Letter from Buenos Aires, part 3: Now & Then: Argentina chokes on neoliberal economics
December’s violence in Argentina got airplay worldwide: a concentrated social convulsion that brought about the government’s collapse. Everywhere, scenes of citizens looting supermarkets around the nation, of mounted police with “state of siege” orders charging massed demonstrators in downtown Buenos Aires, and of the incensed masses (the cacaroles) pounding pots and pans in the Plaza de Mayo outside presidential offices at the Casa Rosada.
Twenty-seven Argentinians died in the nationwide uprisings,which culminated in the resignation of President de la Rua. His four successors departed in short order, including the president of the Senate who, having already done one interim stint, refused his constitutional obligation to again take up the reins of a nation plunging out of control. The current President, Eduardo Duhalde, was installed after several weeks of political turmoil (Duhalde lost the ’99 election to de la Rua).
Those scenes, wrenching as they were, had plenty of backdrop. Last August saw the providence of Buenos Aires issue patacones as payment for civil servants, the first of many pocket bonds to appear in lieu of pesos or dollars. The provinces, broke and missing payments from the national government, had begun printing scrip. People were being paid, not in cash, but in promissory notes redeemable in the future by government institutions mired in debt. (Since breaking the peso from parity with the dollar in January, 19 scripts and temporary methods of payments have appeared in Argentina).
Resentment swelled into pitched outcry, President de la Rua’s single digit approval rating led to his Allianza party’s defeat in October’s congressional elections (a fifth of votes abstaining, another fifth arriving at the polls then defacing their ballots). In early December, the International Monetary Fund (IMF), unsatisfied with the government’s austerity measures, withheld a $1.3 billion dollar infusion, kneecapping the government’s prolonged half-measures. The de la Rua administration was in its death throes, halfway through its elected term.
More or less unnoticed here, a grim story of financial impasse led up to December’s eruption. This showdown, disguised as a stalemate, had dragged on for many months. On one side was Argentina, desperately in need of flexibility and a change of course to avoid implosion. On the power side, the IMF demanded a stringent monetary orthodoxy hike while the forces of global economy dictated constriction. Once world leaders turned their back on the government, the populace rose and threw its leaders out. And Argentina has gone, in a few short years, from international player to discredited pariah.
Argentina in August. The continued installments that the Rail has run in recent issues, and attempt to shed some light on an intractable situation that Argentinians struggled with for many months. The economy there has been in recession for four years before its final collapse caught the world’s eye.
EARLY AUGUST, 2001, A TUESDAY IN ARGENTINA.
Some 150 blockades are synchronized nationwide, protesting the government’s latest austerity measures. The scene repeats across the land: marchers chant, raise placards and banners, barricades clog thoroughfares, with mounds of flaming truck tires belching sooty smoke. There’s action at the Parque del Congress here in the federal capital, in provincial capitals, outlying townships, transportation hubs, and remote highway interchanges.
With plenty of forewarning in the media, these calculated protests occur in each of Argentina’s 24 provinces, from Salta and Jujuy on the Bolivian border in the north, to Chubut, Santa Cruz, and Tierra del Fuego in the windswept, Patagonian south. From Mendoza’s vineyards beneath the snow-capped Andes, to the Atlantic coast resorts in the province of Buenos Aires, this day blockades come off peacefully. The only violence, videoed in a southern province then aired repetitively on national news, turns out to be revenge beatings for union defections. There are promises of more blockades to come.
The jobless protesters operate in a loose coalition with the media sobriquet “Los Piqueteros” (The Picketers). They manifest the Argentinian people’s discontent with the Zero Deficit austerity programs of President de la Rua and his Minister of the Economy, Domingo Cavallo. These stringent cutbacks are meant to satisfy economic standards imposed by the IMF and the World Bank, who will then release the latest aid installment. The government attempts to manage $130 billion of debt; the nation suffers its 40th month of recession.
