argentina’s quarter century experiment with neoliberalism · p. cooney – argentina‘s quarter...

�P. Cooney – Argentina‘s Quarter Century Experiment with Neoliberalism...

R. Econ. contemp., Rio de Janeiro, 11(1): �-3�, jan./abr. 200�

* ArticlereceivedonAugust29,2005,andapprovedonSeptember19,2006.

** NúcleodePesquisaEconômica(nupec),ProgramadePós-GraduaçãoemEconomia(ppge),Uni-versidadeFederaldoPará(ufpa),e-mail:[email protected]

ArgentinA’s QuArter Century experiment with neoliberAlism:

From DiCtAtorship to Depression*

Paul Cooney**

AbstrACt Argentinasetanewhistoricalmarkin2002,havingexperiencedthelargestdebtdefaultbyanycountryever.InordertounderstandhowArgentinacouldgofromoneofthemostdevelopedcountriesoftheThirdWorld,toexperi-encingthecrisisof2001andthenenteradepressionin2002withoverhalfthepopulationlivinginpoverty,requiresanevaluationofthelastquartercenturyofeconomicpoliciesinArgentina.Theshifttowardneoliberalismbeganduringthedictatorshipof1976,deepenedduringtheMenemadministration,andwassup-portedthroughoutbytheimf.Thispaperaimstoidentifywhythecrisisoccurredwhenitdid,butalsotounderstandhowtheunderlyingshiftsinthepoliticalecon-omyofArgentinaovermorethantwodecadesledtotwowavesofdeindustrializa-tion,anexplosionofforeigndebtandsuchamarkeddeclineinthestandardoflivingforthemajorityofArgentinians.

Key words:neoliberalism,development,foreigndebt,imf

Jel Code:O10,F02,F33,F34

�

� R. Econ. contemp., Rio de Janeiro, 11(1): �-3�, jan./abr. 200�

experimento De um QuArto De séCulo De neoliberAlismo

nA ArgentinA: DA DitADurA à Depressão

resumo Em2002,aArgentinaatingiuumnovomarcohistórico,aoexperimentaromaiordefault dadívidaexterna,nãosomentepelasuaprópriahistória,mastam-bémdomundo.ParacompreendercomoaArgentinadeixoudeserumpaísmaisdesenvolvidodeterceiromundoatéexperimentaracrisede2001,entrandodepoisnumadepressãoem2002,commaisdametadedapopulaçãoabaixodalinhadepobreza,precisamosfazerumaavaliaçãodaspolíticaseconômicasduranteoúltimoquartodeséculonaArgentina.Aviradaaoneoliberalismocomeçouduranteadita-duranoano1976,tendoseaprofundadonogovernoMenemesempreapoiadapelofmi.Estetrabalhotentaráidentificarporqueacriseocorreunaquelemomento,etambém,compreenderasmudançassubjacentesnaeconomiapolíticaduranteduasdécadasnaArgentina,asquaisquedesencadearamduasondasdedesindustrializa-ção,umaexplosãodadívidaexternaeumadeterioraçãobemmarcantenopadrãodevidaparaamaioriadosargentinos.

palavras-chave:neoliberalismo,desenvolvimento,dívidaexterna,fmi

�P. Cooney – Argentina‘s Quarter Century Experiment with Neoliberalism...

introDuCtion

Afterexperiencingtheworsteconomiccrisisinitshistorywiththehyperin-

flationandrecessionof1989,Argentinahasnowsetyetanewhistorical

marknotonlyforitsownhistory,butfortheworld’s,havingexperienced

thelargestdebtdefaultbyanycountryeverin2002.1TheexperienceofAr-

gentinaprovidesarathersoberingevaluationofneoliberalpoliciesfortwo

reasons.First,Argentinahaspursuedneoliberalpolicieslongerthanmost

othercountriesinLatinAmerica,havingbeenoneoftheearliestneoliberal

experimentsduringtheearly1970s,comparedtomostothercountriesthat

didnotembarkontheneoliberaltrajectoryuntilthesecondhalfofthe

1980s.Secondly,Argentinawasrecognizedashavingthehigheststandardof

livingandincomeper capitainLatinAmericaforseveraldecades,2butasa

resultofneoliberalpoliciesimplementedthroughthelastquartercentury,

itenteredadepressionsuchthatover50%ofthepopulationwaslivingbe-

lowtheofficialpovertyline,andalmostonequarterofallArgentinianswere

inastateofindigence.

InordertounderstandhowArgentinacouldgofrombeingoneofthe

most“developed”countriesoftheThirdWorld,andaposterchildforneo-

liberalism,toreachingthecrisisof2001andenteringadepressionin2002,

ahistoricalperspectiveofthelastquartercenturyinArgentinaisrequired.

Thispaperwillattempttoidentifywhythecrisisoccurredwhenitdid,but

alsotounderstandhowtheunderlyingshiftsinthepoliticaleconomyof

Argentinaovermorethantwodecadesledtothepossibilityofsuchacrisis.

Despitemainstreameconomistsbeingindenial,thedrivetowardaneo-

liberaleconomicmodel,asadvocatedbyboththeArgentinianeliteandthe

imf,hashadaclearclassbiasandthusledtoamarkeddeclineinthestan-

dardoflivingforthemajorityofArgentinians.Theparticulartypeofneo-

liberalism,whichArgentinapursued,promotedagro-industryandfinance

attheexpenseofmanufacturing,andthusproducedtwowavesofdeindus-

trializationandthereforeagreatervulnerabilityoftheArgentinianeconomy

toglobalizationinthe1990s.

Thispaperwillfirstevaluatetheperiodofthedictatorshipfrom1976-

1983andthedrivebytheimfandthemilitaryjuntafortheimplementation

ofneoliberalpolicies.Secondly,thetransitiontodemocracyandthemore

heterodoxeconomicpoliciesofAlfonsínareconsidered,followedbythe

10 R. Econ. contemp., Rio de Janeiro, 11(1): �-3�, jan./abr. 200�

crisisofhyperinflation.ThelatterledtothesupportforMenemandthe

eventual“ConvertibilityPlan”,peggingthepesototheusdollar.Theperiod

ofthe1990s,withrenewedemphasisonneoliberalpoliciesundertheMe-

nemandDelaRúaadministrations,arethenexamined.Thepaperthen

presentstheoverallimpactofaquartercenturyofneoliberalpolicieson

Argentinianworkers.Thisisfollowedbyadetailedlookattheperiodpre-

cedingtheoutbreakofthecrisisattheendofDecember2001.Thenextto

lastsectionassessestheroleoftheArgentinianeliteandtheimfoverthelast

quartercentury,andinparticularthelatter,giventhetrackrecordofrecent

yearswiththestringoffinancialcrisesworldwide,notjustinArgentina.

Lastly,thepapersummarizesthefailedneoliberalexperimentofthelast

quartercenturyandpresentsanoverviewofrecenteconomicandpolitical

developmentsasArgentinaemergedoutofthedepressionof2002.

1. the DiCtAtorship oF the 70s, the imF AnD

the shiFt to neoliberAlism

In1975-1976,Argentinawasenduringaperiodofchaosanduncertainty,in

largepartderivedfromtheeconomicandpoliticalinstabilityafterPerón’s

returntopowerin1973,followedbyhisdeathin1974.Therewereserious

divisionswithinPeronism:theneo-fascistAAAontherightandtheMon-

tonerosguerillamovementonthe left.Somedegreeofclasspeacewas

achievedbetweenthePeronistlaborunionsandthenationalbourgeoisie,

butonlytemporarily.AfterPerónpassedawayinJuly1974,IsabelPerón

inheritedacrisiswhichreacheditsworstpointinJune1975,whentheEco-

nomicsMinisterRodrigoattemptedanimf-styleshocktreatmenttotry

andreinininflation.Afterfailingtoachievethedesiredoutcome,thegov-

ernmentthenallowedanadjustmentof140%fornominalwagesandinfla-

tionsubsequentlyspiraledintohyperinflation.3

ItwasatthispointthatIsabelPerón’sgovernmentwasnegotiatingforan

imfpaymentasreserveswereinneedofreplenishment,giventhecountry’s

economiccrisis.Theimfwouldnotcomethroughwithapreviouslyar-

rangedtranchedespiteeffortsandseveraltripsbyhereconomicteamto

Washington.Itisevidentthatattheheightofthecrisisperiod,theimf

shouldhavehelpedtoprovidesomestabilityandpushedArgentinatohave

newelections,asopposedtosupportingamilitarycoup.

11P. Cooney – Argentina‘s Quarter Century Experiment with Neoliberalism...

JustoneweekafterthemilitarycoupofMarch1976,andwithouthaving

tonegotiateorsendadelegation,theArgentinianjuntawasabletoobtain

overUS$100millionfromtheimf.Inadditiontothisshowofsupportfora

governmentwillingtoimplementandimposeneoliberalpolicieswithaniron

hand,theimfcamethroughwiththelargestloanevertoaLatinAmerican

country(us$260million),justfivemonthslater(Schvarzer,1986:45-46).

