The Crisis in Argentina
Atilio Boron blames slavish adherence to IMF policies for Argentina's economic disaster.
Published: Friday, April 04, 2003
Atilio Boron, Executive Secretary of the Latin American Council of Social Sciences in Buenos Aires, told a UCLA audience April 1 that his country had been the most loyal adherent of the advice of the International Monetary Fund and World Bank, and that this was the principal cause of the economic collapse that has brought Argentina to the brink of ruin. His meeting was sponsored by the Latin American Center.
"What characterizes the Argentina crisis," he said, "is that it was the best disciple of the World Bank and the IMF. The crisis is a good indication of the shortcomings of and the difficulties of these policies." He added that the Argentine elites shared responsibility for the crisis, but to a lesser degree.
"Is there any other way out of our crisis? It depends who you ask. If you ask the most influential analysts in Argentina, they will say that we have no choice but to stay on this road, markets, privatization, etc. Outside globalization there is no salvation, they say. They think that only violent dissolution is the alternative. I do not think so."
Boron said that the irony of the situation is that Argentina is nominally quite advanced and very rich in natural resources and with a highly educated population. The percent living below the poverty line was only 3% a few years ago. "Now it is 53%."
The official unemployment rate stands at 23%. Atilio Boron said that the real figure is probably over 30%. "This is a planned deindustrialization, destruction of the state to an unprecedented extent. Most of the most important firms have been sold to foreign owners, including most of the prominent public enterprises."
Boron pointed to warning signs a decade ago, at the height of the country's prosperity. "In the first half of the 1990s there were 15,000 children under 5 dying of hunger and curable diseases because of weaknesses of the public health establishment. There had been 30,000 disappeared [by military death squads] in the 1970s, and half that number were dying each year of neglect in the first half of the 1990s."
Not long before the collapse, Argentine President Carlos Menem in 1998 was the only Latin American president invited by the IMF to address its biannual meeting in Washington. "They said Menem was a brave politician who dared to introduce the needed reforms in Argentina, and because of the reforms Argentina has found the road to prosperity. Menem produced the wonderful reconciliation of the country with the markets and things couldn't be better. This was when the economy was already running out of control. Argentina was the most expensive country in the world even compared with Japan. The cost of living raised to the skies. Even if salaries were very high they were never high enough to match the prices. There was massive capital flight."
On the 19th and 20th of December 2001, there was a major popular revolt in Argentina. Tens of thousands of people took to the streets in opposition to announced cuts in public spending, generally looked on as a consequence of deep indebtedness to the IMF. There were large gatherings outside the presidential palace and the congress. Police attacked the demonstrators, killing more than 20 people. The Fernando de La Rua government, which had succeeded Menem, was forced to resign.
Boron said, "The crisis of December 2001 was precisely because they could not control capital flight. The establishment economists insisted that policies of fiscal austerity would bring continued capital investment, but the opposite happened. During the 1990s US$150 billion fled from Argentina, more than the country's total foreign debt."
Foreign capital invested in Argentina was largely speculative and made no long-term commitment to enterprises in the country, Boron said. "You can enter the country with $1 million in your suitcase. You can also take it out with no taxes. All the profit you make on the stock exchange is free of taxes. I don't know any other country where you can do that. In most countries you have to declare if you are bringing in $10,000. In Argentina you can bring in $1 million undeclared. Instead of investing in the country, the money was siphoned out, first by the English in the early 20th century, then by the Americans. There was very little capital flight from Brazil compared to Argentina."
Decline Compared to South Korea
The effect of capital flight, Boron said, was a failure of industrialization in the 1960s. "There is a shocking comparison for me: At the end of the 1950s, the GDP of Argentina was 10 times bigger than South Korea. Today South Korea has a US$15,000 per capita income while Argentina is at about US$3,500."
Atilio Boron pointed out that while Argentina adhered to the IMF's doctrine of free market neoliberalism, South Korea had pursued a heavily statist policy. "Argentina deregulated major sectors of the economy, while the Koreans, despite the American occupation, sustained an economic model completely different from the traditional model: strong state intervention, protectionism, subsidization of some sectors of the economy, while Latin American was told that subsidization was wrong and should be dropped."
