Groundhog Day looms in Argentina as the IMF returns

A decade of IMF conditionality and adjustment sparked Argentina’s 2001 debt default and economic earthquake, and it was expelled from the country in 2006. Yet the country’s new government has officially invited it back next week, writes Daniel Ozarow from Buenos Aires.

IMF Protest outside Presidential offices, Buenos Aires, Argentina. Photo: Xomiele/Flickr
IMF Protest outside Presidential offices, Buenos Aires, Argentina. Photo:

“Get rid of the lot of them!” roared the indignant crowds in Buenos Aires’ main square, the Plaza de Mayo. It was a sticky late-December evening in 2001 and the masses were responding to the astonishing sight of the President, Fernando De La Rua fleeing the presidential palace in a helicopter. Once hailed by the International Monetary Fund as a poster child for obedience to its formula of structural adjustment, austerity and neoliberal reforms in return for new loans during the 1990s, by 2001 the Argentinian economy had collapsed and was on the verge of the largest public debt default in history (until Greece), totalling $132 billion.

Half the population descended into poverty, including swathes of the middle class, a quarter were left unemployed and depositors had their life savings confiscated as the banks went under. Amidst the chaos that engulfed the country, millions of citizens were in revolt in city centres nationwide, seeking to rebuild grassroots democracy through neighbourhood assemblies, worker-run factories and participatory budgets.

But aside from the banks, politicians, judicial system, political parties and the rest of the established order which the population wanted shot of, a Latinobarometer poll at the time indicated that Argentinians deemed the IMF second only to ‘the government’ as most culpable for causing the economic and political crisis. Once the insurrectionary spirit of those extraordinary times had been placated by the election of a new left-leaning government led by President Nestor Kirchner in 2003, the remaining $10 billion debt to the IMF was promptly paid off and the institution soon expelled from the country. Following the default, two thirds of the outstanding debt was written off. Combined with favourable global commodity prices, prudent internal investment and Chinese demand for Argentina’s soya exports, the economy went on to become the fastest-growing in the western hemisphere. 11 million were taken out of poverty and prosperity returned for many. Despite the initial pain and becoming a pariah on the global markets due to its refusal to cede to the repeatedly-failed IMF policy recipe, debt default proved the right thing to do.


Yet astonishingly in a weeks’ time, the IMF will be back in Argentina to inspect the accounts. Invited by conservative and pro-neoliberal President Mauricio Macri who came to power in December 2015, the official brief of the Fund’s economists is ‘to assess the sustainability of the country’s fiscal and monetary policies.’ In practice, its imminent return is already stoking misery for Argentina’s embattled people.

In anticipation of the visit and eager to pre-empt IMF demands to liberalise the economy and deliver austerity in order to attract foreign investment and loans (“returning to the world” in Macri’s words), the President’s ‘shock doctrine’ strategy to abruptly reverse many of President Kirchner and subsequently his wife President Cristina Fernandez’s policies, has rattled multiple sectors of society. First, currency controls were removed, provoking a sharp devaluation of the Argentine Peso and provoking a punishing 54% increase in the cost of living. Secondly, export taxes on grain, beef, soya, mining and fish which had been used to fund both public spending and debt repayments and also ensure food sovereignty for the population were either slashed or ended. Thirdly, mass public sector layoffs have commenced. 67,000 civil servants have been fired and 200,000 redundancies made overall so far in 2016 once jobs lost in the private sector and the general crowding out of small and medium-sized businesses is accounted for. This has brought unemployment near to 10% with a further 11% underemployed according to government figures (INDEC). Wage suppression has also seen average salaries decline by 12% this year.

Fourthly and perhaps most controversially of all, Energy Minister Juan José Aranguren announced that he would halve the $16 billion subsidy bill. Gas tariffs have since quadrupled for most consumers; whilst those for electricity have increased six-fold in what has become known as the “Tarifazo.” Whilst the policy is currently the subject of a legal challenge, 1.4 million citizens fell below the poverty line in the first four months since President Macri took over, according to a recent report by the Social Debt Observatory, at the Catholic University of Argentina and that is before the impact of the utility price hikes are even included. The link between the IMF’s visit and increased hardship for the overwhelming majority of the population is clear.

