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How to Escape the Eternal Debt Trap

The fight against the foreign debt that strangles Argentina is at the center of the electoral campaign of the Workers Left Front — Unity (FIT–U). This article explains how imperialism uses the debt to subjugate the masses, and spells out a program in opposition.

Lucia Ortega

November 11, 2021
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The following article, focused on Argentina and using Greece and Ecuador for further illustration, is a tale of how bourgeois governments throughout the world, even when they pretend to fight against it, accede to the demands of imperialism — and the international institutions that serve imperialism’s interests — when it comes to the foreign debt. Highlighting the program of the Workers Left Front – Unity (FIT–U) in Sunday’s Argentine elections, it is relevant for any discussion of how to fight against the fraudulent foreign debt that is imposed throughout the world, particularly on the countries of the Global South.

* * *

A week after returning from Washington, where he had traveled to renegotiate Argentina’s foreign debt with the International Monetary Fund (IMF), Minister of Economy Martin Guzmán participated on Sunday, October 24, in a panel discussion at the Kirchner Cultural Center with Yanis Varoufakis, the former finance minister of Greece, and former Ecuadorian presidential candidate Andres Arauz. Unlike what he had told IMF managing director Kristalina Georgieva, on the panel, the IMF was treated as part of the problem of the debt burden, not part of the solution.

The Argentine official stated that “what we need is for Argentina to be integrated, but properly integrated” into the international order among nation-states — thus reiterating the old illusion of reaching (through “good negotiation”) “sustainable agreements that allow for growth and the payment of commitments.” Indeed, it is worth looking at the experience of the former Greek minister during his time in the Syriza government to test such a conclusion.

Seeing Greece in the Mirror

Varoufakis had been in charge of negotiations over the Greek foreign debt at the beginning of 2015. Syriza, the center-left coalition that won that year’s elections, came to governmental power with anti-austerity banners, but after six months, ended up embracing the very adjustment program it had pledged it would end. Prime Minister Alexis Tsipras ended up kneeling before the “troika” (the European Commission, the European Central Bank, and the IMF) with the signing of the Memorandum of Understanding that spelled out brutal conditions for Greek workers — and went against the results of the popular referendum, called by the government itself, in which voters had resoundingly rejected the austerity program. This led to the resignation of Varoufakis, who had been powerless to achieve even a modest debt restructuring program.

What went wrong? The fatal outcome indicates that neither the firmness that officials may bring to negotiations nor, as Varoufakis has admitted, a macroeconomic diagnosis discussion is enough. Despite the more than 30 general strikes against austerity plans that helped catapult the party to its electoral victory, Syriza’s neo-reformist strategy was never to expand those mobilizations, let alone to stimulate radical worker action to confront the Troika’s harsh plans. On the contrary, while Varoufakis and Tsipras both expressed the view that finance capital had turned to “direct action” through market coups and capital flight, the Syriza government called for harmony.

While capital flight developed at a steady rate of 200 to 300 million euros per day, with peaks that exceeded 1 billion euros, proposals from Varoufakis were always subject to achieving a debt restructuring. His harsh words — he denounced creditors for their role in turning Greece into a “debtor colony” (as he defined it in his book Adults in the Room1Yanis Varoufakis, Adults in the Room: My Battle with the European and American Deep Establishment (New York: Farrar, Straus and Giroux, 2017). ) — were not accompanied by any sovereign measures to preserve national savings and resources in the face of continued looting and speculation by financial funds and private banks, thus exacerbating the crisis and the extortion. Varoufakis claimed in his book that a “Plan B” was being developed — one that would have Greece create its own currency and take measures against the financial drain — in case the negotiations with the Troika broke down and the country felt forced to leave the Eurozone. But it never went beyond an outline, torpedoed by the Syriza leadership. From the perspective of Varoufakis, the best scenario was always to reach an agreement with the Troika to restructure the debt, to make it “payable” by changing the economic program to one with measures aimed at economic expansion — an aim that proved impossible not only in Greece, but also in Portugal, Spain, Italy, and the rest of the Eurozone.

While for Varoufakis the threat of breaking with the IMF, the European Commission, and the European Central Bank was central to having some bargaining power, the truth is that this became wet gunpowder given that there was no evidence the Syriza leadership was willing to carry out any of its threats as the country ran “dry” of euros.