What happened in the 1990s in Argentina, he said, "was selective state destruction: social programs were dismantled, privatization was rampant in those years, there was a fantastic decrease in public expenditure. You can travel around the country and you will not find a single public work built in the 1990s. What was the state doing, then? It was absorbing the public debt of the big corporations, it was sustaining a rate of interest well above the international level. In the 1990s if you had a credit card in America you might have been paying 7-9% a year; in Argentina you paid 60% or more in American dollars. The rate of interest was fantastic."
While interest rates were extremely high, corporate taxes remained very low. "The tax on profits and corporate income is about 2.5% of GDP compared to about 15% in Europe. In Argentina if you make profits you don't pay taxes, or very little taxes. So even in the context of declining public expenditure, where an increasing part of expenditure was earmarked for public debt, the country is unable to collect enough money through taxation to meet its real needs. The Spanish oil corporation Repsol has profits of 5% worldwide. But their profits in Argentina are 14%."
Economic Collapse Endangers Argentine Democracy
Democracy started in 1983 with the end of military rule. "At that time," Boron said, "the gap between the top 10% and lowest 10 was 14 to 1. In 2000 the gap grew to 25 to one. One of the consequences of this was the complete delegitimization of politics in Argentina, the total disrepute of the political class. In October 2001 some 6.5 million people did not vote, and 4 million people voted blank ballots. This was a majority of the voters in that election, 10 million people.
"This explains the collapse of the government after Menem: the government of the old Radical party, Partido Radical, of Fernando de la Rua, which fell in the crisis of December 2001. There was mounting desperation of the lower classes, the people who belonged to the most victimized sectors, the urban poor, living in this terribly expensive country. They organized blocking roads to call the attention of authorities to their need for support."
The December 19, 2001, Demonstration at the Plaza De Mayo
Argentine citizens have been particularly outraged by the government's freeze on bank deposits, an important contributing cause of the uprising of December 2001. "There was some $80 billion deposited in 1999," Boron said. "By 2001 there was still some US$40 billion when the banks ran out of money. The government then ordered the banks to refuse to give out the money. You still nominally owned the money in your bank account, but you could not draw it out. Then on the night of December 19, in the midst of the popular mobilization, the president declared a state of siege. The president did not know what to do, the government was in complete disarray, showing an almost complete inability to run the country. The government announced that it would severely repress demonstrations. After half an hour you started to hear the clashing of pots in the streets, screaming on the balconies, the people went to the Plaza [the Plaza De Mayo outside the presidential palace in Buenos Aires]. They stayed there until 2 am, a complete unorganized manifestation. No political party or union led this or called it. It was completely spontaneous. The government had no better idea than to use tear gas, gassing this completely peaceful demonstration. The whole system collapsed. There were several presidents between December 2001 and January 2002."
The IMF Does Not Come to the Rescue
Argentina's various new president's appealed to the IMF to issue a new loan to ameliorate the crisis. The IMF refused. "President Bush's new secretary of the treasury, Paul O'Neill, was very hard against Argentina, against any rescue."
The best the IMF would do for its former disciple was a rescheduling of their existing debt. "Not one dollar of new money. There was a collapse of convertibility, with the peso slipping to 3.5 to 1 to the dollar. There is general paralysis of the economy. The government continues to negotiate with the IMF, even when many American economists are saying to forget the doctrines of the IMF and that there is nothing to be gained from these negotiations. The policy makers still seem to think they have no other options."
Argentina's GNP fell by 11% in 2001. "We don't have figures yet, but there appears to have been a moderate growth of about 2% in 2002, but coming up from the big setback of the year before. Hundreds of thousands of people in the region face the halting of all social services. In many places the railways are blocked. In the past the government gave jobs to 90,000 people, and now this has fallen to only 15,000 people."
What the Future Holds
Despite the continuing economic disaster, Boron felt that the country's essential strengths promise a revival if the policies can be changed, but he remained pessimistic about the chances of a political reform. "The country is very rich, it used to have a very strong industrial base, there are many scientists and technologists. There are rivers with fish and many mineral resources. This is a much better situation than many Third World countries.
"There needs to be a new policy of radical economic reform. No party in the coming elections advocates such a policy. Politics has become very expensive. It costs $500 per second to send a TV message. $30,000 for one minute. The experts say you need at least 40 TV appearances to really be heard, $1.2 million. So the existing politicians get their money from the rich, who have the money. This bends the political spectrum to the status quo. The chances of having a radical reform are very small. If Lula does well in Brazil it may open new possibilities in Argentina."