On August 11, the Argentine peso was 45 to the U.S. dollar. The next day, it was 60 to the dollar: a devaluation of 25%.
The result is an exacerbation of an already enormous economic crisis in Argentina. Unemployment exceeds 10%. People’s wages are being devalued, and there is not enough money to buy even basic necessities.
Meanwhile, Argentina has an external debt of at least $160 billion to the IMF and other international organizations and private investors. Some talk about default; the last time Argentina declared a default, in 2001, it led to an enormous social, political and economic crisis. How did Argentina get here?
When President Mauricio Macri took office in 2015, he did so with an austerity plan for the working and popular masses, since the cycle of economic growth that took place under the previous governments of Néstor and Cristina Kirchner was coming to an end. This growth was essentially made possible by high commodity prices. Kirchner, however, left her government with a 33% poverty rate, more than 40% underemployment and 25% inflation, which led the middle class and sectors of the working class affected by taxes to strongly reject her government.
Macri came to power not by saying he was going to implement austerity but by promising to encourage foreign capital investment. According to him, this would create jobs and lower poverty and inflation. But it was the richer sectors, linked to agribusiness and finance, that benefited from tax cuts and capital flight.
Macri’s government pursued a policy of taking out loans from different organizations. In June 2018, he declared that he had reached an agreement with the International Monetary Fund (IMF) for a three-year contingent loan agreement worth $50 billion, with the aim of reassuring investors, nervous about growing concern over the fiscal deficit, rising inflation and pressing debt obligations. Private investors see in Argentina a handful of investment risks: high salaries, relative to the rest of the region, the high number of strikes and high level of unionization.
In exchange, the IMF indicated the agenda that Argentina should follow in order to periodically receive loan disbursements: labor reform, pension reform, tax reform and cuts in public spending. Macri’s government, however, was unable to fully impose this agenda. It had to maintain some social policies while failing to achieve the promised foreign investments. The crisis deepened, with inflation soaring, unemployment rising and public service rates increasing enormously.
With great wear and tear, Macri’s government was severely defeated at the polls in the primary elections. These are open primaries where everyone in Argentina votes for their preferred parties, and sometimes their preferred candidates within the party. As the whole population votes in the primary, the party with the most votes is a very strong indicator of who will win the general election a few months later. Peronist presidential candidate Alberto Fernandez ran along with former president Cristina Fernandez de Kirchner as vice president. Fernandez-Fernandez’s candidacy won with 47%, 15% ahead of Mauricio Macri, an almost irreversible result.
In response, the markets responded with a financial blow. On August 12, the day after the elections, the peso fell more than 25% against the U.S. dollar; the shares of Argentine companies in the U.S. fell sharply, and the country’s risk rating for investors increased several points.
The new minister of economy, Hernán Lacunza (the former minister, Nicolas Dujovne, met after the last great devaluation), announced that the government would postpone paying part of the debt in the short term and face the “refinancing” of the debt in the medium and long term. The announcement was received in the financial sector for what it really is: a “selective” debt default.
It is no secret why this government—which was seen as the market’s best friend—made this decision: it does not have the money to meet maturities without approaching a complete economic disaster. Added to this is the electoral race, since the current president is still a candidate. A situation has been created in which Macri does not have the capacity to govern and Fernández wants to assume the lowest-possible cost of the IMF’s ongoing austerity plan.
Argentina’s Central Bank raised interest rates to 60%, while Macri announced a series of “emergency” measures to eliminate the primary fiscal deficit and increase export taxes. He also sanctioned economic measures such as increased family allowances and year-end bonuses for state workers, but these measures are insufficient in the face of a real wage loss of more than 40%.
The government’s measures fail to calm the fears of the workers and the poor, who in the past have already suffered the consequences of IMF interference and indebtedness.
In the name of “being responsible,” the Frente de Todos (the Peronist coalition that won the primaries) accepted the debt repayment as inevitable, rejecting any questioning of the whole process of indebtedness and its beneficiaries. Alberto Fernández affirmed that “debts must be paid,” but he does not explain that the mechanism of the external debt constitutes fraud.
This has always been the Peronists’ position. In 2005, Néstor Kirchner renegotiated the debt to get out of default, even though a judge detected 477 illegalities in a case about the formation of the debt acquired by the genocidal dictatorship (1976-1986).
Today, Argentines are witnessing yet another episode at the end of a cycle. The country, governed by its owners and the interests of the imperialists, has ended up in a catastrophic crisis. The attempt to attack the conquests of the workers and make the whole people pay for this crisis had as its response the electoral rejection of Mauricio Macri’s project, with the hope of the masses that Peronism could better administer the current crisis. This illusion still prevails, but some important struggles, such as the educational strike in the province of Chubut (region of southern Argentina, governed by Peronism), show that the workers will have to escape the IMF’s domination.
An Illegitimate Debt
Almost 50% of the debt incurred in the three years 2015-2018 was used for capital outflows; a large part was used to repay the previous debt. Not a dollar went to a school, a hospital or a housing program.
Most of the capital flight ended up in tax havens, in the mafia barracks where the owners of the country keep the product created by the working class that they appropriate—that is the source of their profits. Now the Argentine ruling class wants the crisis to be paid for by that same working class through aggressive austerity plans.