Just as with Guzmán, it is from these conditions that the default “alternative” is shown to be nothing more than an adventure, thus adding to the arguments of the regime’s apologists that default can bring only the worst of evils: an acute crisis due to a shortage of dollars, devaluation, and isolation from the rest of the world. Pushing back against the blackmail of creditors, typically done in some chaotic manner, and even just a halt in payments, gets equated with “defaulting” — as Argentina has seen. Without being accompanied by other defensive measures, the cessation of payments that generally happens as a fait accompli when governments try unsuccessfully to pay off the debt until they have nothing more to pay with — as happened in Argentina in 2001 — has nothing to do with a true sovereign refusal to pay the debt as the Left proposes. That step implies all sorts of other fundamental initiatives, such as nationalizing the banks and establishing a state monopoly of foreign trade.

The Greek tragedy is well known: beginning with the first “rescue” by the Troika in 2010 (loans to rescue creditors) through to the third rescue with Tsipras, IMF missions to monitor the country’s economy were a permanent feature, and fiercely imposed adjustments to reduce the deficit were repeated again and again, across multiple dimensions: from cuts in the state-owned factories, cuts in the minimum wage, privatizations, and increases in the value-added tax, to counter-reforms of the labor code, pensions, and healthcare, among others. All of these were attacks on workers’ conquests and kept Greece in the pits for years, enveloped in an unprecedented social crisis with 20 percent unemployment. After Syriza’s 2015 capitulation, the martyrdom of Greece continued for several more years. When the pandemic again plunged the country into crisis, the aftermath of the economic catastrophe and austerity was still raging.

Seeing Ecuador in the Mirror

Andrés Arauz also spoke on the panel. He was the candidate of Rafael Correa’s party for president of Ecuador in the April 2021 elections.2Translator’s note: Correa is a Social Democrat who was Ecuador’s president from 2007 to 2017. Speaking remotely, he highlighted Correa’s debt negotiations with private creditors, which included “write-offs” of some portion and his revival of an old proposal to create a “club of debtor countries” as a way to balance the asymmetries faced by dependent countries when negotiating with the world’s most powerful creditors. The club idea, which had been raised multiple times beginning with the debt crises that ravaged Latin America in the early 1980s, had never been implemented — much to the delight of creditors.

Ecuador’s effort to renegotiate its debt in 2008 was characterized at the time as breaking the mold that had long governed the patterns of indebtedness and restructuring. Unlike in the Greek case, the Ecuadorian government had relied on a debt audit that concluded that part of the debt was illegitimate, and its negotiators used this to declare a partial default — 70 percent of the bond debt — through which the government was able to buy back its own devalued paper and thus take a “haircut.”3Translator’s note: A “haircut” is the term bourgeois economists use to describe writing off some portion of outstanding debt under the assumption that it is not likely to be repaid.

After “firm negotiations” and attaining a “sustainable renegotiation,” the way was opened to installment payments. It was not unlike what Néstor Kirchner ended up doing in Argentina, as well as what transpired in Brazil, Bolivia and other countries, where a significant portion of the extraordinary resources accrued from the boom in commodity prices — which the region enjoyed from 2003 to 2013 — went down the drain in the form of payment of the supposedly “sustainable” debt. In those years, this “debt relief” was presented as some sort of “sovereign” accomplishment, although by using up these reserves it left most of these countries in rather fragile states when the international situation changed sharply beginning in 2013. Incidentally, Arauz omitted from his presentation that the debt audit went nowhere after that, as pointed out by foreign debt specialist Olmos Gaona.

It was striking that Arauz made no mention of Ecuador’s current debt crisis with the IMF. What happened to that successful renegotiation that Arauz presents as an epic? In Ecuador’s case, there was no “Macri.” It was the former president Lenín Moreno (Correa’s dauphin who broke with him shortly after taking office) who closed an agreement with the organization for US$6.5 billion in 2019 and unleashed a new package of austerity measures. Profoundly rejected by the Ecuadorian people, it led to days of protest by workers and indigenous communities against the IMF — protests that, not coincidentally, erupted once again just two days after Arauz’s presentation.

“In the meantime, I play by your rules”

“Greece will always meet its obligations to its creditors,” Varoufakis said when he was minister, and indeed he never put off any payment while he was negotiating with the IMF. Greece even made a US$750 million payment when it seemed doing so would leave the treasury without enough to pay public salaries and pensions at the end of the month. Guzmán did nothing less: in the midst of a pandemic, with more than 40 percent of the population living in poverty, he religiously disbursed each of the payments due to the IMF while continuing negotiations. With the US$4.216 billion the Argentine Frente de Todos government has already allocated for payments to the IMF, emergency income of $50,000 could have been covered for 8.2 million people, or 177,300 houses could have been built. Before the end of the year, Guzmán plans to allocate another U$S2.3 billion more to the payment of capital and interests to the organization.