Duringtheperiodbetween1930and1976,Argentina,aswellasanum-

berofothercountries,pursuedtheeconomicpoliciesknownasimport

substitutionindustrialization(isi).Thisapproachisassociatedwithpolicies

designedtoprotectnascentindustrythroughtariffsandothertradeorin-

vestmentregulations,andtopromotediversificationintobothlightand

heavymanufacturing,asopposedtojustexportingagriculturalproducts.

Fromthemiddleofthe1960s,Argentinawasexperiencinganewphenom-

ena—thegrowthofindustrialmanufacturingexports.Infact,theyhad

reachedovertwothirdsofallexportsin1973(KosacoffandAzpiazu,1989:

109).However,whenthemilitaryjuntacametopowerinMarch1976,the

newgovernmenthadachangeofplans,andtheimportanceofArgentinian

industrywouldneverbethesame.Thiswasevidentintheeconomicpoli-

ciesimplementedbythejuntawithitsnewEconomicsMinister,Martinez

deHoz.Theseneoliberalpoliciesreflectedashifttowardalaisseiz-faireap-

proach,andwerestronglyassociatedwitheconomistsfromtheUniversity

ofChicago,suchasMiltonFriedmanandRobertLucas.4Thedictatorship

carriedoutatransformationcalledtheProcessofNationalReorganization

(El Proceso de Reorganización Nacional),whichwasareactionarypolitical

andeconomicagenda.

Thejuntaintendedtoshiftsupportawayfrommanufacturingindustry

andtowardsagro-industry.Theyarguedthattherentfromagriculture,pri-

marilybeefandgrains,wasnolongergoingtobeusedasasubsidyforin-

dustry,butratherforthedevelopmentofothervalue-addedagro-industry.

Therearethreekeyfactorswhichexplainthisapproachbythejunta.One

representedashifttowardagro-industryasopposedtoindustrialmanufac-

turing.Thejuntawasbeingmoresupportiveofthelandowningoligarchyas

opposedtothemanufacturingindustry.Ataninstitutionallevel,thiswas

reflectedinthegovernmentallyingitselfmorewiththeArgentinianRural

Society(Sociedad Rural Argentina,sra),whichrepresentsthelandowning


oligarchy,thanwiththeIndustrialUnionofArgentina(Union Industrial de

Argentina,uia),whichrepresentstheindustrialists.

Thesecondfactorreflectedthejunta’sobsessionwithstampingoutdis-

sentingeneral,butespeciallyamongorganizedworkers.Mostnotablywas

thememoryofstrikesinRosarioandCordobainthelate1960sandearly

1970s,andespeciallytheCordobazoin1969.5Thejuntawascommittedto

eliminatingtheindustrialparkinArgentinabecauseitwasseenasfacilitat-

inglaborunrest.

Thethirdfactorisaccommodatingmultinationalcapital,sincetransna-

tionalcorporations(tncs)wouldbenefitifArgentinaconcentratedonpro-

ducingprimaryproductsandagro-industry,thusleavingautomobile,steel

andheavymanufacturingtoimportsortolocalproductionbythetncs.6

Theeconomicandsocialpoliciespursuedbythemilitarygovernment

hadaverynegativeimpactonArgentinianindustry,especiallymanufactur-

ing.Between1975and1981,themanufacturingshareofthegdpdeclined

from29to22%,industrialemploymentdeclinedbymorethan36%,and

industrialproductionasawholewentdownby17%(Smith,1989:251-

253).Theresultoftheneoliberalpoliciesofthejuntabeganthefirstwaveof

deindustrializationinArgentina,whichwouldnotseemtobeinthebest

interestsoftheArgentinianbourgeoisie.However,thatisbasedontheidea

thattheinterestsoftheArgentinianbourgeoisiearestrictlytiedtotheex-

pansionofArgentinianindustrialcapital.TherealityofArgentinaisthat

manyindividualsoftheArgentinianbourgeoisiehavemoreandmoreof

theirinvestmentportfolioinfinanceandagro-industry.Thechangesingov-

ernmenteconomicpolicytendedtobenefitthemostpowerfulcompanies,

suchasBunge&Born,Macri,PerezCompanc,etc.7butevidentlytheless

powerfulfirmsamongArgentinianindustrywereconsideredexpendable.

OneofthemostimportantneoliberalpoliciesthatMartinezdeHozim-

plementedwastheFinancialReformof1977(Reforma Financiera de 1977),

whichabolishedcontrolofinterestratesandremovedmanyfinancialregu-

lationsregardingcreditandinvestment.Thishadbeenstronglypushedby

Argentina’sfinancialelite,referredtoinArgentinaasla patria financiera8

andalsosupportedbytheimf.Thisfinancialreformgreatlyfacilitatedthe

shiftfromindustrytofinance,promotedfinancialspeculation,andcreated

anatmosphereconducivetolaxfinancialcontrolsandcapitalflight.Infact,


duringthemilitarydictatorship,therewasanestimatedus$28billionin

capitalflight(Minsburg,2001:148).Anothertellingexampleofboththe

lackoffinancialcontrolsandtheimpunityonthepartofthejuntawaswhen,

duringthenegotiationswiththeimfforastandbyagreement,us$10billion

simplyvanishedfromtherecordsoutofatotalofus$40billiondebt(Smith,

1989:249).Thisisalsorevealingwithregardstotheimf’swillingnesstolook

theotherwaywithamilitarygovernmentpursuingtheneoliberalmodel,

howevercorrupttheymaybe.Suchanoversightwouldhaveproduceda

scandalwiththeAlfonsíngovernment,justacoupleofyearslater.

Duringthemidtolate1970s,theimfandotherinternationalfinancial

institutionswerepromotingcountriestotakeondebtduetoexcesspetro-

dollarsontheworldmarket.Itisnotsurprisingthatthisistheperiodwhen

Argentina’sdebtfirstbegantoincreasesignificantly,growingfromus$9.7

billionin1976tous$45billionin1983.Infigure1,onecanseeasharp

increaseinthegrowthofdebtaround1978,resultingina363%increaseof

foreigndebtbetween1976and1983,theyearsofthemilitarydictatorship.

AlthoughbothBrazilandMexico,likeArgentina,sawtheirforeigndebt

jumpup,increasingby3.5and4timesrespectively,thisdebtledtoagrowth

andexpansionofmanufacturingincontrasttoArgentina’sdeindustrializa-

tion.Thoughallthreecountrieshadcrisesintheearly1980s,Braziland

Mexicohadcrisesofgrowthandexpansion,whileArgentinahadacrisisof

mill

ion

s o

f d

olla

rs

Figure 1: Argentina’s foreign debt (1975-1983)

Source: Ministerio de Economía.

Year

50,000 –

45,000 –

40,000 –

35,000 –

30,000 –

25,000 –

20,000 –

15,000 –

10,000 –

5,000 –

0 –

| 1975

| 1976

| 1977

| 1978

| 1979

| 1980

| 1981

| 1982

| 1983

|


shrinkage.ItshouldbepointedoutthatpartofArgentina’sdebtincrease

wasduetoadrasticfinancialreformimplementedbyDomingoCavallo,

whowasthenpresidentoftheCentralBank.Withinjustsixmonths,40%of

theprivatesector’sdebt(~us$6billion)wasconvertedtopublicdebt

(Smith,1989:247).

Itisalsoimportanttonotetheshiftthattookplaceafter1982withre-

gardstotheavailabilityofforeigncredit.AfterMexico’sdebtcrisisin1982,

theimfandotherlendinginstitutionsshifted180degreeswithregardsto

creditpolicyfortheThirdWorld.Inthegraphabove,thiscanbeseenbythe

levelingoffbetween1982and1983.Thiswasamanifestatonoftheshift

towardmonetaristpoliciesingeneral,butespeciallyintheUS,whereinter-

estrateswerepushedupwardsarguablytocontrolinflation,startingwith

PaulVolker’sappointmenttotheheadoftheFederalReserveunderCarter

in1979.AfterVolker’sinitial“shock”treatmentin1979,interestratespeaked

at14%in1981,thuscausingmajorincreasesfortheforeigndebtofmany

countries,Argentinaamongthem.9

Inadditiontotheprocessofdeindustrializationandthenegativeimpact

onmanufacturing,thefinancialreformandotherneoliberaleconomicpol-

iciesofthedictatorshipledtoamuchgreatereconomicinstabilityand

three-digitinflationin1982.Atamoreconcretelevel,Argentinawasexpe-

riencingafiscalcrisisofthestate,butfromalong-termview,thiscrisisre-

flectedtheproblemsassociatedwithashiftfromisitoaneoliberalaccumu-

lationstrategy,aneconomymoredependentonfinanceandagro-industry

thanonthemanufacturingbaseofthepast.Inaddition,theworkingclass

ofArgentinaanticipatedaclearimprovementeconomically,regainingsome

ofthegroundlostduringtherepressivemilitaryregime;however,thecapi-

talistclassandthepatria financierahadnointentionofrelinquishingtheir

gainsofrecentyears.ThiswasthedifficultcontextthatAlfonsíninheritedas

Argentinatransitionedtodemocracy.

