Economic crisis ends an era


Argentina: IMF show state revolts

by Carlos Gabetta


From the Editors: For many years Argentina was held up as a “model” supposedly illustrating how successful an all-out program of privatization, liberalization, and subordination to global economic power (such as the U.S.-based J.P. Morgan financial group) could be. The actual result has been years of recession, unemployment, and impoverishment, driving the people of Argentina to revolt in desperation this past December. To provide our readers with more background information about the present situation in Argentina, we are reprinting several articles. This first one (which we hope to supplement shortly with several more articles on our web site) is from the January 2002 issue of Le Monde Diplomatique, which is associated with one of the most prominent organizations in the worldwide movement against globalization. We are referring to ATTAC. (The name stands for Association for the Taxation of [Financial] Transactions for the Aid of Citizens.) Founded in 1998 by Bernard Cassen and Susan George of Le Monde Diplomatique, ATTAC began as a campaign for the implementation of the so-called Tobin Tax, the proposal by Nobel laureate James Tobin to tax all speculative financial transactions. ATTAC played a key role in organizing the World Social Forum, held last year and this in Porto Alegre, Brazil, as a counter to the annual World Economic Forum, a platform for multinational corporations and the globalization promoted by the financial groups and institutions that dominate the world economy. The author of this article is director of the South American edition of Le Monde Diplomatique, based in Buenos Aires. His article was written before Rodriguez Saa was forced to resign and was replaced by the “populist” Peronist leader Duhalde. The translation by Barbara Wilson has been edited for Labor Standard.

After the International Monetary Fund refused to release more aid to Argentina (already struggling to service an external debt), the people of the country rose in protest. They rejected austerity measures, forced the resignation of the president and the suspension of debt payments. Since then there have been sequential presidents but no real end to the chaos.

Argentina finally exploded, a classic collapse. Observers had been surprised at the national inertia, since this is a highly politicized and unionized country with a long tradition of struggle. In the past, its people had been willing to turn it upside down with far less excuse than in the present intolerable situation: 20% unemployment; 14 million people, out of a population of 37 million, living below the poverty line; purchasing power almost halved in five years.

Yet until December 19, when tens of thousands spontaneously took to the streets, the people had seemed spellbound, powerless to express their discontent. Remembering the violent military dictatorship of 1976–83, the debacle of the Falklands war in 1982,and the traumatic hyperinflation of 1989, they bowed to political blackmail, threats of a return to authoritarian rule and economic disaster. Meanwhile, the leaders continued to use the neoliberal economic model set up by the generals.

People remember that the generals’ illegal regime was responsible for the deaths of more than 30,000 people, but they often forget that it also presided over a sharp increase in external debt, from $8bn to $43bn, and the beginning of a downward spiral. That was when they started the preparatory phase of the adjustment plan, to meet the needs of the dirty war and national security. The prime movers were the military president, General Jorge Videla, the minister of the economy, Martinez de la Hoz, an IMF staff member, Dante Simone, and the president of the central bank, Domingo Cavallo. (1)

In 1991, Domingo Cavallo was called on again — this time by Peronist President Carlos Menem — to help crush hyperinflation. With the blessing of the international financial community, Cavallo masterminded an economic revolution including some of the most radical reforms in the continent of South America. Obeying the Washington experts’ injunctions to the letter, he dismantled the public sector, dismissed hundreds of thousands of civil servants, privatized, liberalized the economy and foreign trade, and raised interest rates. He invented the system of convertibility, fixed parity between dollar and peso, which was to strangle exports.

The country was about to enter its fourth year of recession. Tens of thousands of firms had gone bankrupt and those still in business were under a severe technological handicap. By the time a center-left president, Fernando de la Rua, was elected in October 1999, democracy was little more than a charade in this neoliberal show state, ruled by a government corrupt beyond belief. In March 2001, the parliament called on Cavallo to work miracles again; he was given special powers and in July the zero deficit law was passed. Among other measures, civil service salaries and some pensions were reduced by 13%; and the draft budget for 2002 proposed to cut spending by 18.6% — $9.2bn less than in 2001.

A will to live

But Argentines seem to have recovered their will to live. A mass uprising removed the hated minister of finance, followed by the government and the president himself, forced to resign on December 20. It started with thousands of desperate men and women, most of them workers who had been unemployed for years without any social security or other means of support, raiding shops and supermarkets for food. The president responded with a ridiculous speech alleging that the protests had been organized by “enemies of the republic.” The impoverished middle classes then joined in with cacerolazos (2) everywhere. Then, as spontaneously as the first demonstrators, they too took to the streets, converging on the Plaza de Mayo in Buenos Aires and government buildings in other towns.

In contrast to other uprisings, the Argentines have repudiated not only the economic model but also the ruling class and all the unions, with one or two exceptions including the dissident trade union confederation, Congreso de los Trabajadores Argentinos (CTA). In the past, demonstrators had always obeyed strike rules, marching in columns behind their union or party banners. This time, they came out simply as citizens. There were no banners, just the national flag. Even the Peronist drums were silent for the first time in more than 50 years. The few political leaders who tried to join the crowd were rejected as hundreds of demonstrators attempted to storm the Congress building.