Argentina’s indebtedness to the IMF and imperialism is long-standing. The illegal and illegitimate acquisition of the debt goes back to the years of the military dictatorship (1976-1986).
The CIA supported the military dictatorship that increased Argentina’s foreign debt by 449%, from 8.2 billion in 1976 to 45 billion in 1982, largely due to the nationalization of the private debt of local and foreign economic groups operating in the country. Judge Ballesteros, in the case initiated by Alejandro Olmos, detected at least 477 illegal operations in that nationalization process.
As one of several examples, the private debt of the Macri group (a group of companies formed by the president’s family) was nationalized, adding $200 million to the state debt which the Macri group never repaid. President Raúl Alfonsín (the first president elected after the fall of the dictatorship in 1983) never fulfilled his electoral promise to separate the “legitimate and illegitimate” debt, or to form a “club of debtors” along with other Latin American countries with similar debt crises.
The World Bank determined that 40% of the debt contracted by the dictatorship financed the outflow of capital, another 30% was used to pay the interest on the previous debt and the remaining 30% for the purchase of arms and undeclared imports.
During the last years of the dictatorship, Domingo Cavallo, who was director of the Central Bank and later Minister of Economy under Carlos Menem (Peronist president who applied the neoliberal plan as a whole) and Fernando De La Rúa (responsible for the debt default in 2001), nationalized private debts: the loans contracted by Techint, Renault, Pérez Companc, Bridas of the Bulgheroni family, Industrias Metalúrgicas Pescarmona (Impsa), Ford and the Macri family, which ended up being paid by the Argentinians as a whole.
During the 1980s and 1990s, post-dictatorship governments established debt renegotiations to save the banks’ assets. Not only that: they facilitated neoliberal policies and the dispossession of public goods through privatizations at “careful prices.”
In 2000, an Argentine judge established 477 illegalities in the constitution of the debt during the dictatorship.
In 2001, Domingo Cavallo himself committed fraud with the complicity of the IMF and the World Bank. The foreign debt was transformed into “public debt” to save the big financial corporations. Large financial groups such as Citibank, Bank Boston, Banco Galicia, Banco General de Negocios and BBVA were responsible for a massive flight of capital that included workers’ savings.
The theft of the savings of the working class led the government to decree what is known as “corralito.” The corralito was the “legalization” of this robbery. During the first days of December, the Argentine masses woke up without being able to access their savings and bank accounts. This triggered the popular uprising of 2001.
Debt as a Mechanism of Imperialist Oppression
The imperialist oppression of the semicolonial world is sometimes brutal and ruthless and is expressed in the form of wars and military interventions. Many other times, however, economic and political oppression is carried out through the intervention of international financial organizations and the chronic indebtedness of poor countries to the imperialist powers. One such international organization is the International Monetary Fund. Despite being composed of 189 countries, the IMF is controlled by the great imperialist powers, whose vote constitutes a solid majority in decision-making.
The head of the IMF is, by habit, a European, and the United States has enough votes to veto many important decisions for themselves. As reported by The Guardian: “To see what the problem is like, consider a recent IMF loan. In March, Ecuador signed an agreement to borrow $4.2 billion from the IMF for three years, provided the government adheres to a certain economic program specified in the agreement.” In the words of Christine Lagarde, then director of the IMF, it was “a comprehensive reform program aimed at modernizing the economy and paving the way for strong, sustained and equitable growth.”
Lagarde’s words are nothing but lies. Behind the agreement is a tough austerity plan, as the IMF demands that Ecuador reduce state spending by 6% in three years. This implies, for example, cuts in social security, the dismissal of tens of thousands of workers and the increase of taxes on the poor and the working class.
This same mechanism of imperialist oppression is what has led to the desperate situation in which the people of Puerto Rico, the workers of Costa Rica and the masses of Haiti find themselves.
Trump, for his part, energetically supported Macri’s government and was the most enthusiastic promoter of Argentina’s IMF agreement. As a White House spokesman reported last month, “President Trump expressed his strong support for President Macri’s economic agenda for growth and the progress he has made in modernizing the Argentine economy.”
Like Trump, the IMF represents the interests of large American corporations, and it uses chronic indebtedness to impose its political and economic agenda on semicolonial countries.
The workers and the poor of these countries are the ones who suffer the consequences of the crisis, and time and again the native and imperialist ruling classes want the workers to pay for the crisis. At the moment, the Argentine people are suffering the pulverization of wages as a consequence of inflation, the increase in unemployment and the increase in the tariffs of basic services such as electricity, water and gas. As in 2001, the masses are being led into a dead end. Neither the right wing represented by Macri nor the Kirchnerist “opposition” is willing to stop paying the debt and break with the IMF.
There is only one electoral force that is fighting the subordination of economic policy to debt fulfillment and IMF blackmail, as well as for the nationalization of the banks and the establishment of a state monopoly on foreign trade: the Left Front and the Unity Workers.
The socialists of the United States must strengthen this struggle against imperialist plunder in the bowels of the beast, demanding the cancellation of the debt of Argentina and Latin America.