The Unstable Economy in Argentina
The next U.S. military intervention?
by Sohan Sharma & Surinder
Z magazine, January 2003
Military dictatorships ruled Argentina
from June 1966 to 1983. Although agriculturally a prosperous and
thriving economy, Argentina's foreign debt grew from $8 billion
to $43 billion because the military needed money to purchase arms
for the suppression of leftist parties, including students, labor,
and others-a policy backed and supported by the U.S.-culminating
in 30,000 "disappeared ones" and torture and killing
of thousands more; and, secondly, to fight the Falkland Island
(Malvinas Islands) war against England in 1982. Debt continued
to grow to $143 billion by the end of 2001, while the interest
owed between 1992 and 2001 amounted to $82 billion. Inflation
escalated, goods became extremely expensive because wage increases
did not keep up with the inflation rate, and people lost their
With high inflation and unstable economic
conditions, in 1991 Argentina borrowed money from the World Bank
and International Monetary Fund (WB/IMF). To obtain the loan,
Argentina had to institute the WB/IMF Structural Adjustment Program
that requires, (1) control of inflation, (2) privatization of
state-owned enterprises, (3) opening up the country to foreign
imports and investments, (4) no tariffs on imports, (5) freedom
for corporations to expatriate profits, (6) suppression of labor.
Argentina agreed to all of the above.
Public sector enterprises were sold to MNCs and private owners
and almost all social gains were eliminated. Poverty and inequality
grew, tens of thousands of state workers lost their jobs, and
unemployment rose from 6 percent to over 15 percent (late to 25
percent). Through the sale of the state (public) enterprises the
government had collected $49 billion, which maintained an ersatz
of a relatively prosperous economy and Argentina was touted as
a WB/IMF "success story."
To control inflation in 1991, Argentina
pegged its peso to the U.S. dollar-a fixed exchange rate-plus
it put restraints on the issuance of money to control hyper inflation.
Because the country on its own did not generate enough dollars,
the domestic money supply of dollars had to be backed by dollar
inflow from outside. Parity between dollar and peso assured investors
that they would not lose capital due to possible devaluation of
the Argentina peso. Foreign money poured in during the 1990s ($70,000
million). Sixty percent of such investment was aimed at acquiring
public entities or already existing private companies. Development
of new industries and creation of new jobs was low.
Argentina's currency was at par with the
dollar (one peso equals one U.S. dollar) and hence strong; other
countries had devalued their currencies and the exchange rate
against the dollar was much lower, that is, weak currency. This
situation caused Argentinean goods to be overpriced in the international
market because the same goods were sold cheaper by other countries.
Furthermore, when Argentina eliminated tariff barriers, as required
by WB/IMF loans, a flood of cheaper imported goods from developed
countries brought Argentinean industry almost to a standstill
and recession began.
In June 2000 the Argentine government
announced an austerity plan to fulfill the country's commitment
to the IMF, which was to reduce the budget deficit from $7.1 billion
to $4.5 billion. This would be achieved by reducing public spending
by $938 million, cutting employees salaries by 12 percent; closing
some of the government offices, eliminating labor benefits, suspending
public work projects, and increasing taxes on the middle class.
Industrial production had slipped in January 2001 by 4.2 percent
and it was predicted that it would shrink by 8 percent in 2002.
Argentina's economy continued to shed 80,000 jobs per month and
showed a 20 percent decline in industrial production during the
first quarter of 2002. Tens of thousands lost their jobs and by
June 2002 the unemployment rate was estimated to be 25 percent.
People lost their purchasing power, exacerbating the existing
recession and depression set in.
The new finance minister warned that without
layoffs and other spending cuts the fiscal deficit would reach
$8.5 billion instead of the $6.5 billion required by the IMF as
a condition for the $40 billion credit line granted by international
lending groups. By November 2001 the country was finding it impossible
to meet the $19 billion dollars annually in interest payment on
the foreign debt. In December 2001 Argentina failed to make interest
payment of $1.3 billion on foreign debt and defaulted on its loan
On February 21, 2001 thousands of unemployed
marched from La Matanza-an industrial town 28 kilometers from
Buenos Aires with the highest unemployment rate in the country-to
the capital. The same day Children of the People marched from
La Quiaca (a town in the far north) demanding work for their parents
and schools for themselves. Another group of marchers arrived
in the capital asking for "bread and work." Twenty months
later, on November 8, 2002, a group of children reached the capital
in a "March for Life and Against Hunger" after traveling
4,500 kilometers from the Misiones province.