On the evening’s news, and on spotlight programs that air later Tuesday evening, bickering flares between spokesmen from Los Piqueteros and government representatives. How many demonstrations? How many demonstrators? What social value to these protests? And what of the vying for aid that will deepen the nation’s crushing debt?
Spokesmen for the protestors, speaking from picket lines as night falls, are heated, righteous, indignant: after three years of recession, the people can’t survive more cutbacks. One government minister, seated in a TV studio wearing a three-piece suit and wire-framed glasses, watched the monitor bank with lips pursed and a gleaming pate, his fingers raised in a peak before his chin.
Los Piqueteros have been gaining momentum for months. Their earlier, more random activities out on major trucking routes forces attention to their cause. The professional class is earning half of what it earned ten years ago, but for these picketers, there’ve been no jobs form which they could strike, and content the government’s choking off of services. Their ranks swell as chronic unemployment climbs.
Foreign intervention is unlikely. The IMF operates like a branch of the US Treasury and Argentina holds negotiable strategic interest. The prevailing economic attitude seems experimental; the gamble being to see what occurs in lieu of a bail-out. Last year it seemed the Argentininian situation could get worse, and now it is much worse.
With the political stakes low (as compared to Mexico, Russia, Turkey, which have received enormous bailouts in recent years), one option is to study alternatives to emergency infusions. Since the IMF’s inception 30 years ago, one nation a year has defaulted on loans. If the institution (along with the financial structure it represents) is blameless, then we’ll see what happens when a nation allowed to borrow can’t play (pay) by the rules, and is left to mend its own wounds.
Such an economic meltdown remains imminent in Argentina. The government struggles to service interest premiums on debt, and are slashing services (new 13 percent public pay cuts, “restructured pensions,” outlays denied to the provinces where unemployment runs rampant). These same services, already heavily reduced, are being bled to comply with IMF standards that control further loans.
These new loans will pay interest on existing debt. If this vicious circle seems unbearable, consider a nation plunged into recession whose government is being forbidden to spend any money on recovery. Unemployment is at 16 percent and climbing. Many of the chronically employed were put out of work as foreign owners bought and streamlined the national industries and services during wholesale privatization under last decade’s President Menem.
Menem, who now leads the powerful, fractious Justicialista party (the renamed Peronists), elicits widely disparate reactions here. Ardent supporters altered the constitution to keep him running for a third term, and they await his candidacy when de la Rua’s first term concludes. The darling of special interest groups, some of Menem’s minor achievements include the enormous mosque constructed on prime real estate near Buenos Aires’ famous cattle show arena, La Rural (land acquired by his co-religionists for a song), and the handsome brick wall now enclosing the Presidential villa in Olivos, a posh northern suburb in the capital.
On the other hand, many middle class Argentines won’t pronounce his name. The present economic backlash is inherited from his presidency, which found sudden prosperity and international acclaim when Economy Minister and finance wizard Cavallo established peso-dollar parity and halted the rampant inflation of the late ’80s. Lusty foreign investment followed, but fiscal policies became fixtures and gradually obliterated the export industry, while masking the lack of government investment and creating long-term recession that has dragged Argentina’s economy out to the brink of disaster.
But that’s only the money picture that Menem left behind. For many Argentinians, he is unforgiven and unforgivable for pardoning the admirals of the later ’70s and early ’80s dictatorship. They, with their similarly-pardoned military leaders and henchmen, had crushed this nation’s opposition, arresting and torturing anyone they deemed a threat, or even suspicious.
Menem released men already convicted of crimes against their own people, and absolved them of liability in lawsuits that were just beginning to hold them responsible and to make them pay for atrocities committed while they were in power. In the first year of his presidency, de la Rua abolished 1500 pensions the Argentine government was paying to holdovers from those military regimes.
Security was heightened during a visit we made to Club Alemane, the German Riding Club alongside the Palermo Lakes. An exhibition of landscapes painted by an acquaintance of my host, was the occasion of our lunch visit. Also there for lunch was the judge who’d recently placed Menem under house arrest, freezing $3 million of his personal assets linked to arms deals during his administration. Those deals dodged international sanctions barring weapons trading with Croatia and Ecuador, and sent 6,500 tons of arms to those troubled spots while pretending they were destined elsewhere. Big money was made by those involved, with Menem’s brother also under scrutiny.