2. the trAnsition to DemoCrACy AnD

hyperinFlAtion: the AlFonsÍn perioD

ThusAlfonsínwasexpectedtohelprightthewrongsofthepreviousmili-

tarygovernmentandimproveArgentina’sailingeconomy.Amajorproblem

wasthedifferentexpectationsbycompetingsocialclassesregardingthefu-


tureoftheeconomy.Afteryearsofsocialexclusion,theworkingclasswas

demandinganimprovementofrealwages,havingexperiencedamajorde-

clineintheirpurchasingpower,suchthatitwasbelowthatofthedecadeof

the1960s.Althoughgdpin1983wasroughlyequivalenttothatof1970,

Argentina’spopulationhadgrownby22%,implyingasignificantdeteriora-

tioninper capitaincome.Fromcapital’sviewpoint,fixedinvestmenthad

fallenmorethan30%comparedtotheaverageofthe1970s.Ironically,

muchofthiswasduetotheneoliberalmodel,whichmanycapitalistshad

advocated.

TheAlfonsíngovernment,feelingconfidentaftertheelections,attempt-

edtobemoreindependentfrombothdomesticandoutsideforcesandto

forgeaheadwithaneconomicsolutionwithouthavingtomakeconcessions

tothePeronists,otherpoliticalparties,orotherestablishedinstitutions,

suchasthesra,uiaorcgt.10Thus,AlfonsínandhisEconomicsMinister

RicardoGrinspunchosetobreakfromthestrictneoliberalorthodoxap-

proachandpursueanheterodoxvariantwhichwouldreinvigorate the

economyandalsoallowforamoreequitabledistributionofincome.This

wasinspiteofandcountertotheimf’scallsforeconomicorthodoxy-

growthfirst,followedbyredistribution.

In1984,Alfonsíntooktheboldstepofsuspendingalldebtpaymentson

theprincipalandsystematicallydelayinginterestpayments.Thebattleof

economicpolicywiththeimfcontinuedthroughtheyear,butgiventhe

balanceofpaymentscrisis,thenewgovernmentwasforcedtoshiftfrom

brinkmanshiptoconciliationandsignatraditionalorthodoxadjustment

planwiththeimfinSeptember1984.Theresultingimfausterityplanpro-

scribedrealwageincreases,eliminatedpricecontrolsandforcedArgentina

toliberalizetraderestrictions.

In1985,theannualinflationratehadreached1,000%,butafterintro-

ducingtheAustralPlanwiththenewEconomicsMinisterJuanSourrouille,

Argentinafinallyhadareprieve,asmonthlyinflationratesdroppedfrom

30%tobelow5%.Nevertheless,overthenextcoupleofyears,inflationcon-

tinuedtobeagrowingproblemandeventuallyescalatedintothecrisisof

hyperinflationof1989.ThroughoutAlfonsín’stenure,therehadbeena

rockyrelationshipwiththeimf,ashisadministrationwasmorewillingto

asserttheirpreferredsetofpolicies.However,giventhecontinuedproblems


ofagrowingdebtburdenandgallopinginflation,timeaftertime,theAlfon-

síngovernmenthadtosuccumbtothedemandsoftheimfforneoliberal

austerityplans.AlthoughArgentinaoftendidnotfollowtheseplanstothe

letter,thenetresultwasmoreasetoforthodoxpoliciesthanheterodox

ones,asthegovernmentoriginallyadvocated.

Thisresultedinacontinuityofneoliberaleconomicpoliciesaspursued

bythedictatorshipandMenem.TheAlfonsínadministrationbeganwith

theintentionofpursuingeconomicgrowthwithamoreequitabledistribu-

tionofincome.However,throughthecourseofthe1980s,duetopressure

fromboththelocalelites,aswellastheimf,theycametopursue“anti-in-

flationary”policiesthatpreventedincreasesinrealwages,notjustnominal

wages.Alfonsínalsoattemptedtocontrolworkerswagedemandsusingthe

discourseofdemocratizationoftheunionsasameansofweakeningunions.

Ontheonehand,therewasaneconomicincentivetocontrolwagedemands,

buttherewerealsopoliticalmotivations,giventhestrongassociationbe-

tweenthecgtandthePeronistparty,themainoppositiontoAlfonsin’s

Radicalparty.11

Dinersteinpresentsananalysisofhoweconomicpoliciesevenundera

democraticgovernmentcanconstituteaweaponofrepressionagainstthe

workingclassesofacountry.Shearguesthat

Thetransitiontodemocracywasonlythepoliticalexpressionoftheother

transition:fromeconomicinstabilitytothelegitimisationoftheterrorism

ofmoneyintheformofstabilityinthe1990s.Thestruggleforandagainst

thelegitimizationoftheterrorismofmoneyoverthepoliticaltooktheform

ofhyperinflation.Hyperinflationbecamethemeansofboththevalorization

ofcapitalandtherepressionoflabour.Facedwiththeburdenoftheinterests

oftheexternaldebt,in1989thegovernment’simpossibleaimofsimultane-

ouslysatisfyingsocialdemandsandsubjugatingitselftothemandateofthe

imf,theWorldBankanditscreditorsasserteditselfas‘distrust’inthena-

tionalcurrencyandproducedafinancialcrisis.(Dinerstein,2003a:12-13).

Attheheightofthecrisisin1989,therateofinflationreachedfourdigits

(4,923%),thepercentageofArgentinianslivingbelowthepovertylinewas

approaching50%andtherewasoverallinstability(indec,2003).There-

sultwasaperiodofchaos,withlooting,policerepression,andfearofaso-

cialrebellion.Aftertheelectionsof1989,insteadofaccommodatingAlfon-

1�P. Cooney – Argentina‘s Quarter Century Experiment with Neoliberalism...

sínwithaninterimloantillthepresident-electCarlosMenemtookoffice,

theimfpushedforAlfonsíntoresignbeforecompletinghisterminoffice.

Theclimateofeconomicinstabilityandparticularlyhyperinflationpro-

ducedanatmospherethatallowedMenemtogainthesupporttofurther

anddeepentheneoliberalprocessofeconomictransformationbegunin

1976.

3. neoliberAlism unDer menem AnD the impACt

oF globAliZAtion12

InMarch1991,theMenemadministrationimplementedaneconomicplan

knownasthePlan Cavallo,namedaftertheEconomicsMinisterDomingo

Cavallo.Thisplanborestrikingresemblancetothatoftheeconomicpoli-

ciespursuedbythedictatorshipandMartinezdeHozbackinthe1970s.13

Thisisbecausetheywerebothfundamentallyneoliberal,asreflectedby

theirthreemainelements:financialderegulation,reformofthestate,and

tradeliberalization,nottomentionthegeneralpro-capitalbias.14TheMe-

nemadministrationwascommittedtoanaccumulationmodelwithitsbase

infinanceandagro-industry,sacrificingmanufacturingandthusproducing

asecondwaveofdeindustrialization.

3.1 Convertibility and Financial reforms

TheoneaspectofthePlan Cavallo whichwasnotbasedonneoliberalideol-

ogywasthepeggingofthepesotothedollaratarateofone-to-one,com-

monlyreferredtoasconvertibilidadorconvertibility.15Althoughinconsis-

tent with a pure laissez-faire orthodoxy, but consistent with how

neoliberalismispracticed,convertibilitywasacceptedandsupportedbythe

IMFandWashington,rightupuntil1998.Thiswasseenasashrewdand

successfulploy,byencouragingArgentinianstobringtheirusdollars“out

of themattresses”andto trust thenationalcurrencyandbanksagain.

Thoughrisky,itturnedouttobeextremelyeffectiveinendingthehyperin-

flationofthelate80sandearly90s.Therewasfinallyasenseofstability,

whichhadgreatpsychologicalappealafterthecountryhadenduredaperi-

odofhyperinflation,asdiscussedabove.Thecountrywasdesperatefor

somelevelofeconomicstabilityandthuswillingtoseeiftheneoliberalPlan

Cavallo couldwork.

1� R. Econ. contemp., Rio de Janeiro, 11(1): �-3�, jan./abr. 200�

Thepeggingofthepesotothedollar,alsoknownasacurrencyboard,

wasaclearadvantageforforeigninvestorsthatdidnothavetoworryabout

instabilityorsuddendevaluationscausingmajorlossesontheirinvestments

denominatedinpesos.TherewasanincreasedconfidenceintheArgentin-

ianbondmarket,aswellasintheeconomyasawhole.Thedownsideof

convertibilitywasthatArgentiniangoodsweremoreexpensiveontheworld

marketandimportswerecheaperforArgentinians,thuscontributingtoa

worseningtradedeficit.Theimpactofconvertibilityonimportsandex-

portsisfurtherdiscussedinthesectionontradeliberalizationbelow.