Workers unions called a national strike
that affected transportation, health care, education, and the
judicial system. Protesters blocked roads and railway lines. In
May 2001, 22 major roads running through the Buenos Aires province
to the federal capital were blocked, and since then, on any given
day, as many as 50 blockades of highways and roads occur throughout
The final collapse of the Argentina government
under President De la Rua began on December 17, 2001 when the
economy minister Cavallo announced $9 billion in spending cuts
for the 2002 budget. A wave of food riots led by thousands of
poor families, joined by middle-class women, made poor by inflation
and unemployment took to the streets banging empty pots and pans,
called "cacerolazos." By December 19 massive looting,
especially of food stores, spread to many parts of the country,
along with anti-government riots. Violence erupted and by December
22 the death toll had mounted to 31, primarily due to police shootings.
About 2,000 were arrested and thousands were injured. President
De la Rua resigned on December 21 and left the presidential palace,
along with Cavallo. In the coming weeks three other presidents
were installed, but resigned. Duhalde-the fifth president-who
had lost the presidential election to De la Rua in 1999 accepted
the presidency to serve out the rest of De la Rua's term.
People began to withdraw money from banks.
A report from the Central Bank confirmed that in November 2001,
$4.9 billion was withdrawn. Rich depositors who had more than
$250,000 in the bank withdrew 47.4 percent of their money, whereas
small depositors who had up to $10,000 were allowed to withdraw
only 9 percent of their funds." The state, fearing its bankruptcy,
closed the banks and blocked withdrawals. It had two reasons for
blocking withdrawals. Depositors had lost confidence in the peso
and hence would create a run on the banks, leaving little money
for the government to pay its WB/IMF debt. Second, because Argentina's
peso was tied to the U.S. dollar at par, depositors wanted their
money in dollars, not pesos. By March 2002 the government devalued
the peso to 50 percent, which gutted the savings and slashed the
living standard of most Argentineans. Foreign banks withdrew hundreds
of millions of dollars and put them in offshore banks.
Since early 2002 the chaotic economic
situation led to the development of barrios assemblies in different
parts of Buenos Aires and other cities, numbering between 60-80
in the capital. Open meetings were held where people voiced their
opinions on the policies affecting their lives. At the same time,
vegetable gardens, called huertas, began to mushroom in public
parks, schools, unused open spaces, etc. Now there are around
45,000 huertas and around 2.5 million people receive some food
from the plots. A vast bartering network of swap shops and the
like, not dependent on the country's currency, began to develop.
Workers seized control of scores of factories across Argentina.
In the past 2 years, 17 factories have been expropriated in the
province of Buenos Aires and 3 in the capital. Provincial and
city legislatures are drafting bills that would create a government
agency to assist the formation of cooperatives and facilitate
the expropriation of bankrupt companies to hand them to workers.
This has raised the ire of influential economic interests and
the political support for expropriation may be waning.
Several development models have emerged
from these committees. Most of them recommend:
(1) nationalization of foreign trade
(2) re-nationalization of petroleum and
(3) progressive taxes and tax collection
(4) popular assemblies to exercise direct
control of budget allocation
(5) diversification of economic production
and control by producers
(6) cancel foreign debt or declare a moratorium
on debt payment
(7) public investment in infrastructure
to employ the unemployed
Others observed that these committees
have not developed an overall socio-economic program. The middle
class, in spite of having suffered economically, is not quite
prepared to join with piqueteros to bring fundamental political
and economic change.
The government wants the IMF loans to
stabilize its currency, but has to fulfill certain conditions.
By August 2002 the federal government, despite its weakness, had
gone on the offensive and approved the WB/IMF loans. Conditions
are: the governors of all the provinces must sign an IMF 14-point
austerity program. If the governors don't sign it, they will be
forced out, as was done to the governor of San Juan state in August.
Second, workers who took over factories were forcibly removed;
third, home-dwellers behind in their rent or mortgage payments
have to be physically forced out. (This move by the government
was resisted by neighborhood committees, forcing the government
to back down. ) Fourth, the IMF, in collaboration with the Argentine
government, is trying to form a progressive-liberal party to run
for the presidential election and, at the same time, is not allowing
senate elections (a body representing the people) because they
may resist IMF demands. But even that was not enough to satisfy
the IMF and the credit line was suspended. On November 14, 2002
Argentina defaulted on an $X05 million loan installment that it
owed the World Bank and said it would resume payment only when
the IMF agreed to restore a credit line that was cut off late
last year, although it did make a token payment of $77 million.
U.S. Military Intervention?
Why would the U.S., or other countries
supported by imperialism, militarily intervene in a country that
is politically unstable, economically chaotic, debt ridden, cannot
pay its debt, and where 50 percent of the population lives below
the poverty line and the unemployment rate runs between 20-25
percent? Despite this, certain factors portend a military intervention.
