect for the Argentine democracy. Serious would-be reformers already have real trouble competing with the entrenched political elite in Argentina, especially the powerful Peronist machine. In fact, by securing an IMF package in early 2003, some Argentine observers believe that former President Eduardo Duhalde may have enabled his Peronist candidate Kirchner to squeak by outsider Ricardo Lopez Murphy in the spring elections.

Another Argentine government bailout also would be a betrayal by George Bush, who promised to reverse the damaging international finance policies of the Clintonistas and instead promote common sense and American values abroad.

It's worth reviewing what got us here. In late 1998 when a recession hit the booming Argentine economy, tax revenues fell and the fiscal deficit widened. To address that problem policy makers employed a series of tax hikes beginning in 2000. Tax collection was supposed to increase and the deficit and interest rates were supposed to fall, pulling the country out of recession. The opposite occurred. As things got worse, government worthies began to blame the problems on the one- to-one convertibility of the peso to the dollar, raising public concerns that a devaluation was in the offing.

Continual assaults on both the fiscal and monetary front undermined all confidence. Fears of a bank run prompted a freeze on deposits, followed by a foreign-debt default and a devaluation. In the ensuing weeks and months the government confiscated dollars and tore up utility contracts, destroying Argentine property rights.

Dollarization could have pulled the economy out of its death spiral. In a paper first released in March 2000, economists Andrew Powell and Pablo Guidotti from Argentina's Universidad Torcuato Di Tella analyzed the sources and costs of peso uncertainty and the beneftis of adopting the dollar. They found that "estimates of the potential gain of eliminating currency risk [that is dollarizing] appeared to be significant." The evidence was clear but the arguments in favor of sound money were overwhelmed by the "float" theologists in Washington.

As Congress's Joint Economic Committee reported in a June 2003 review of the debacle, "Argentina's problems are of its own making but the IMF has made a number of important mistakes." The report cites the fund's support for tax increases "to balance Argentina's budget" and its bias toward "devaluing the peso" while it "discouraged consideration of dollarization."

It is also true that the Bush administration could have intervened on behalf of sound money at any time: It could have told Argentina to dollarize. Ample Argentine forces would have embraced the decision, including Central Bank president Pedro Pou.

Now, you can't unfry an egg but there is such a thing as learning from the past. It's no good beating up the Argentines for what was, at least in part, a U.S.-sponsored calamity. A better place to start would be to recognize the current Argentine "recovery" for what it is: a dead cat bounce. Low inflation, currency stability, moderate growth and fiscal improvements have been achieved through a collapse in imports, a devaluation and a debt moratorium.

This is a throwback to import-substitution industrialization, a model that has no future. Worse, the government seems to have no intention of altering it. "The problem," Mr. Guidotti told me in an interview from Buenos Aires this week, "is that the government is postponing reforms in the belief that with the passage of time alone growth will be restored."

The real challenge is to address the fact that in the wake of the decision to break the dollar-peso contract investment dried up. "Investment in Argentina has fallen so low (a drop of over 50% in relation to 1998) that it does not even compensate for the depreciation of the capital stock," says Mr. Guidotti. "Hence, potential output is falling at an estimated rate of over 4% per year." This means that the rebound cannot last unless investment recovers. "And the recovery of investment requires the government to provide clear indications that the rule of law will not be further undermined, and that needed reforms will no longer be indefinitely postponed."

Considering what they have already survived, the intelligent and resourceful Argentine people are certainly capable of accomplishing this. The U.S. should support them in their struggle by removing the impediments presented by the promise of another IMF bailout.