Oneofthethreemainneoliberalpoliciesisfinancialderegulation,im-

plyingtheeliminationofrestrictionsonforeigninvestment,andalsoonthe

outfloworrepatriationofprofits,royalties,etc.Thisclearlyfacilitatedthe

flightofcapital,beitforeignordomestic.Basualdohasestimatedtotalcap-

italflighttobeus$115billionsince1980,andoneofhisgraphsshowsa

veryclearcorrelationwiththeexpansionoftheforeigndebtandinterest

payments(Basualdo,2001:37).Theproblemofcapitalflightisaclearex-

ampleofhowfinancialderegulationleadstoinsufficientcontrolofcapital

movementformanycountries,notjustArgentina.Financialderegulation

producesanenvironmentthat’smuchmorepronetocrisiswhenacertain

degreeofconfidencebyinternationalinvestorsislost.

3.2 privatizations of public enterprises

Anotherofthethreepillarsofneoliberalism,privatizations,ortheselling

offofpublicenterprises,playedasignificantroleduringthe1990sinArgen-

tina.Between1991-1998,Argentinasoldoffatotalofsomeus$31billion

worthofpublicenterprises(Rock,2002:68),thoughthemajorityofwhich

wassoldoffbetween1991-1995. Althoughthisimprovedthefiscalbalance

forthoseyears,thiswaspartiallyoffsetduetothedebtequityswapsagreed

tobytheMenemadministration.However,thismeantthatafter1994there

wasnotonlynothinglefttosell,butalsoresourcesthatcouldhavebeena

steadysourceofrevenue,suchastheNationalOilCompany(ypf),16would

beprovidingnofutureincomeotherthantaxes.17Besidesypf,theArgen-

tiniangovernmentalsosoldoffthenationalairline,theelectricandgas

utilities,water,therailroadsandmanyotherpublicenterprises.


Anothermajorconcernwasthemannerinwhichtheprivatizationpro-

cesstookplace,oftenlackingtransparencyandclearlyfavoringthetransna-

tionalcorporationsandlocalconglomerates,asevidencedbythemajority

ofthestateenterprisesbeingsoldbelowtheirworthorinvolvingdebteq-

uityswaps(AzpiazuandSchorr,2004).Althoughthedrivetowardprivati-

zationswascomingfromthePeronistparty,theimfprovidedasignificant

externalpushbystronglyadvocatingthesepoliciesandsupportingtncsin

subsequentnegotiations.18

Itwasduringthemilitarydictatorshipof1976-1983thatpublicenter-

prisesweredeliberatelyundermined,beingdisproportionatelyimpactedby

budgetcuts.Therehadbeenagrowingneedfortherenovationofphysical

capitalthatdidnottakeplace,“arguably”becauseofthelevelofthestate’s

indebtedness.Changesinmanagementoccurredonaregularbasisbecause

ofpoliticalshifts,causingalackofcontinuityintermsofmanagementand

leadership,andthereforetheirabilitytoservethepublicdeclinedandthe

qualityofserviceworsened.Suchanimpactisindependentofbeingapub-

licorprivateenterprise.Insteadofprivatizingpublicenterprises,thejunta

ortheMenemgovernmentcouldhavemadetheirfunctioningagreaterpri-

ority,andgiventhemtheinfrastructurenecessarytoperformwell,aswith

anyprivatefirmprovidingservices.

Privatizationsofstateenterpriseshadarathersignificantimpactonun-

employmentinArgentina,especiallyintheprovinces.Atotalofover110,000

workerswerelaidoffbetween1990-1993(Duarte,2002:76).Thisincrease

inunemploymenthadthegreatest impact inthepoorerprovinces.19It

shouldcomeasnosurprisethat,afterthewaveofprivatizations,theseprov-

inceswerehavinggreaterproblemswiththeirbudgets.Additionalimpacts

ofneoliberalpoliciesonworkersarediscussedbelowinsection5.

3.3 privatization of social security

Anotherneoliberalpolicysupportedby—butnotasstronglydemandedby

theimf—istheprivatizationofsocialsecurityprograms.Unfortunately

forArgentina,theMenemadministration,withsupportfromtheWorld

Bank,partiallyprivatizeditsSocialSecuritysystemin1994.Payrolltaxes

thathadpreviouslygonetothegovernmentfortheSocialSecuritysystem

wereinsteaddivertedtoprivateaccounts.Thisresultedinasignificantre-


ductionintaxrevenue.Accordingtotheimf(imf,1998)thereductionof

revenuescorrespondedtoroughly1.0percentofannualgdp,whichwould

resultinatotalofroughlyus$18billionfortheyears1994-2000.20How-

ever,otherresearchhasincludedadditionalrevenueshiftsandestimatethat

thelackofrevenuereceivedbythegovernmentbetween1994and2000was

approximatelyus$52billion(Basualdo,2003:22andDamill,Frenkel,Juve-

nal,2004:303).

Atthetime,theMenemadministrationtriedtoameliorateconcernsfor

thelackofrevenuebyarguingthattherevenuesobtainedbytheprivatiza-

tionofpublicenterpriseswouldhelpduringthetransitionperiodofpriva-

tizingSocialSecurity.Therealitywasthatmuchoftherevenueanticipated

bytheprivatizationswaslostthroughdebtequityswaps,andthusArgentina

hadtoborrowinordertomakeupforthelostrevenue.Thiswasnotan

idealtimetohavetoincreaseborrowing,astheusFederalReserveincreased

interestratesinFebruary1994,andthencamethestringoffinancialcrises:

Mexico,SoutheastAsia,Russia,andBrazil.

Itisironicthatoneofthepoliciespushedbytheimf,namelyprivatiza-

tionofSocialSecurity,wasoneofthecontributingfactorstothefiscalcrisis

Argentinawasexperiencingduring2001,andwhenneedingaloan,theimf

forcedthemtocutthebenefitsinitstraditionalSocialSecurityprogramby

13%inSeptember2001.Itisyetanotherexampleofhowtheneoliberal

policiespushedbytheimfcontinuetobeagainsttheinterestsofthecoun-

trytheyareimposedupon.

3.4 trade liberalization

Sincethemilitaryjuntacametopowerin1976,therehasbeenadrivefor

tradeliberalization,throughthereductionoftariffsandtheeliminationof

non-tariffbarriers.Thesetendencieswereextendedanddeepenedasof

1990undertheMenemadministration.Thetariffstructureestablishedas

of1991was22%forconsumergoods,15%forinputsand5%forcapitalor

intermediategoodsnotproducedinArgentina.Thegoalswereinitially20%,

10%and0%respectivelyin1991,asadvocatedbytheimfandgatt.21The

objectiveofreducingthemaximumtariffinaperiodoffouryearsto20%

andeliminatingnon-tariffbarriers—suchasquotas,licensesandimport

restrictions—waspracticallyachievedaroundthebeginningof1991.Oth-


ertradebarrierswerecompletelyremoved,withtheexceptionofrestric-

tionsonautoimports,whichnotcoincidentally,wasbyfarthemostdy-

namicsectorduringthe1990s.22

Theresultofthesetradepoliciesmeantmoreproblemsforlocalindus-

try,whichnowhadtocompetewithmuchcheaperimports,andnolonger

withtheprotectionoftariffs,etc.Theloweringoftariffsandeliminationof

traderegulationsmadetheArgentinianeconomymorevulnerabletothe

coldshockofglobalcompetition.Between1992and1999,Argentinahada

tradedeficitineveryyearexceptfor1995and1996,whenthe“tequilaeffect”

oftheMexicanpesocrisisforcedArgentinatokeepimportsinlinewith

exports,asshownintable1.

Despitethefrequentlyusedargumentthatthecurrencyboardprevented

Argentina’sexportsfromgrowing,theybasicallydoubledbetweentheearly

1990sandlate1990s.23Theproblemhadmoretodowiththeincreaseof

imports,whichgrewfrom4to8billionintheearly1990stoover30billion

by1997-1998.Thisconsistentandsubstantialimbalancebetweenexports

andimportsresultedinanaccumulatedtradedeficitofoverus$18billion

between1991and1999,asseenbelow(indec,2005).Thisisarguablydue

tothecombinationoftradeliberalizationandthecurrencyboard,notjust

convertibility.Inthesectionbelow,weexaminetheshiftawayfrommanu-

facturingtowardagro-industryandhow,aftertwowavesofdeindustrializa-

tion,Argentinawasincreasinglyvulnerabletoamorecompetitiveworld

economy.

table 1: Argentina’s trade balance (millions of us$)

Year Exports Imports NetExports

1991 11,978 8,275 3,703

1992 12,235 14,872 – 2,637

1993 13,118 16,784 – 3,666

1994 15,839 21,590 – 5,751

1995 20,963 20,122 841

1996 23,811 23,762 49

1997 26,434 31,377 – 4,944

1999 23,309 25,508 – 2,200

Total 174,117 192,740 –18,623

Source: Indec, 2005.


3.5 Deindustrialization revisited

Asmentionedabove,priorto1976,industrialmanufacturingexportshad

reachedovertwothirdsofallArgentinianexports.However,withthetwo

wavesofdeindustrialization,oneunderthemilitaryjuntaandtheother

underMenem,theroleofmanufacturingintheArgentinianeconomyexpe-

riencedasignificantdecline.Forexample,duringtheMenemyears,manu-

facturingasashareofgdpwentfrom30.9%in1989downto17.1%in1998

(Rapoport,2000:1026).Estimatesbasedoncensusdatashowthatmanufac-

turingjobsdeclinedby32.6%,from1,132,499to762,992between1991and

2001.