The logic of imperialism dictates that no imperialist country
can easily give up a semi-colony where its multinational corporations
operate and extract huge profits and where people have begun to
take their destiny in their own hands.
Second is the instability of the region
and this instability threatens U.S. interests and ultimately its
profits. The Andean region-Colombia, Ecuador, Peru, and Bolivia-is
being buffeted by peasant and indigenous people's revolts. Revolutionary
peasants with left leaning ideology have waged struggles in Colombia
for over 30 years. The U.S. has already poured billions of dollars
of armament/military training and direct military support to make
sure peasants do not win and the party/candidate supported by
the U.S. stays in power. In 2001-2002 Ecuador saw half the bank
sector collapse, the government default on its foreign debt, and
its currency become almost worthless. Indigenous and working class
Ecuadorians demonstrated against the policies of their government
dictated by the WB/IMF, e.g, privatization of water and the electric
supply. The government has often resorted to shooting and many
have been killed so far. In Ecuador's presidential election, November
24, 2002, Col. Lucio Gutierrez, a left populist representing indigenous
people, who had participated in a coup in January 2000 against
the then government, won against Alvaro Noboa, the biggest banana
grower and exporter in the country.
President Toledo of Peru, in May 2002,
had to call out 80,000 police to squelch protestors against the
privatization of that country's state-owned water and electricity.
Tear gas bombs were fired on the strikers in Ancash province.
In Bolivia fights against privatization of water, water wars as
they are called, where people have to obtain a license to collect
rain water from their roofs, led to the killing of several demonstrators.
The MAS (Movement to Socialism, started in 1995), whose spokesperson,
Evo Morales, is leading the struggle of the indigenous tribes
and cocaleros (coca growers) against the sale of Bolivian gas
to the U. S. and the proposed participation of Bolivia in the
FTAA (Free Trade Area of the Americas). Morales, perhaps the most
popular politician, is expected to win the Bolivian presidency
in the next election. In Uruguay, in September 2002, thousands
of union members, trade associations, and social organizations
protested against the raising of water rates and general taxes
instituted at the behest of the IMF.
In Venezuela, Cesar Chavez, the left-populist
president, is in the process of cultivating closer relations with
Castro, Gaddafi, Sadam Hussein, and others. The U.S. has already
instigated and supported two coups, so far, that failed. The victory
of Luiz Inacio Lual da Silva (popularly known as Lula), a labor
leader, in the Brazilian presidential election on October 27,
2002 has been applauded by Chavez and Castro; Lula has called
the FTAA, a U.S. promoted trade pact, which Brazil would not sign
in its present form and has indicated that he does not intend
to follow neoliberal, market oriented policies.
At present the U.S. describes Argentina's
overall situation as extremely grave. Not only is it socially,
politically, and economically unstable, but it has no stable,
viable government through which international finance, in collaboration
with the U.S., may dominate and control it. If Argentina does
not follow U.S.-imposed neoliberal, market-oriented economy, other
Latin American countries, already in the throes of revolt and
civil wars, are likely to follow suit. Bringing Argentina under
the continued tutelage of the U.S., either by military force or
otherwise, is becoming increasingly urgent.
At least four joint military exercises
have been staged in Argentina during the past decade. The first
was in Mendoza in 1991, the second in Ushuaua, Tierra del Fuego
in 1998, and the third in Salta province, northeastern Argentina
in August 2001 as part of Plan Colombia-financed by the U. S .-in
which some I,500 troops from the U. S.- and 8 South American countries
participated. The fourth was staged in May-June 2002 in the province
of Misiones that borders on Paraguay and Brazil. Recently the
CIA has claimed that a lot of people of Arab descent reside in
this area and they may be part of a "terrorist network. "
What form would intervention take? Depending
on the pretext of intervention, a joint military force. under
U.S. command (or its surrogate), of Latin and Central American
countries may take over the country. This form of intervention
was used in Yugoslavia under NATO (U.S.) command in 1999. Or the
local military may act in conjunction with big business either
to take over the country or stage a coup. Such as was attempted
in Venezuela in 2002. Or there may be a two-stage intervention:
create more destabilizing conditions by imposing economic sanctions,
refusing IMF loans or similar machinations; and then help to set
the stage for elections where a candidate/party, financed by the
U.S. can be made to win. This method was used in Nicaragua in
1982-1986. The present lame duck Argentina government has declared
that it will treat U.S. troops as "technical and administrative
personnel" attached to the U.S. embassy, who are therefore
entitled to diplomatic immunity and cannot be tried. Thus an implicit
invitation and the initial groundwork for a U.S. military intervention
has already been laid.