Yet the spectre of the IMF’s reappearance in terms of resurrecting a public indebtedness model for the country and how this is serving the interests of global finance against those of its poor and middle class must also be exposed.

Serial payers

Indeed, other than its valiant refusal to cede to the demands of the US vulture funds which had been holding Argentina’s economy to ransom after having successfully sued the state for extortionate profits on bond holdings in the US courts, the previous Kirchner governments (2003-2015) never stopped being ‘serial payers’ of the debt. Having transferred sums of $10 billion, $5 billion and $677 million to the Paris Club, to compensate Spanish-owned oil and gas company REPSOL for its part-nationalisation and for compliance with the World Bank’s investor dispute settlement court (ICSID) rulings respectively (in addition to the US $10 billion it had already paid back to the IMF), a more principled stance would have been to suspend payment to all investors or speculators in the national debt and instead directly challenge its dubious legitimacy due to its odious origins dating back to the brutal 1976-83 military dictatorship which “Disappeared” 30,000 Argentinian citizens. Whilst a Bicameral Commission was established in 2014 to investigate these origins (needlessly duplicating Judge Ballesteros’ ‘Olmos Case’ findings in 2000 which already found the debt to have been accumulated “illegitimately, illegally and odiously”), it lacked teeth and was unable to even recommend that a full audit be conducted, let alone non-payment.

Groundhog day

However, what we are witnessing under the Macri administration is profoundly more serious. Its economic policy blueprint represents nothing less than Argentina returning to the same fiscal deficit model – financed by external debt and the associated instability it generates – that operated in the 1990s under IMF tutelage. Whilst the advantage now is that the proportion of public debt held by foreign creditors in foreign currencies is considerably lower (a positive legacy of Kirchnerism), in recent months there has been a notable increase in loans from different investment funds overseas. Foreign capital has displaced large domestic exporters as the prime source of foreign currency accumulation in the power structures of Argentina’s economy, creating a path for progressive indebtedness which is masking creeping capital flight.

In a further move that seeks to satisfy global finance, the vulture funds were paid back on grossly unfavourable terms representing a profit of 1,270%. Whilst ending the country’s 2014 “technical debt default” which was arbitrarily declared by credit-ratings agencies, the move was paid for by issuing the largest bond sale of any global south country in the last 20 years. This yielded a healthy 7.14% return for the speculators involved and added $15 billion to the public debt.

Indeed, finance capital’s renewed structural centrality is also evident in recent state spending agreements. The figures, taken from the Central Bank of the Republic of Argentina, are mind-blowing. Private loan funding to service both debt repayments and for ongoing public sector projects has increased tenfold during the first six months of the Macri government in 2016 compared to the same period last year. Such deals are tied to the vulture funds agreement and the associated bond issue. Foreign currency accumulation achieved through 1) indebtedness and financial speculation, 2) the remittance of profits and dividends abroad (restricted by the Cristina Fernandez’ administration) which has increased thirteen-fold year on year, and 3) interest payments which have more than doubled in the same timeframe, mean that current annual payments to foreign capital equate to $10 billion. This will only increase in the foreseeable future. Whilst the privilege of re-joining the IMF will mean that Argentina will have to indebt itself by a further $400 million, the 2016 budget approved by congress will add $40 billion overall to the 2015 debt.

The austerity regime that the government is imposing as the IMF peers over the President’s shoulder is being conducted in the name of “increasing competitiveness” – a euphemism for growing profits for the large overseas financial conglomerates that are enveloping the country. Those who are suffering from this “renewed indebtedness model” are average Argentinians. However, the current project is financially unsustainable. IMF intervention, once its nature is exposed, will surely prove unpalatable to Argentina’s people. The havoc that the Fund reaped in Argentina and across Latin America two decades ago is still fresh in the memory. There will be a heavy political cost to pay for the current government if large numbers decide it’s time to “get rid of them all” once again.

Daniel Ozarow is Chair of Jubilee’s Academic Advisory Network and a member of the Argentina Solidarity Campaign.

Jubilee Debt Campaign is supporting the Argentina Solidarity Campaign’s “IMF Not Welcome! Out of Argentina and Latin America” protest outside the Argentinian Embassy, 65 Brook Street, London W1K 4AH at 6.30pm on Monday 19 September. The protest will coincide with the arrival of the IMF’s delegation in Buenos Aires. See the Facebook event for details >>


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