Thesestatisticsconstituteevidenceofthesecondwaveofdeindustrial-

izationinArgentina.However,since1976therecontinuedtobetheempha-

sisonagro-industryandthelackofanationalindustrialpolicytopromote

technologicalchangewithinArgentina.TheMenemgovernment,justasthe

militarygovernment,claimedthatitwascommittedtotradeliberalization

throughtariffreductionandtheeliminationoftariffbarriers,inorderto

forceArgentinianindustrytobeabletocompeteinternationally.Thisfairy-

taleformularootedinthemythof“freetrade”unfortunatelyheldswaydur-

ingthe1990sinArgentina.Therealityisthatafewlargefirms,suchasPerez

CompanyandBungeyBorn,wereabletoweatherthestormofimports,but

forthemajorityofArgentina’smanufacturingfirmsthismeanthardships,

andinsomeinstancesdisaster.Forfirmstryingtoexport,convertibility

onlyexacerbatedtheproblem.

Foraquartercentury,therehasbeenaseriousdisarticulationofArgen-

tinianindustry,increasingthedifficultyformanufacturingtocompeteinan

evermoreglobalizedworldmarket.Thisisbothreflectedinthegrowing

dependenceonconsumerandcapitalgoodsimports,andtheextentto

whichArgentina’sexportsaredominatedbyrawmaterialsandagricultural

products.

Akeyproblemwithanoverdependenceonagriculturalproductsisthey

experiencemorefrequentandgreaterpricevariations.Forexample,Argen-

tinianagriculturalexportsbenefiteduntil1996withagradualincreaseof

pricesininternationalmarkets,whichwassomecompensationfortheover-

valuedpeso.However,thistendencybegantoreversein1997,astherewasa

declineinthepricesofagriculturalproductsonworldmarkets,sincethe


globaleconomywasenteringarecession.Fromthatpointon,salesofAr-

gentinianproductsbegantostagnateinvalueterms,althoughtheycontin-

uedtogrowinphysicalterms(Rapoport,2000:999).

Inrecentyears,agriculturalproductionhasgrowningeneral,duetoa

seriesoftransformationsforvariouscrops,resultinginincreasedyieldsand

totalareacultivated.Ingeneral,thecropsthatgrewthemostweredestined

forexport,aswerethosethatintroducedtechnologicalinnovationsinpro-

duction.Suchchangeshaveoftenbeenemployedinordertomaintaincom-

petitivenessontheworldmarket.Itisworthnotingthat,asof2003,Argen-

tinawasonlysecondtotheuswithrespecttoproducinggeneticallymodified

crops,primarilycorn,cottonandsoybeans.

Sincetheearly1980s,seedoils24andcerealshavebeenthemostimpor-

tantcropsintermsoftheirvalueofproductionandexportshare.Infact,by

theendofthetwentiethcentury,theyconstitutedroughlyonequarterof

Argentina’sexports(indec,2003). Inrecentyears,wheat,corn,sorghum,

soybeansandsunflowershaveallincreasedtheiryieldsandareacultivated

significantly,thuscausingareductionintheareacultivatedforothercrops.

Thisexpansioncanbecalledthe“agriculturalization”ofArgentina,since

thisisattheexpenseoflivestockfarming.Incontrasttothegrowthand

expansioninagriculture,livestockproductionexperiencedageneralstag-

nation,withlowergrowthandareductioninthenumberofheadsofcattle

orotherlivestock.Inthecaseofbeef,therehasbeenadeclineindomestic

consumptionwhichexportshavenotbeenabletocompensate.

Anotherareathatdeservesattentionregardingtheimpactsofthesecond

waveofdeindustrializationiswithrespecttoworkers,bothinindustryas

wellasagriculture.Ratherthanconsideringtheimpactsofdeindustrializa-

tionseparately,thenextsectionwillconsiderthegeneralimpactonworkers

duetoneoliberalpoliciesinArgentinaduringthe1990s.

4. neoliberAlism’s impACt on worKers

Giventheclassbiasassociatedwithneoliberalpolicies,itisimperativeto

lookattheoverallimpactontheArgentinianworkingclass,especiallysince

Menembecamepresident.First,asmentionedearlier,thereweremajorlay-

offs,totallymorethan110,000,asaresultoftheprivatizationsthattook

place.Secondly,thedeclineinmanufacturingledtoareductionofover


369,000jobsfrom1991-2001,a33.9%lossintotalmanufacturingemploy-

ment.25Asaresultofthetwowavesofdeindustrialization,Argentinawent

fromover1.5millionmanufacturingjobsin1974downtoroughly763

thousandjobsin2001,alossof50%.Thirdly,theshifttowardmoreefficient

andtechnologicallyadvancedtechniquesinagricultureduringthe1990s

alsocontributedtoanincreaseinunemployment,althoughthiswasbal-

ancedoutinpartduetotheincreaseinagriculturalproduction.

Throughoutthedecadeofthe1990s,asmanufacturingjobsweredeclin-

ing,thegrowthofinformaljobsgrewsignificantly.Forexample,informal

workinBuenosAiresandsurroundings(Gran Buenos Aires)grewtoreach

38%ofallemploymentby1999,andsuchjobsareestimatedtohavein-

comes45%lowerthanformalemployment(Rapoport,2000:1,021).Asin-

creasednumbersofpeoplecompetedforfewerjobsandthebetter-paid

manufacturingjobswerebeinglost,thegrowthoftheinformalsectorre-

sultedinadeclineinrealwagesforthemajorityoftheArgentinian“work-

ing”class.Theclearlynegativeimpactonindustrialrealwagesoverthelast

40yearscanbeseeninfigure2.Nevertheless,theleveltowhichrealwages

overallhavedeclinedhasbeenevenmoresignificantforthereasonsjust

mentioned.

Forthedecadeofthe90sasawhole,unemploymentgrewfrom6%in

1991toalmost14%in1999,accordingtothegovernment’sdefinition,and

28%whencombinedwithunderemployment(Basualdo,2003:14).Between

realwagesdroppingsignificantlyduringthedictatorship,followedbystag-

nationanddeclineinthe1990s,asof2001theywerenoteven84%ofthe

leveltheyhadreachedin1976.Atthenadirofthedepression,unemploy-

mentwasmorethan20%,andcombinedwithunderemployment,almost

40%(SvampaandPereyra,2004:90),andrealwageshaddeclinedatleast

another18%through2002.Accordingtoofficialstatistics,over53%ofthe

populationwasbelowthepovertyline,andthelevelofindigencewasmore

thanaquarterofthepopulation(indec,2003).Suchstatisticsprovide

somesenseofjusthowbadthingswereinArgentina,buttheystilldon’t

capturethesufferingexperiencedbythepeoplelivingthroughthisdepres-

sion.ThesestatisticsareallthemoreshockingifoneisfamiliarwithArgen-

tina,havinghadoneofthehigheststandardsoflivingwithintheThird

World.Unfortunately,oneofthecharacteristicsofmanyThirdWorldcoun-


triesisthateconomiccrisesthatleadtodepressions,notjustrecessions,are

alltoocommon.26Althoughtheunderlyingcauseofsucheconomiccrises

isrootedinthecapitalistsystem,themoreimmediateproblemhasbeenthe

growthofforeigndebt.Beforeturningtoanexaminationofthegrowthof

theforeigndebtandthespecificroleoftheimf,adetailedpresentationof

theeventsleadinguptothecrisisin2001followsbelow.

5. ArgentinA At the Abyss

WhenFernandoDelaRúatookofficeaspresidentinDecember1999,Ar-

gentinahadalreadybeenexperiencingarecessionformorethanayear.

Withinhisfirstyear,hewasconfrontedwithanevenmoredifficulttaskof

stavingofftheimpendingeconomiccrisisduetoarangeoffactorsinclud-

ingagrowingtradedeficit,inpartcausedbythecurrencyboard,27butalso

thedecliningpricesinworldmarketsforagriculturalgoods,andtheforeign

debtwhichwasspiralingoutofcontrol.

Therehadbeenproblemsinthethirdquarterof2000,asbondrates

soared.Forbetterorforworse,theimfsteppedinwithanaidpackage.In

early2001,PresidentDelaRúareshuffledhiscabinet,bringingbackDo-

mingoCavallo28asEconomicsMinister.ThearrivalofMr.Cavalloatfirst

cheeredinvestors,givenhispro-businessstance.However,hetriedarange

Figure 2: industrial real wages 1960-2002 (1960=100)

Source: Iñigo Carrera, 2000.Year

Dictatorship began

Democracyreturns

(Alfonsín)

Period ofHiperinflation

Menem govt.

160 –

140 –

120 –

100 –

80 –

60 –

40 –

20 –

0 – | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000


ofbothorthodoxandheterodoxpoliciestonoavail.Through2001,Argen-

tina’sreservescontinuedtodeclineastherecessionreacheditsthirdyear.