Noemí Brenta points out in her book on the history of Argentina’s foreign debt that “the IMF itself calculates that for every $1 by which the government cuts its spending, activity is reduced by between $1.50 and $2. This results in a smaller base for collecting taxes, so the government is forced to increase taxes further and lower spending to create ‘fiscal space’ that allows it to service the debt. A perennial vicious cycle ensues.” And she adds, “Austerity is a tool to discipline and humiliate the people.”4Noemí Brenta, Historia de la deuda externa argentina. De Martínez de Hoz a Macri [History of the Argentine Foreign Debt: From Martínez de Hoz to Macri] (Buenos Aires: Capital Intelectual, 2019).

Guzmán not only made the payments, but in 2021 he also made one of the most significant and quickest fiscal adjustments in recent times, inspiring the envy of Cavallo and Dujovne for achieving a near “zero deficit” in the first half of the year.5Translator’s note: Domingo Cavallo was Argentina’s minister of economics from 1991 to 1996, in the Menem administration. Nicolás Dujovne was Argentina’s minister of the treasury from 2017 to 2019, in the Macri administration.

Returning Empty Handed

Guzmán’s panel discussion with Varoufakis took place only a week after the meeting of the Argentine mission in Washington to renegotiate the debt with the IMF. From the meeting itself, we have a few rumors, a photo with Kristalina Georgieva, and the obligatory tweet. Such negotiations are always behind the backs of working people.

Apparently, Guzmán did not even manage to come home with a promise to remove the surcharges that the IMF charges Argentina for having contracted such an extraordinary volume of loans. In the end, there was no “good” IMF; not even Georgieva’s survival as IMF head worked in the minister’s favor. No wonder, then, that given the bleaker outlook for an agreement, the Argentine government is trying to pose as “tough” in the election campaign. Perhaps the only favorable thing the government will be able to show a few months from now is that it managed to sign some sort of agreement with the IMF, without being able to sweeten it as “sustainable.”

What the IMF has always been is now being whitewashed. It represents the interests of international finance capital and will always push to impose its conditions of greater austerity and structural reforms. To reaffirm its role, the organization published a report for the G-20 summit in which it asks countries to enact labor and tax reforms and reduce regulations. For Argentina (and many other countries), its “recommendations” include “further easing of product market regulations and implementation of active labor market policies” as well as “tax structure reform to help increase the share of consumption and property taxes in total tax revenue.” The report also pushes for trade liberalization and alleviating some “protections” of labor codes.

“Validate and pay”

At the panel discussion, Guzmán stated that “the use of the funds [from loans received during the Macri administration] was absurd: of the US$45 billion dollars, US$21 billion were used to pay unsustainable foreign debt to private creditors, and US$24 billion financed outflows of dollars.” He added, “It was the Argentine people who paid for Macri’s campaign.” But despite the illegitimacy of that debt, the government insists on recognizing it.

In 2022, some US$19 billion comes due to the IMF, and another US$2 billion comes due to the Paris Club — a total that exceeds the freely available reserves of the Central Bank. The Frente de Todos, by refusing to consider the possibility of a sovereign refusal to pay that debt, is obliged to reach an agreement with the IMF to extend these due dates or head inexorably to a default that will be unloaded on the masses. Either way, in the long run it means paying off the debts through the sweat and hunger of working people, without breaking with the conditions set by imperialism.

That is why, following his statement, Guzmán clarified, “We are trying to refinance it in installments that do not impede the development of our people” — seeking to recreate the old illusion that both objectives are compatible. Refinancing the Standby Credit Facility6Translator’s note: The IMF Standby Credit Facility (SCF) officially aims at providing countries with short-term balance of payment needs in situations when they “have reached broadly sustainable macroeconomic positions, but may experience episodic, short-term financing and adjustment needs, including those caused by shocks.” with a 10-year extended agreement not only validates the fraudulence of the existing debt, but also imposes an insurmountable mortgage on the country. Assuming an agreement with the IMF that sets maturities at the rate of US$5 billion per year, the total servicing of the foreign debt will require at least US$12.5 to US$15 billion per year as of 2025. The Machiavellian aspect of all this is that Guzmán, foreseeing this new fraud in advance, assured the IMF that Congress would approve a new law for the agreement to wrap a cloak of legitimacy around the adjustment pact.

