Between disintegration and revolution

by James Petras Henry Veltmeyer

CovertAction Quarterly magazine, Fall 2002


Throughout the early and mid-nineties, the International Monetary Fund (IMF), World Bank, the Inter-American Development Bank, and the G-7 countries, all praised Argentina's liberalization program as an economic model for the Third World. Then President Carlos Menem and Economic Minister Domingo Cavallo promised the Argentine people that they would soon become part of the "First World."

Today, Argentina is in total disintegration. Not only is the economy in its fifth year of recession/depression, but its banking system has collapsed, the unemployment rate has skyrocketed, and over half the population lives below the poverty line.

No country in contemporary Latin American history has fallen swifter and further into mass poverty and experienced as prolonged an economic collapse as Argentina. Though most Latin American countries have applied neoliberal policies, none has been as thorough and rapid as Argentina. Moreover, no Latin American country was as industrially advanced or had as diversified an economy. Finally, Argentina had the highest standard of living in the region, the most qualified and skilled labor force, and the political leadership most determined to follow the precepts of the International Financial Institutions (IFls) and the G-7.

Argentina is a test case for the efficacy or failures of the neoliberal approach under optimal conditions: a willing government, a well-developed infrastructure, a skilled labor force, long-term links to world markets, and a significant middle class with Euro-American patterns of culture and consumption.

The number of Argentines below the poverty line has grown geometrically: Ten years ago there were less than 15%, two years ago it was 30%. In June 2002 the percentage exceeded 50%. In that month, Eduardo Duhalde's regime acknowledged 18.2 million people (51%) below the poverty line. Of these, 7.8 million are indigents according to SIEMPRO (Spanish acronym for System of Information, Monitoring and Evaluation of Social Programs), an official institution under the jurisdiction of the President. Children and adolescents living in poverty number almost 8.2 million. Between January and May 2002, the number of poor grew by 3.8 million, or 762,000 a month, or 25,000 a day. The rate of indigence is growing even faster. In 1998, 29% of the poor were indigent; in June 2002, 43%. The massification of extreme poverty is manifested in the high rates of child malnutrition-over 58% in Matanzas, a working-class suburb of Buenos Aires. In the interior there are numerous reports of children fainting in school for lack of food, and over 60% of newborns in Misiones suffer from anemia-a direct result of government cutbacks to meet G-7 and IMF demands.


Apart from the top 10% of the population, all working sectors and pensioners have experienced an average 67% income decline. In 1997, the United Nations Development Program (UNDP) calculated per capita annual income at $8,950. In March 2002 it was $3,197. The decline affects all regions of the country. If we use as rough indicators of "class" the different regions of the province of Buenos Aires, we can approximate the social impact of the crisis. The income in the capital city of Buenos Aires, which we can take as largely middle class, saw the average fall from $909 a month in December 2001 to $363 in March 2002; in the working-class suburbs (conurbano) of the city of Buenos Aires income fell from $506 to $202; in the province of Buenos Aires, from $626 to $250. The largest decline is among workers in the informal sector (work without benefits or employment protections) and among pensioners. In the capital, income of the "informals" dropped from $643 to $257; in the working class suburbs from $334 to $134; in the province from $394 to $158. Among pensioners the decline was from $437 to $175 in the capital; from $320 to $128 in the working-class suburbs and from $360 to $144 in the province. The situation is far worse in the other provinces, where pay scales are lower, unemployment is higher, and where there are frequently three to six month delays in payment of salaries and pensions.

For the working and middle classes, the loss of formal employment means a sharp decline in income. Employed wage earners in the private sector of the capital earned $904 in December 2001. Those who were forced into under-employment were earning $257 in the informal sector three months later. A 30% rise in prices during the same period accompanied the skyrocketing loss of jobs.

The decline of income among the different occupational categories indicates both the absolute and relative decline of the middle class, a clear process of proletarianization. Bank employees in the capital have seen their income decline by nearly 60%, from $1,081 to $432 per month, and public employees have experienced a drop from $1,144 to $458 per month. As of April 2002, income of the former middle class did not cover the basic necessities of rent, food, transport, school and health expenses.

If we take the figure of $400 as the cutoff for the poverty line and $250 as the cutoff line for indigence, we find that every occupational category in the working class in the suburbs of greater Buenos Aires is below the poverty line and several categories are "indigent."

Those whose main income is a pension are indigent in all geographical sectors, as are all unemployed workers (30% of the labor force) living in the suburbs and greater Buenos Aires. Even if we assume that some workers classified as unemployed are actually working in the informal sector, almost all are near or below the line of indigence. The massive growth of unemployment to 30% nationally, from 40 60% in the working-class suburbs, and even higher in some of the former one-industry towns of the interior, is reminiscent of the worst years of the U.S. depression of the 1930s and of Weimar Germany in the 1920s.

Accompanying and interrelated to the impoverishment of the mass of the middle and working classes is the concentration of wealth in the ruling and upper middle classes and foreign capitalists and bankers. In 1974 the top 10% received 28% of national income, in 1992 slightly over 34% and in 2001 over 37%, while the poorest 10% received 2.2% in both 1974 and 1992 and 1.3% in 2001- before the devaluation and sharp increase of unemployment.

Together the upper classes-the ruling elite plus the upper middle class-receive 53% of declared income. Because the upper classes were able to withdraw their funds (estimates run as high as $40 billion) from the banks and send their money outside the country, avoiding the confiscation of December 2001, the percentage of wealth in the hands of the upper classes is probably close to 80%.