Bymid2001,unemploymentwasapproaching20%,andthiswasama-

jorfactorinthecontinuedexpansionofthemovementofunemployed

workersorpiqueteros,29intheprovincesandalsoinBuenosAires.Thepi-

queteroswereblockinghighwaysinordertopreventgoodsfromgettingto

BuenosAires,beitforlocalconsumptionorexports.Theyweredemanding

jobs,asmanyhadbeenlaidoffduetoprivatizations,butalsoduetoseveral

yearsofrecession.Therehadevenbeenseveralincidentsofgovernmentof-

ficebuildingsbeingburneddowninprovinceswherepublicemployeeshad

beenlaidoffornotpaidformonths.Astheyearadvanced,thepending

crisisloomed,muchofindustrywasshutdown,andunemploymentand

povertycontinuedtoincrease.Thencamearunonthebanks,thedeclining

reservestookanotherdrop,andsoCavallobecamedesperateandinstituted

thecorralito,30restrictingpeople’saccesstotheirbankaccountsandthus

alienatingalmosteveryone,butespeciallytheArgentinianmiddleclass.The

laststrawwaswhentheimfrenegedonapaymenttoArgentinaofus$1.3

billionatthebeginningofDecember2001.Thisstateofaffairsledtothe

spontaneousstreetprotestsofthecacerolazos(thebangingofpotsandpans)

andanincreaseinthehighwayblockadesofthepiqueteromovementin

BuenosAiresandacrossthecountry.BymidDecember,therehadbeena

generalstrikeandriotinghadoccurredthroughoutArgentina,aspopular

angermountedagainstbothEconomicsMinisterCavalloandPresidentDe

laRúa.OnDecember19th,inspiteofthedeclaredstateofsiege,thePlazade

MayoinBuenosAireswastheculminationofthepopularinsurrection,and

afterjusttenhoursbothCavalloandDelaRúawereforcedtoresign,escap-

inginahelicopterintheweehoursofDecember20th.

Thefirstinterimpresident,RodriguezSaa,triedtogobackonapromise

thathewouldnotruninthenextpresidentialelection,thusalienatingmany

inthePeronistparty.Thecombinationofstreetprotestsandinfighting

withinthePeronistpartyledtohisquickdemise.Afteracrazytwoweeksof

rioting,lootingandprotests,therewereatotalof32peoplekilled,andfive

differentpresidents.

Whenthedustcleared,EduardoDuhaldewastheprovisionalpresident,

anddespitesomeinitialpopulistpromisesaboutbreakingfromtheneolib-


eralmodel,heeffectivelyservedasthecaretakerwhileArgentinadefaulted

onitsforeigndebt,devaluedthepesotoafourthofitspreviousvalueand

enteredintoafull-fledgeddepression.

TheprimaryeconomicmechanismthatcausedArgentina’smultiyear

recessiontoturnintoadepressionwasageneralizedlackofconfidence,

causingfirms,bothArgentinianandforeign,toholdofffrominvestment.

Theincreasedconcernforacomingdevaluationreducedtheconfidenceof

bothinvestorsandconsumers.Inthecaseofconsumers,noonewaswilling

tobuydurablegoods,ahouse,oracar,fearingthelossofajobinthenear

future,andthisexacerbatedanalreadydecliningdemand.Thecrucialstep

orcatalystshiftingfromrecessionintoadepressioncamefromtheimf’s

refusaltoprovideapreviouslyarrangedpayment,followedbythedesperate

attemptbyCavallotolimitarunonthebankswiththecorralito, whichwas

aclearsignaltoArgentiniansofanimpendingdevaluation.

During2002,gnpdeclinedby11%(IñigoCarrera,2004:65),andatone

pointmorethanhalfofthepopulationwaslivingbelowtheofficialpoverty

line(indec,2003).Duhaldesucceededinweatheringthestormandpre-

ventinganotheracutesocialcrisis,thuskeepingthepeaceuntilArgentina

signedan“interim” agreementwiththeimfinJanuary2003,andlasted

untilNestorKirchnerbecamepresidentinMay2003.

Thishasbeenabriefsummaryoftheunfoldingofeventsduringthe

periodleadinguptothecrisisofDecember2001andthedepressionthat

ensuedin2002.Thenextsectionpresentsthecasethattheexplosionof

foreigndebtduringthe1990swasthemostsignificantfactorleadingupto

thecrisisof2001,andthatboththeArgentinianeliteandimfdeservethe

blameforthecrisis.

6. Foreign Debt AnD the role oF the imF

ForeigndebtisthecomponentofArgentina’sfiscalbudgetthathasbeenthe

mostoutofcontrol,andtheimmediatecauseoftheeconomiccrisisin2001.

Itgrewatanincrediblerate,havingbeenlessthanus$10billionin1976

(figure1)andthenballooningtous$146billionin2000.Mostsignificantly,

itmorethandoubledfrom1993to2000,goingfromus$72billiontous$

146billion(figure3).Theextenttowhichthiswasagrowingproblemfor

2� R. Econ. contemp., Rio de Janeiro, 11(1): �-3�, jan./abr. 200�

Argentinaisfurtherillustratedbyconsideringtheforeigndebtasapercent-

ageofgdp,whichgrewfrom30.5%to52%,between1993and2001,also

showninfigure3.

Thisdebtspiralwascausedinpartbytheincreaseinusinterestrates,

especiallyaftertheusFederalReserveraisedshort-termratesinFebruary

1994,whichdoubledfrom3to6%duringthefollowingyear.Thisalsoaf-

fectedArgentina’sriskpremium,exacerbatingtheimpactoftheincreasein

interestrates.Asecondmajorfactorinincreasinginterestratesworldwide

andsubsequentlyArgentina’sdebtwastheresultoftheimpactoftheMexi-

can,Asian,RussianandBrazilianfinancialcrisesbetween1995and1999

(Cibilsetal.,2002:1-2).Infact,theinterestpaymentsthatArgentinamade

duringthe1990stotaloverus$60billion,andin2000alonewerealmost

us$10billion(WeisbrotandBaker,2002:4).Asseeninfigure4,interest

paymentsasashareofthegdpmorethandoubled,growingfrom1.23%in

1993to3.4%in2000.Incontrast,governmentprimaryspendingexcluding

interestpaymentsasashareofthegdptendedtodeclineorstaysteady

throughthe1990s,oscillatingaround18.5%(figure5).

Source: Ministerio de Economia.

Year

Total debt

Debt as % of gdp

Figure 3: Argentina’s foreign debt (1993-2001)D

ebt

(bill

ion

s o

f cu

rren

t u

s$)

Deb

t as

% o

f g

dp

160 –

150 –

140 –

130 –

120 –

110 –

100 –

90 –

80 –

70 –

60 –

– 55.0%

– 50.0%

– 45.0%

– 40.0%

– 35.0%

– 30.0%

– 25.0%| 1993

| 1994

| 1995

| 1996

| 1997

| 1998

| 1999

| 2000

| 2001

|


Figure 4: interest payments as % of gdp (1993-2001)

Sources: Ministerio de Economía – Secretaria de Hacienda.

Year

% o

f g

dp

4.0% –

3.5% –

3.0% –

2.5% –

2.0% –

1.5% –

1.0% –

0.5% –

0.0% –

| 1993

| 1994

| 1995

| 1996

| 1997

| 1998

| 1999

| 2000

| 2001

|

Figure 5: government spending as % of gdp (1993-2001)

Sources: Ministerio de Economía – Secretaria de Hacienda.

Year

Total spending as % of gdp

Primary spending as % of gdp

% o

f g

dp

23.0% –

22.0% –

21.0% –

20.0% –

19.0% –

18.0% –

17.0% –

16.0% –

15.0% – | | | | | | | | |

1993 1994 1995 1996 1997 1998 1999 2000 2001


ThustheimfargumentthatArgentinawasbeingfiscallyirresponsibleis

notsupportedbythefacts,unlessfiscallyirresponsiblecorrespondstomak-

inggoodonitsdebtpaymentsfortheimf.ConsidertheclaimonApril10,

2002byimf’sAnoopSingh:31“Inourview,failuresinfiscalpolicyconsti-

tutetherootcauseofthecurrentcrisis.”(Cibilsetal.,2002:3).Consider

figure5,whereonecanseethatprimaryspendingisgoingupanddownat

theendofthe1990s,comparedtototalspending,whichhasaclearupward

trend.Thegapthatisgrowingbetweenprimaryspendingandtotalspend-

ingisbydefinitionduetoincreasesininterestpaymentsonthedebt,which

hasaverymarkedincreasethroughoutthe1990s,asseeninfigure4.Itis

ratheramazinghowtheimfportraysthesituationdespitesuchclearevi-

dencetothecontrary.