Only twice in history has Argentina signed extended SCFs: in 1992 under Domingo Cavallo, and again in 1998 with Roque Fernandez, a “Chicago Boy” acolyte of Milton Friedman. After applying deep structural counter-reforms, the decade ended with Argentina’s own Greek tragedy: the 2001 crisis.

Is it Possible to Turn the Tables and Tell the IMF to “Take a Hike”?

One of the panel moderators, Luci Cavallero, highlighted in the newspaper Página/12 that “discussion on negotiation of the foreign debt has been almost absent during the entire electoral debate.” Indeed, the two options — “agreement or default” — to which the government and the opposition want to reduce that debate are closely linked. These “options” correspond exclusively to the objective of preserving the business of the big capitalists at the cost of unloading the crises on the workers and the poor.

The only dissenting voice that warns (in every debate and other opportunity that presents itself) of the profound consequences of the agreement with the IMF is the Workers Left Front – Unity (FIT–U), which proposes a way out of “eternal debt.” From the time of the dictatorship until now, more than US$600 billion has been paid, while at the same time the Argentine debt has multiplied 43-fold.7Updated through the second quarter of 2021, according to the National Public Credit Office, Ministry of Finance. It is necessary to “turn the tables.” The sovereign refusal to pay the foreign debt and the expulsion of the IMF from the country, based on a mobilization of the workers and the poor, constitute an essential first step to put a halt to the endless deprivation to which the capitalist class subjects the great masses.

The non-payment of the debt is inseparable from a set of national defensive measures and safeguarding of resources aimed at preventing the market blows that the big capitalists will seek to impose, and at preventing capital flight. It has been proven that private banks are the main vehicles for that “flight,” as well as the transfer of financial assets to “tax havens” (in essence, undeclared assets) of the rich families and big companies, which only accelerates in times of crisis. Accompanying this must be nationalization of the banks to form a single state bank, under workers’ control; it is a powerful tool to discuss and set credit criteria and priorities, democratically, so that credit can be channeled toward investments that address social, infrastructure, and housing needs that have long been postponed, as well as to preserve national savings and the deposits of small savers, generating cheap credit for small businesses, craft and manufacturing facilities, and firms.

In addition, the perspective of sovereign refusal to pay the debt challenges who controls the dollars generated from the exploitation of our natural resources and the daily work of millions of people in service of the bosses. Only 50 companies control 60 percent of exports. Foreign currency is key to the development of the economy and control of domestic prices, which are perpetually affected by the power of agro-exporters and food companies to impose their own favorable conditions, which affect purchasing power and push down wages. Together with the expropriation of the big landowners, the monopoly of foreign trade would allow the appropriation of the agrarian income of these agricultural giants, enable control over foreign currency from exports, and allow for defining import priorities based on production needs and the most urgent infrastructure investments.

Contrary to the culture of resignation to our IMF “fate,” this is the road to achieving a society organized and planned according to social needs and not for the profits of a small minority. To struggle for such a program requires that the working class realize the need for its self-organization, with independent politics. It requires driving out the union bureaucracies and advancing toward the objective of winning a workers’ government that breaks with capitalism.

First published in Spanish on October 31 in Ideas de Izquierda.

Translation by Scott Cooper


1 Yanis Varoufakis, Adults in the Room: My Battle with the European and American Deep Establishment (New York: Farrar, Straus and Giroux, 2017).
2 Translator’s note: Correa is a Social Democrat who was Ecuador’s president from 2007 to 2017.
3 Translator’s note: A “haircut” is the term bourgeois economists use to describe writing off some portion of outstanding debt under the assumption that it is not likely to be repaid.
4 Noemí Brenta, Historia de la deuda externa argentina. De Martínez de Hoz a Macri [History of the Argentine Foreign Debt: From Martínez de Hoz to Macri] (Buenos Aires: Capital Intelectual, 2019).
5 Translator’s note: Domingo Cavallo was Argentina’s minister of economics from 1991 to 1996, in the Menem administration. Nicolás Dujovne was Argentina’s minister of the treasury from 2017 to 2019, in the Macri administration.
6 Translator’s note: The IMF Standby Credit Facility (SCF) officially aims at providing countries with short-term balance of payment needs in situations when they “have reached broadly sustainable macroeconomic positions, but may experience episodic, short-term financing and adjustment needs, including those caused by shocks.”
7 Updated through the second quarter of 2021, according to the National Public Credit Office, Ministry of Finance.
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