Who Shot Argentina ?
The fingerprints on the murder weapon read IMF
by Greg Palast
International Socialist Review, January / February
Investigative reporter GREG PALAST obtained confidential documents
from the International Monetary Fund and the World Bank. This
is a special update for the International Socialist Review of
the expose that will appear in Palast's new book, The Best Democracy
Money Can Buy (Pluto Press, March 2002).
In December, in Buenos Aires, the Paris of Latin America,
police gunned down 27 Argentinians who chose to face bullets rather
than starvation. The currency had crumbled and unemployment shot
up from a grim 16 percent to millions beyond the ability of the
collapsed government to measure. The economy had died, murdered
in cold blood.
Whodunnit? This is an easy case to crack. Next to the still
warm corpse of Argentina's economy, the killer left a smoking
gun with his fingerprints all over it. The murder weapon is called
"Technical Memorandum of Understanding," dated September
5, 2000. It was signed by Pedro Pou, president of the Central
Bank of Argentina for transmission to Horst Kohler, managing director
of the International Monetary Fund (IMF). I received a complete
copy of the inside report from... well, let's just say the envelopes
had no return address.
Close inspection leaves no doubt that this "understanding"
fired the fatal fiscal bullies into Argentina's defenseless body
To begin with, it required Argentina to cut the government budget
deficit from $5.3 billion in 2000 to $4.1 billion in 2001. Think
about that. In September 2000, Argentina was already on the cliff-edge
of a deep recession. One in six workers was unemployed. Even the
half-baked economists at the IMF should know that holding back
government spending in a contracting economy is like turning off
the engines of an airplane in stall. Cut the deficit? As my 4-year-old
daughter would say, "That's stooopid."
The IMF is never wrong without being cruel as well. And so
we read, under the boldface heading "Improving the conditions
of the poor," the IMF's demand that Argentina drop salaries
under the government emergency employment program by 20 percent,
from $200 to $160 a month. But you can't save much by taking $40
a month from the poor. For further savings, the "Understanding"
also promised "a 12-15 percent cut in salaries" of civil
servants and a "rationalization" of pensions. "Rationalization"
is IMF-speak for cutting payments to the aged by 13 percent under
both public and private plans. Cut, cut, cut, in the midst of
a recession. Stooopid.
Salted in the IMF's boneheaded recommendations and mean-spirited
plans for pensioners and the poor were economic forecasts bordering
on the delusional. In the "Understanding," the globalization
geniuses projected that, once Argentina carried out the IMF plan
to snuff consumer spending, somehow the nation's economic production
would leap by 3.7 percent and unemployment would fall.
It didn't. The IMF plan kneecapped industrial production,
which fell 25 percent in the first quarter of 2001 before it keeled
over completely to interest rates on dollar-denominated earnings
by that ran up to 90 percent by the summer.
Then, another envelope
Recently, another brown envelope walked onto my desk, containing
the memorandum by James Wolfensohn, president of the World Bank,
for Argentina's "Country Assistance Plan" for 2002.
The document, dated June 25, 2001, "may be used by recipients
only in the performance of their official duties."
My duty as a reporter is to tell you what's in it-a breath
taking mix of cruelty and Titanic-sized self-deception. "Despite
the setbacks," wrote Wolfensohn, "the goals set out
in the last [year's] report remain valid and the strategy appropriate."
The IMF's plan, cooked up with the World Bank, would "greatly
improve the outlook for the remainder of 2001 and for 2002, with
growth expected to recover in the later half of 2001."
In this strange document, the World Bank chieftain was particularly
proud that Argentina's government had earlier made "a $3
billion cut in primary expenditures accommodating the increase
in interest obligations" to creditors, mostly foreign banks.
Crisis has its bright side. Wolfensohn crowed to his banker readers,
"A major advance was made to eliminate outdated labor contracts."
Wages, or "labor costs," as he calls them, had fallen,
due to "labor market flexibility induced by the de facto
liberalization of the market via increased informality."
To translate: Workers lost unionized industrial jobs to sell trinkets
in the street.
What on earth would lure Argentina into embracing the goofy
program of the IMF and World Bank? The payoff for Argentina, if
it followed the World Bank's diktat, was a $6.3 billion emergency
loan at the beginning of 2001, and a promise of a $13.7 billion
"standby" credit from the World Bank and its commercial
But there is less to this generosity than meets the eye. The
"Understanding" also required Argentina to peg its currency,
the peso, to the Yankee dollar at an exchange rate of one-to-one.
The currency peg didn't come cheap. American banks and speculators
charged a whopping 16 percent above normal risk premium in return
for the dollars needed to back the currency scheme.
Now do the arithmetic. On Argentina's $128 billion debt, normal
interest plus the premium costs $27 billion a year. In other words,
Argentina's people don't net one penny from the $20 billion loan
package. None of the bailout money escapes New York, where it
lingers to pay interest to U.S. creditors that hold the debt-big
fish like Citibank and little biters like Steve Hanke.
I spoke with Hanke, president of Toronto Trust Argentina,
an "emerging market fund" that loaded up 100 percent
on Argentine bonds during the 1995 currency panic. Cry not for
Steve, Argentina. His profit return that year of 79.25 percent
put his trust at the top of the speculators' league. Hanke profits
by betting on the failure of IMF policies. But "vulture"
investing is merely Hanke's lucrative avocation. In his day job,
as professor of economics at Johns Hopkins University in Maryland,
Hanke freely offers a cure for Argentina's woes, advice that would
put him out of business: Abolish the IMF.
And abolish the peg. That one-peso-for-one-dollar exchange
rate was the meat hook on which the IMF hung Argentina's finances.