Insection2above,itwasseenhowtheimf,bynotcomingthroughfor

IsabelPerón,playedakeyroleinbringingabouttheendofheradministra-

tion.Themilitaryjuntahadtostrugglelesswiththeimfbecausetheywere

stronglycommittedtoimplementingneoliberalpoliciessupportedbythe

imf,andtheyhadnoproblemusingrepressiontodoso.However,once

Alfonsínwaspresidentin1983,theimfexpresseddispleasurewithregards

tohiseconomicstrategies,whichwereintroducingsomevariantsonthe

orthodoxneoliberalmodel.OnceAlfonsíndidtheunthinkableandsus-

pendedallpaymentsonthedebtprincipal,theimfflexeditsmusclesand

wasabletoforceArgentinato“returntoitssenses”andgetbackontheneo-

liberaltrack.Atthepointwhenhyperinflationwaspeakingatalmost5,000%

andthecountrywasenvelopedinacrisis,theimfwasoneofthestrongest

advocatesforAlfonsíntoresignandletMenemtakeover.Theydidnottry

toaccommodateArgentinawithan interim loanandwaitacoupleof

monthssoastohaveasmoothdemocratictransitiontothenextpresident.

Instead,theyplayedaclearroleinassistingthosefomentingchaosandfear

toforcetheArgentinianpeopletosupportMenem’sorthodoxneoliberal

approach.TheimfalsogavefullsupportfortheMenemadministration

andthecurrencyboardthrough2001,despitetheirattempttodenyany

responsibilityforthecurrentcrisis(Cibilsetal.,2002:6).

Despitehiscampaignclaimsadvocatingashiftfromneoliberalpolicies,

DelaRúafollowedanorthodoxeconomicplanaswellfromthetimehe

tookofficein1999.EventhoughtheDelaRúa’sgovernmentbroughtback


theneoliberalguru,DomingoCavallo,theimfstillletthemdownatthe

endof2001,byrenegingonapaymentandthusforcingtheimmanentcri-

sis.AsArgentinawasattheabyss,readytofallintoanevendeepercrisisand

depression,thelenderoflastresort,namely,theIMF,insteadofofferinga

hand,gaveArgentinaapush.

AsArgentina’sforeigndebtwasspiralingoutofcontrol,shouldn’tthe

imfhavebeensayingnotofurtherloansorsuggestingsomeotherpolicies

sothattheydidn’thavetokeepcomingupwithbailouts?Itappearsthatthe

imf,justlikeagoodloanshark,isquitecontenttojustkeepcollectingthe

interest,evenifnoneoftheprincipalevergetspaidoff.Theimfwascon-

ceivedasthelenderoflastresort,tohelpcountriesavoidfinancialcrises.

Basedonthiscriterion,inrecentyears,theimfhashadapoortrackrecord

—astringoffinancialcrises,whichtheyhavenotbeenabletoprevent.

Mexicohaditsworsteconomiccrisisin1994-1995,followedbySoutheast

Asia’sfinancialcrisisof1996-1997,thenRussiain1998,Brazilin1999,Ec-

uadorin2000,andnowArgentinain2001-2002—thelargestdebtdefault

inworldhistory!

Thisdemonstratesthattheimfmodelisnotworkingforthecountries

thatdependonitforfinancialsupportandthatsomethingneedstochange

internationally.Evidently,despitetherhetoricoftheimftoimprovethe

livesofthemajorityoftheworld’spopulation,itoperatesintheinterestof

globalcapital,predominantlyFirstWorldbanksandmultinationalcorpora-

tions,andinthatregardtheimfmodelisworking.Unfortunately,forthe

restoftheworld,thismodelisnotworking,andasArgentinahasgonefrom

adictatorshiptoadepression,itisaclearexamplethattheneoliberalmod-

elhasbeenafailure.

7. ConClusions

TheeconomicandsocialcrisisthatArgentinahasexperiencedhasanum-

berofcauses.Mostsignificanthasbeenthepursuitofneoliberaleconomic

policiesforoveraquartercentury,combinedwiththeimpactofglobaliza-

tion.Throughoutthisperiod,theArgentinianeliteandtheimfhavebeen

proactiveinpushingthisprojectandthusbearthegreatestresponsibility

forthenegativeimpactscausedbyit.Itwasduringthedictatorshipofthe

late1970sthatArgentinabeganaprocessofdeindustrializationduetoboth


theneoliberaleconomicprogramandtheclearshiftawayfrommanufac-

turingtowardagro-industry.ItisevidentthatArgentinahasbecomemuch

morevulnerabletothethreatofglobalcompetitionandtheoscillationsof

worldmarketprices,havingeliminatedthemajorityofitscontrolsfortrade.

Similarly,financialderegulation,combinedwiththepeggingofthepesoto

thedollar,ledtoawaveofforeigninvestment,capitalflightandanincreas-

inglyspeculativeandunstableenvironment.ThesechangescausedArgen-

tinatobemoresusceptibletotherippleeffectsoffinancialshocks,suchas

theMexicanpesocrisis,andmorepronetowardfinancialcrisesitself.

Theimpactofdeindustrializationover25years,combinedwiththemore

recentagriculturization,wasseenascontributingtoaworseningtradebal-

anceasimportsweregrowingincreasinglymorethanexports.Bythemidto

late1990s,thegrowingtradedeficithadbeenidentifiedassignificantlycon-

tributingtoproblemswiththebalanceofpayments.Inordertomaintain

reservesandkeeppayingtheinterestonforeigndebt,loansfromtheimf

wereincreasing,andcombinedwithUSinterestratehikes,resultedinAr-

gentina’sdebtdoublingfromus$72billiontous$146billionbetween1993

and2000.32

DespitetherebeingotherfactorsthanthetradedeficitwhichcausedAr-

gentinatoborrowmore,aswellasothercausesofthetradedeficit,many

emphasizedthecurrencyboardastheprinciplecauseofthecrisis.Ithas

beenarguedthatArgentinashouldhavedelinkedthepesofromthedollar

yearsearlier,butthisismoreeasilysaidthandonegiventhememoryand

fearofhyperinflationandalackofconfidenceinthenationalcurrency.Me-

nemdidnotwishtodelinkthedollarfromthepesobecausethefearofde-

valuationwouldhaveproducedapoliticalcrisiswhilehewasstillinpower.

Insteadhewasabletopostponetheinevitableandthecrisishitwhenthe

opposition,theRadicales,wereinpower.ThisreflectsMenem’ssupportin-

sideandoutsidethecountry,ashewasabletoshifttheburdentothenext

administration,andtherestishistory.

TherebellionofDecember19-20th,2001reflectedageneraldissatisfac-

tionwithalmostallestablishedpoliticalparties,asexpressedinthepopular

slogan:“GetRidofthemall!”(¡Que se Vayan Todos!).During2002therewas

hopeforsignificantpoliticalchangeintheair,betweenthestreetprotestsof

thecacerolazos,theorganizedunemployedworkersorpiqueteros,andthe


birthofpopularassembliesseekingtoredefinepoliticsinanewway.There

wasanincreasinglevelofeconomicautonomy—betweenthewaveofoc-

cupiedfactories,thegrowthofbarterclubsandtheincreasedroleoflocal

andregionalcurrencies—nottomention,atthenationallevel,thefactthat

Argentinahadbrokenitspactwiththeimf.

Nevertheless,Argentinacameoutofdefaultbysigninganinterimagree-

mentwiththeimfinJanuary2003,despiteabriefdefault(roughly9hours)

inSeptember2003.Havinghitbottomin2002,Argentina’seconomyinevi-

tablysawimprovementsthereafter,achieving9%gnpgrowthin2003.The

growththathasoccurredsincethenadirofthedepressionisstillnotenough

toresolvetheseriousproblemsofunemploymentandpoverty,astheyare

onlyimprovingslowly,andtheArgentinianmiddleclassappearsperma-

nentlyreduced.

AlthoughKirchnerhasprovidedacertainamountofhopeforArgentin-

ians,hissetofeconomicpolicieshasbeenamixedbag.Inhisdiscourse,

Kirchnerhasbeenquiteconfrontationalwiththeimfattimesandalsowith

certaintncs,butwhenitcomestoeconomicfundamentals,hehasaccom-

modatedtheimfbyagreeingtoa3%orgreaterbudgetsurplus.AsArgen-

tinaiscomingoutofadepression,itmakesnosensetogenerateabudget

surplus;instead,itisthetimethatyouexpecttohaveabudgetdeficitin

ordertobolstertheeconomythroughgovernmentspending.NoFirstWorld

countrywouldagreetohaveabudgetsurplusinsuchaperiod.Thisisnot

justanissueorproblemforArgentina,itisaninternationalissue,andif

othercountriesweremoresupportive,theimf’shandcouldbeforced.There

hadbeenmuchhopethattheLulaadministrationwouldbeaclearallyin

challengingtheimf,butitisevidentthatBrazildoesnotwanttorockthe

boatandisstayingontheneoliberaltrack.

Inthepoliticalarena,Kirchnerhasmadeseveralpositivechangesreflect-

ingthesentimentofthepopulation,inregardstothemilitaryandpolice

abuses.However,onewouldhopethatthefailuresofaquartercenturyof

theneoliberalmodelwouldresonateamongleadersingovernment,notjust

amongpiqueteros.Unfortunately,theroleoftheArgentinianeliteandthe

imfisstillactiveinattemptingtokeepthisfailedmodelgoing.Thepossibil-

ityofchangeresidesinthecontinuedstrengtheningofthenewmovements

ofthesociallyexcludedinArgentina,andprobablyseriousmobilizationsin


thestreetwillberequiredinordertobringaproperendtoafailedquarter

centuryexperiment,withaneoliberalismthathasenrichedthefew,both

foreignanddomesticelites,attheexpenseofthemajorityofArgentinians.

reFerenCes

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tina:¿“erroresdediseño”ofuncionalidadfrentealosinteresesdelpodereconómico?”.