So, after Menem’s stewardship, profits from almost all Argentinian utilities now leave the land (as does the money of wealthy Argentines). There’s little interest in the international community for the plight resulting from privatizations (French and Spanish ownership dominate the phone companies, the water industry, electricity). The peso remains pegged to the dollar, and a huge proportion of the debt stems from purchases of dollars to maintain convertibility (which is the government’s promise to the world’s investors that there is a dollar in reserve for each peso in circulation).
Cavallo, a Harvard graduate who headed the Central Bank during Menem’s administrations, crafted much of the economic and fiscal policy that’s being maintained from that era. A half year ago, when de la Rua’s economic ministers proved ineffectual, Cavallo was called back. His presence is perhaps best seen as figurative (a hero from times of prosperity), and as an administrative link to the opposition party, Menem’s Justicialistas. For there seems little a policy maker can do to reverse the economic tailspin.
Fiscal policy is being dictated by the strong dollar, which makes Argentine exports uncompetitive with their neighbors’ (Brazil successfully floated its currency two years ago). In economic policy, the administration must strive to meet IMF standards. Cavallo has his priorities: obligations to the IMF, the World Bank, foreign investors, and bondholders. The existing economic plans establish Argentina’s servitude within the global economy, and Cavallo devised them a decade ago.
After Tuesday’s blockades, a Bank of America report assesses four pesos to the dollar and gets high profile here. The stock market, hollowed of export industry (Argentinians aren’t even making their own bicycles) and of foreign-owned utilities and services, takes a nose dive the next day.
With John Taylor, under secretary from the US Treasury for international affairs, arriving soon at the head of commission, Secretary of the Treasury Paul O’Neill points to Argentina’s lack of exports in a widely publicized statement, and declares that “they like it that way.” President Bush goes one further, with an offhanded comment that he’d bet $10 on Argentina’s recovery.
Visiting British Prime Minister Tony Blair and President de la Rua confer at a resort hotel alongside Iguaza, the huge waterfall where Misiones province juts up into subtropical Paraguay and Brazil. Twenty years ago Argentina fought a war with the UK over a cluster of islands out in the turbulent South Atlantic, islands populated primarily by sheep and penguin colonies that breed on jagged, surf-pounded shores. The Argentines call the islands the Malvinas, and still call them their own. To the British, and to most of the rest of the world, they are the Falklands.
Back then, in the early ’80s, Argentina proclaimed ownership, then sent an occupying force of inexperienced conscripts to that barren place. A British fleet sailed the long route south and delivered a bloody thrashing to the Argentinians. Many hundreds of wounded, defeated youths perished when the Argentinians Navy’s only battle cruiser, the Belgrano, was sunk by Royal Navy missiles as it retreated home. The merciless bludgeoning of an outcast nation at the hands a faltering world power, the conflict finally took the stuffing out of Argentina’s cruel and isolated military dictatorship.
And now, Clarin, the nation’s largest daily newspaper, runs a front page, color close-up: Britain’s photogenic Blair sips at a mate gourd’s silver pipette. De la Rua stands behind him, looking characteristically watchful and tepid. The future necessitates putting the past behind.
POSTSCRIPT, FEBRUARY 2002
The lack of interest, for previous circumstances mentioned above, and for the current circumstances as Argentina attempts to recover from political and economic collapse, runs deeper than the newsworthiness of events. During the slow slide to default, the attention of prime players was “contagion”; the risk that collapse in Argentina would destabilize other economies in the region of elsewhere on the world financial stage. That hasn’t proven the case; it seems that the slow slide itself allowed most investors time to cut ties and hedge their losses.