But it was not the peg itself that skewered the economy; therefore,
the devaluation of the peso in January unleashed as many evils
as it cured. Rather, the dollar peg permitted the IMF and World
Bank to let loose in the pampas their Four Horsemen of neoliberal
policy: liberalized financial markets, free trade, mass privatization,
and government fiscal surpluses. "Liberalizing" financial
markets means allowing capital to flow freely across a nation's
borders. Capital has indeed flowed freely, with a vengeance. Argentina's
panicked rich dumped their pesos for dollars and sent the hard
loot to investment havens abroad, bleeding as much as $750 million
dollars a day in hard currency holdings.
Once upon a time, government-owned national and provincial
banks supported their nation's debts. But in the mid 1990s, the
government of Carlos Menem sold these off to Citibank of New York,
Fleet Bank of Boston, and other foreign operators. Former World
Bank adviser Charles Calomiris told me that these bank privatizations
were a "really wonderful story." Wonderful for whom?
With the foreign-owned banks stripped of their capital, the government
has widened the corralito, freezing, devaluing, and effectively
seizing the savings accounts of Argentinians to pay foreign creditors.
To keep foreign creditors smiling, the 2000 "Understanding"
also required "reform of the revenue sharing system."
This is the World Bank's kinder, gentler way of stating that U.S.
banks will be paid by siphoning off from the provinces tax receipts
that were earmarked for education and other services. The "Understanding"
also found cash in reforming the nation's health insurance system
(cut, cut, cut).
But when cut, cut, cut isn't enough to pay debt holders, one
can always sell la joyas de mi abuela, grandma's jewels, as journalist
Mario del Carvil described his nation's privatization scheme to
me. French water lord Vivendi picked up a big hunk of the water
system in 1995-and promptly cut staff and raised prices in Tucuman
province by 400 percent. In his confidential memo, Wolfensohn
sighs, "Almost all major utilities have been privatized"-so
now there's really nothing left to sell.
The final bullet of the "Understanding" is the imposition
of "an open trade policy." This required Argentina's
exporters, with their products priced via the peg in U.S. dollars,
to enter into a pathetic, losing competition against Brazilian
goods, which were priced in a devaluing currency. Stooopid.
Have the World Bank and IMF learned from their horrific errors?
They learn the way a pig learns to sing-they can't, they won't.
On January 9, 2002, with the capitol in flames, IMF
deputy managing director Anne Krueger ordered Argentina's
latest in temporary presidents, Eduardo Duhalde, to cut still
deeper into the government's social spending budget. Notably,
the IMF's mad advice was backed by George W. Bush, who, the same
day, demanded that the U.S. Congress adopt a $50 billion deficit
spending plan to spend America out of recession-a policy mix of
hypocrisy, incompetence, and heartlessness toward South America
unnoted in the North American
Inflexible worker bees
Still, the World Bank/IMF scheme can work, writes Wolfensohn.
All that is needed is to "reduce the cost of production"-requiring
only a "flexible workforce," willing to bend to lower
pensions, lower wages, or no wages at all. But to the dismay of
Argentina's elite, the worker bees are proving inflexibly obstinate
in agreeing to their own impoverishment.
One inflexible worker, Anibal Veron, a 37-year-old father
of five, lost his job as a bus driver and his company owed him
nine months' pay. Veron joined the piqueteros, the angry unemployed
who blockade roads. In clearing a blockade, it is reported that
the military police killed Veron with a bullet to the head. He
was shot in November 2000-and the world did not notice.
Globalization boosters such as British prime minister Tony
Blair portray resistance to the new world order as a lark of pampered
Western youth, curing their ennui by, as he puts it, "indulging
in protest, misguided" by naive notions. The media play to
this theme, focusing on demonstrations in Seattle, Washington,
and Genoa, Italy. The Euro-American press took no note of Argentina's
general strike, honored by 7 million workers, that shook the country
in June 2000. While the death in Genoa of demonstrator Carlo Giuliani
was front-page news in the U.S. and Europe, the deaths of Carlos
Santillan, 27, and Oscar Barrios, 17-gunned down in a churchyard
in Salta province, north of Buenos Aires, when police fired on
protesters-went without mention.
Only in December 2001, when Argentina failed to make an interest
payment on foreign-held debt, did our press suddenly report a
"crisis," feeding us the images we expect from Latin
America: tear gas, burning cars, and a parade of new presidents
taking the oath of office.
I had the evidence on the IMF and World Bank, but did they
have accomplices? I spoke in Buenos Aires with Adolfo Perez Esquivel,
leader of the Peace and Justice Service (SERPAJ). He is documenting
cases of police torture of protesters in the town where Santillan
and Barrios died. To Perez Esquivel, who won the Nobel Peace Prize
in 1980, repression and economic liberalization are handmaidens.
SERPAJ has filed a formal complaint, charging police with recruiting
children as young as five years old to be informers for paramilitary
squads, an operation he compares to the Hitler Youth.
Perez Esquivel, who last year led protests against the Free
Trade Area of the Americas, doesn't agree with my verdict against
the IMF in Argentina's death. He notes that the economically fatal
"reforms" were embraced with enthusiasm at the time
by the nation's finance minister, Domingo Cavallo. A favorite
of the World Bank, Cavallo, who was fired after mass protests
in December 2001, is best known by Argentinians as head of the
Central Bank during the military dictatorship. For the aging pacifist
Perez Esquivel, Cavallo's enthusiastic collaboration with the
IMF and World Bank suggests that the untimely demise of the nation's
economy wasn't murder, but suicide.
Greg Palast, investigative reporter for Britain's Guardian
and Observer newspapers, was named Guerrilla News Networks 2001
Reporter of the Year for his expose's on the theft of the presidential
election in Florida and his reports for BBC television on Bush's
quashing of the investigation into Saudi Arabia's funding of terrorism.
You can read his columns at www.gregpalast. com.