In:R.BoyerandJ.C.Neffa(eds.),La economía argentina y su crisis (1976-2001): visiones

institucionalistas y regulacionistas. BuenosAires:MiñoyDávila.

BAKER,D.,WEISBROT,M.(2002)“TheRoleofSocialSecurityPrivatizationinArgentina’s

EconomicCrisis”.Center for Economic and Policy Research,April16,2002,Washington,

D.C.

BASUALDO,E.M.(2001)Sistema político y modelo de acumulación en la Argentina.Buenos

Aires:UniversidadNacionaldeQuilmes.

———(2003)“Historiaeconómica:lasreformasestructuralesyelplandeconvertibilidad

duranteladécadadelosnoventa,elaugeylacrisisdelavalorizaciónfinanciera”.Revista

Realidad Económica, n.200,16denoviembre–31dediciembre2003,BuenosAires.

CIBILSA,WEISBROT,M.,KAR,D.(2002)“Argentinasincedefault.TheIMFandtheDepres-

sion”.Center for Economic and Policy Research.Briefingpaper,September3,2002,Wash-

ington,D.C.

DAMILL,M.,FRENKEL,R.,JUVENAL,L.(2004)“Lascuentaspúblicasylacrisisdelaconvert-

ibilidadenlaArgentina”.In:R.BoyerandJ.C.Neffa(eds.),La economía argentina y su

crisis (1976-2001): visiones institucionalistas y regulacionistas. BuenosAires:Miñoy

Dávila.

DINERSTEIN,A.(2003a)“ThebattleofBuenosAires.Crisis,insurrectionandthereinvention

ofpoliticsinArgentina”.Historical Materialism,v.10,Issue4,London.

———(2003b)“PowerorCounterPower?ThedilemmaofthePiqueteroMovementin

Argentinapostcrisis”.Capital & Class,81,London.

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cupaciónycrecienteprecarizaciónlaboral”.In:D.Azpiazu(ed.),Privatizaciones y Poder

Económico.BuenosAires:UniversidadNacionaldeQuilmes.

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imfStaffCountryReportn.98/38,Washington,D.C.

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cidaddelaacumulacióndecapitalenlaArgentina”.Ciclos en la historia, la economía y la

sociedad,n.23,BuenosAires.

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Brasileira de Economia Política,n.27,RiodeJaneiro.


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notes

1. ItisinterestingtonotethatthisisnotthefirsttimethatArgentinasuspendedpaymentonitsforeigndebt.Thefirsttimewasin1891,duringanotherperiodofglobalization(seefootnote12below).

2. AlthoughArgentina’sgnpper capitahasbeenindeclinesinceroughly1914,itwasstillfaraheadofotherLatinAmericancountriespriortothedictatorshipof1976.

3. GiventhepoliticalinstabilityinArgentina,IsabelPerón’sgovernmentlackedacleareconomicapproach,attemptingbothorthodoxandheterodoxpolicies.

4. AlthoughthereisastrongerassociationofChilewiththeUniversityofChicagoandtheinfamous“Chicagoboys”,theshiftthattookplaceinArgentinawasalsoclearlyinflu-encedbyChicago’sconservativeeconomistsandadvocatesofthefreemarketandaminimalroleforgovernments.

5. TheCordobazowasaweeklongworkingclass-ledrebellioninthemajorcityofCordo-ba.

6. ExamplesoftncsproducinginArgentinaduringthisperiodareFord,Renault,WarnerLambert,Philips,SiemensandBrownBoveri.

7. Forexample,MartinezdeHozwasamemberofmorethan10directoratesofagrobusi-nessandindustry,andheputintoplacetheplanwhichhadbeendevisedbymajorcompaniesmonthsbefore,inplanningforthecoup(Sevares,2002:32).


8. Patria financiera (literallytranslatedasfinancialfatherland)representsthesignificant

linksbetweenthegraingiantsandfinancialinterests.

9. Thisinterestrate“shock”wasassociatedwiththe180degreeturnwhichtheimftook

withrespecttolendingtoThirdWorldcountries,andwasclearlylinkedtothedebt

crisiswhichbeganwithMexicoin1982.

10. sra(Sociedad Rural Argentina),uia(Union Industrial Argentina)andthecgt(Confed-

eración General de Trabajadores,GeneralWorkers’Federation).

11. Alfonsín’spushforthedemocratizationofthePeronist-dominatedcgtreflectedapo-

liticalrivalryandnotjustaconcernfortransparencywithinthecgt,whichwasandstill

issomethingnecessaryforArgentinianworkers’interests.

12. Thetermglobalizationreferstothecurrenthistoricalprocess,moreaptlytermedneo-

liberalglobalization,inwhichinvestmentandtradeareconductedinanincreasingly

pro-capitalandlaissez-faireatmosphere,resultinginamoreintenselevelofglobalcom-

petition,suchthattheFirstWorldtncsgainanevengreateradvantagecompeting

againstThirdWorldfirms,despitetherhetoricaboutanevenplayingfield.Afullerand

necessarydiscussionofglobalization,imperialismanddevelopmentliesoutsidethe

scopeofthispaper.

13. Itshouldnotbesuchasurprise,giventhefactthatDomingoCavallowasthepresident

oftheCentralBankduringthelateryearsofthedictatorship.

14. AstheeconomicpolicieslaidoutbytheMenemadministrationwerepracticallyidenti-

caltotheeconomicpoliciespursuedbythedictatorship,theinfluenceofMiltonFried-

manandothers,suchasLucas,fromtheUniversityofChicago,wasreflectedinthe

policiespursuedbyArgentina.

15. Initially10,000australes=1dollar,andafterArgentinachangeditscurrency,1peso=

1dollar.

16. ypf–Yacimientos Petroleros Fiscales;“NationalOilCompany”.

17. Althoughitcanbearguedthattaxespaidbytheprivatizedcompaniesprovideasource

ofrevenue,itisalmostcertainlyasmalleramountthanthepotentialnetrevenuegener-

atedbyapublicenterprise.

18. Evenin2005,weseethepressurebyRodrigoRatooftheimfontheKirchnergovern-

mentregardingprivatizedfirmsandtncsoperatinginArgentina.

19. AccordingtoRock(2002:71),“InthepoorestpartsofArgentina—thenorthernprov-

incesofSalta,JujuyandFormosa—per capitaincomeamongthepoorhadfallentothe

levelsofBangladeshandNepalbythelate1990s.”

20. Usingtheestimationofpercentagesintable1ofBakerandWeisbrot,2002andtheseries

forgdpfromindec,anestimatejustoverus$18billionwasgenerated.

21. gatt–GeneralAgreementonTradeandTariffs.

22. Therewerealsootherfactorsrelatedtoregionalindustrialstrategywithinthecontextof

Mercosur.


23. Duringthe1990s,between24-31%ofArgentina’sexportsweregoingtoBrazil,andthe

overvaluationoftherealbetween1994and1998didplayaroleinthegrowthofArgen-

tina’sexports.

24. Seedoils(oleaginosas)includecorn,sorghum,soybean,andsunfloweroils.

25. Thisisbasedonacalculationusingdatafromindec,2005andBasualdo,2003.

26. Thetermdepressionisoftenavoidedbymainstreameconomists,andunfortunately

manyprogressivesfollowsuit;however,itisadistortionofthefactstodescribewhat

tookplaceinArgentinabetween2001-2003asmerelyarecession.

27. Acurrencyboardreferstopeggingalocalcurrency,suchastheArgentinianpeso,tothe

usdollar,whichwasone-to-oneformostofthe1990s.

28. DomingoCavalloservedaspresidentoftheCentralBankunderthedictatorshipinthe

early1980sandasEconomicsMinisterthroughmostofthe1990swhenMenemwasin

power,andbrieflywithDelaRúa.

29. Thereareseveraldifferentpiquetero organizations,buttheyprefertobereferredtoas

unemployedworkersratherthanjustareferencetoaspecificstrategytheyemploy,

namely,picketingorblockadingofhighways.Formoreinformationonthedifferent

organizations,seeDinerstein(2003a,2003b)orSvampaandPereyra(2004).

30. Thecorralitowasameasurewhichpreventedpeoplefromwithdrawingmorethan$250

aweekor$1000amonthfromtheirbankaccounts.

31. AnoopSinghistheimfDirectorofSpecialOperationsinBuenosAires.

32. Asreferredtoabove,increasesinusinterestrateswerealsoduetothefinancialcrisesin

Mexico,Asia,RussiaandBrazil,andsecondly,Argentina’scountryriskwassubsequent-

lyimpacted,furtherexacerbatingthegrowthofArgentina’sdebt.

argentina’s quarter century experiment with neoliberalism · p. cooney – argentina‘s quarter...

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