Now Argentina seeks another $24 billion package from the IMF. The Duhalde government calls it a start-up package toward recovery. The IMF and sponsors respond that they need proof of a “coherent” economic plan before resuming disbursement. That isn’t there. The devalued peso shrinks fitfully, and is now worth half of what it was in December. Argentinians don’t have money to spend: until recently, bank withdrawals were restricted to $250 a week, so the state doesn’t receive tax revenues. The political machine stumbles along, proposing a one-time tax on profitable businesses (one wonders where they’ll find those), announcing that it can’t pay monthly salaries (and raising their own at the end of February), while justifying its own feeble efforts be declaring the nation at threat of civil war.
The risk they actually run is of infuriating the people. Demonstrations continue; the common cry is to “throw them all out.” Though Duhalde fears the protests will reach “the limit of the tolerable,” they are low level compared with the outraged provocations that ousted his predecessor.
The military lays low, discredited by the Dirty War its dictatorships waged twenty years ago (two subsequent coup attempts were foiled). Political commentators express concerns that a populist leader may emerge from outside the ineffectual parties, citing Fujimori’s rise on the right in Peru, and the leftist Chavez in Venezuala. No such figure is apparent as yet, and Argentina attempts to restabilize under its predictable politicians.
With elections in two years, Duhalde’s biggest fight may be with his own Justicialista party. Menem, a party head and a disdainful enemy though Duhalde was once his VP, holds court in the popular press. Carlos Ruckauf is another potential opponent. A current Cabinet Minister, Ruckauf succeeded Duhalde as governor of Buenos Aires province with a province so broke it had to begin issuing scrip bonds to pay employees. One is reminded that fratricidal violence among Peronists (precursors to Justicialistas) resulted in dictatorship, and also that, this December, then-President de la Rua pleaded for support and participation from the Justicialistas, was rebuffed as people hit the streets, and then resigned.
Duhalde and the Supreme Court are also at loggerheads, which may not be an entirely bad thing. That body, expanded by Menem in the early ’90s from five justices to nine, remains packed with his friends and allies. They provided him with the “automatic majority” that swept in privatization, deregulation, and pardons for military officers and right-wing guerrillas who’d perpetrated seven years of human rights abuses in Argentina.
Another governing policy instituted by Menem, also undergoing reactive revision, is automatic alignment with the US (initially dubbed “carnal relations” by Menem’s foreign minister). Secretary O’Neill of the US Treasury recently declared Argentina’s problems to be largely self-inflicted. President Bush, speaking to the Organization of American States in Washington, warned that members of that body “need to strengthen our commitment to market-based reform, not weaken it.” (Meanwhile, Bush levies tariffs to protect the US steel industry). This ideology of let’s-wait-and-see stands in marked contrast to his father’s administration, which enthusiastically inaugurated Argentina’s decade of borrowing (at the dollar’s interest rates).
The IMF postponed the $993 million dollar payment that Argentina owed at the beginning of this year, an act of enforced lenience since there’s no money to pay it. Anne Krueger, Horst Kohler’s #2 at the IMF has officially proposed a sort of national Chapter 11 that would allow governments to declare bankruptcy as corporations and individuals can. This plan, proposed by economist Jeffrey Sachs ten years ago, draws support and condemnation, and is being vetted too late to rescue Argentina.
Emigration back to Italy, or to Spain if they’re lucky, seems the only hope for Argentinians whose relatives arrived from there in search of opportunity. Medicines are in short supply; horse carts have become familiar sights on urban streets. Mercosur, the economic umbrella with Brazil, Uruguay and Paraguay, is being revived, in defiance of the Bush administration’s push towards a Free Trade Region of the Americas. And the US is, once again, regarded as a fickle, undependable ally (Argentina was the only Latin nation with troops in the Gulf War, and it is now somehow paying for a contingent and hospital in Afghanistan).
An editorial from El Nacion of Caracas, Venezuela, declares: “Hunger, unemployment and poverty are hard to imagine in a country that pioneered development in Latin America.” In neighboring Chile, they have a less solemn way of saying the same thing: “Now we’ll be getting some pretty housemaids.”
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