A state of siege was declared, but the popular uprising had turned an economic crisis into a political and potentially an institutional one. It was the end of an era, one of those historic moments with incalculable consequences. Society was saying that it had had enough of universal corruption (3), of a ruling class that had been living in luxury for 25 years on the payrolls of the big banks, the multinationals, and the global power centers. The country may be the IMF’s prize acolyte, with 90% of its banks and 40% of its industry in the hands of international capital, but the result is a disaster.

Since the early 1970s Argentina’s external debt has increased from $7.6bn to $132bn (or even $155bn), and the $40bn that the state collected from privatization went up in smoke. Unemployment has risen from 3% to 20%, the number of people in extreme poverty from 200,000 to 5m, those in poverty from 1m to 14m, illiteracy has increased from 2% to 12% and functional illiteracy from 5% to 32%. And the foreign investments of political and union leaders and industrialists now amount to $120bn. The neoliberal show state is a demonstration model of the scale of theft and its disastrous effects on society.

A last straw

Cavallo’s latest demand on December 1 was the last straw. Under international pressure to service the external debt — the country was supposed to repay $750m by the end of 2001 and more than $2bn by the end of January 2002 — the government set a limit on individual withdrawals from banks. The measure was supposedly intended “to stem the hemorrhage of capital.” Argentines were not to take out more than $250 a week in cash, although more than $15bn had been taken out of the country by the big national and international speculators (4).

The system therefore is supported in the last resort by small and medium savers, and Argentine businessmen and industrialists, who are now prevented from disposing of their assets as they wish and who live in fear that devaluation will wipe out their savings. The banks took advantage of their desperate plight to make more money by charging 40% on credit card transactions in pesos and 29% on transactions in dollars, and were set to increase these rates (5). Millions of people are already facing poverty, and this would have left further millions of middle class people without resources.

The outcome of the revolt was 31 killed by the police, thousands of shops looted, parts of major cities laid waste, and the state with no one at the helm (6). After four days of frantic debate Congress — an assortment of crooks, with a few honorable exceptions — invited Adolfo Rodriguez Saa, the governor of the province of San Luis, to serve until power was handed over to a new president to be elected by ballot on March 3. (7)

Will the ruling class show some sense of self-preservation and approach the situation rationally, setting aside political divisions, personal ambitions, and conflicts of interest, at least for the time? They will not have an easy task. The economy is in ruins and the people are in desperate need, as the uprising has shown. For years, the political leaders have denied that the liberal model is in crisis. Now they will have to pick up the pieces in the worst circumstances, since Cavallo has drawn on the currency reserves to service the external debt and they are almost exhausted (8).

Rodriguez Saa announced strong social measures and officially declared that payment of the debt is suspended pending renegotiation with the creditors. He promised to create a new currency to try to revive the economy. He has also said he will not devalue the peso — a move feared by Argentine citizens and businessmen who have huge dollar debts. However, parity is now no more than a dream, since the banks no longer sell U.S. dollars and a dollar fetches two pesos on the street.

The political and parliamentary crisis has delayed reactions to the social problems and there are fears that anarchy may follow. To prevent this, the new government will have to choose between the customary course of giving priority to the multinationals or enduring a further popular uprising. Some observers see a disturbing similarity between the present situation and the great depression of the 1930s, the Weimar republic, and all that followed.

This may be going too far. But the comparison seems apt when we consider the recent history of Argentina — the defeat in the Falklands, the years of frustration, the discrediting of elected representatives, the loss of confidence in institutions, a worldwide economic crisis. Against such a background, how can we discount the idea that the power vacuum may lead to an authoritarian outcome or tempt an adventurer?

(1) See Arnaud Zacharie, “Aux origines de la crise argentine” in the dossier “Crise de la dette argentine” of the Comité pour l’annulation de la dette du tiers-monde, CADTM (Committee for the Cancellation of Third World Debt).

(2) A form of protest in which people lean out of their windows or take to the streets, clanging their pots and pans.

(3) The state loses half its tax revenue as a result of tax evasion, which amounted to some $40bn in 1998. Only 17% of those in high income brackets pay income tax. See Arnaud Zacharie, op cit.

(4) Daniel Muchnik, “La economia en la cuenta regressive” (The economic countdown), Clarín, Buenos Aires, January 16, 2001.

(5) Gustavo Bazan, “Tarjetas de credito: solo prestan en dolares y a tasas muy altas” (Credit cards: for dollar transactions only and at very high rates), Clarin, Buenos Aires, December 18, 2001.

(6) In addition, thousands were injured and about 2,000 arrested.

(7) The post of vice-president has been vacant since Carlos “Chaco” Alvarez resigned in October 2000. The Peronist-dominated Congress had a choice between calling a general election and letting a member of Congress itself or a provincial governor hold the office until December 2003.

(8) See Julio Nidler, “Mucho plan, pero pocos dolares” (Lots of plans but very few dollars), Página 12, Buenos Aires, December 21, 2001.  

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