In that confiscation, the government froze all bank accounts, and subsequently converted them to pesos. The conversion rate in June 2002 was 3.5 pesos to the dollar. In effect, the accounts were reduced from $45 billion to approximately $13 billion and declining. The regime's attempt to convert the remainder into state bonds redeemable in ten years at 2% interest would devalue these personal savings accounts even further, given the 30% rate of inflation for the first quarter of 2002. This attempt by the regime to swindle the account holders out of their savings was prevented by massive demonstrations by the impoverished middle class-the potbanging cacerolazos-which threatened the Congress and stormed the banks.


During the first three months of 2002, industrial activity declined by over 18%. Textiles and manufacturing were down 48% over the previous year. The number of plant closures accelerated throughout the 1999-2002 period, reaching unprecedented levels in the last trimester of 2001 and the first half of 2002. Unused industrial capacity was running at more than 50% in most sectors of the economy, including metal, textiles and auto parts.

Between 1990 and 1998, the foreign debt grew from $58 billion to $140 billion. Over the same period the cumulative sum of capital flight plus interest payments rose from $75 billion to $197 billion. In other words, external borrowing largely financed capital flight and part of the mushrooming debt payments, leaving a net deficit in capital flow. This eroded the economy's capacity to sustain growth and subsequently led to the recession, further budget cuts, and later turned the recession into a depression. The foreign and domestic elites' massive withdrawal of funds-aided and abetted by the foreign banks led to the confiscation of savings of millions of Argentines and the virtual collapse of the financial system. Throughout 1999-2001, IMF loans merely served to pay back private banks and the IFls, while exacerbating the debt problem, deepening the recession, and lowering living standards. In order to get short-term loans, Argentina was paying 16% over U.S. Treasury notes as late as August 2001. Once the fall took place, neither the IFls nor the G-7 were willing to lend new money, unless the central government repealed its Economic Subversive Law (a law designed to prosecute illicit banking practices), abolished the provincial currencies which kept the local economies afloat, and fired several hundreds of thousands of health, educational and other public employees.

The key concern of the IFls with repealing the Economic Subversive Law was that it was an instrument to prosecute G-7 banks that were involved in the illegal transfer of over $50 billion in the year 2001-02. In June 2002, under IMF pressure, the law was repealed. While the IMF blamed the Argentine "savers" for the financial crisis-by making panic withdrawals-substantial data demonstrate that the private, principally foreign-owned banks had already consummated a massive transfer of funds out of the country and were not willing to re-capitalize the banks. Furthermore, the IMF and World Bank pressured the Argentine government to assume the private banks' obligations to their depositors and issue ten-year state-guaranteed bonds in lieu of direct payments to holders of savings accounts. Lacking funds and facing total unwillingness of foreign bank corporations to recapitalize their Argentine subsidiaries, the foreign and national private banks claimed to be on the verge of bankruptcy, at exactly the moment that the rightful claimants attempted to withdraw their savings.

The immediate cause for the collapse of Argentine capitalism was the role of the foreign-owned banks and the IFls, led by the IMF, in emptying the Argentine financial system. The longer-term reasons are rooted in regressive structural changes including privatization, Structural Adjustment Programs (SAPs), open markets, and quasi-criminal "deregulation" of the economy. All these led to the collapse of domestic production, wholesale pillage of the economy, and the confiscation of millions of saving accounts.

In the months leading up to the crisis, the ten leading banks moved approximately $27 billion out of the Argentine financial system. This system operated on two levels: a formal system of deposits and loans and an "informal sector" where mega-accounts operated, largely to launder funds and carry out speculative activity in the financial sector. The "other" categories in February 2001 amounted to $57 billion in assets and $60 billion in obligations. By November the totals of "others" declined to $25 billion for assets and $35 billion in obligations. A closer analysis reveals that of the $25 billion decline in assets, over 74% of it took place among the ten biggest banks. The IMF loans to Argentina served to cover the growing drain of resources out of the financial system by the financial elites, while imposing harsher cuts in public spending and investment. The triple phenomena of deepening economic depression, financial flight, and growing indebtedness were caused by the alliance of the IFls, the foreign and local big financiers, and the foreign-owned banks. The small and medium Argentine depositors were victims of a covert financial swindle, and not the perpetrators, as the apologists charged. Their desperate and belated effort to withdraw their savings was a reaction to the financial swindle executed by the financial elite. Most small and medium savers, however, were not successful. Bank liabilities after the flight of big accounts and the drying up of overseas credits far exceeded their assets; with the economic crisis, many of their outstanding loans were delinquent and there was no way that headquarters would inject new funds to cover the demands of depositors. The government intervened to "save the banks" by freezing all deposits and preventing depositors from recovering any of their savings. The gross class character of the government's financial rescue plan infuriated the dispossessed middle and lower classes. The subsequent devaluation of the peso in effect robbed them of two-thirds the face value of their frozen savings and depressed their incomes, while the upper middle and ruling classes who got their money out of the financial system were able to lower their cost of living, production and consumption by a commensurate 65%.


Argentine industry was pressured both by inexpensive consumer imports from low-wage areas (Asia) as well as upmarket goods from high-tech, large-scale, heavily subsidized Euro-American manufacturers. The liberal argument that "competition" would make Argentine enterprises more "efficient" was false few Argentine companies had the scale and financing to compete with the top U.S. and European multinationals, and even the lowest paid Argentine workers could not compete with a Chinese worker earning a dollar a day. The rapid lowering of barriers also precluded any preparation for competition, and the lack of reciprocity in lowering subsidies and barriers in the U.S. and Europe prevented Argentine companies that were competitive from capturing overseas markets.

Historically, the U.S. and EU countries have undergone a gradual process of selective liberalization, in stark contrast with the Argentine experience. Free convertibility in Europe did not take place until the economies were on their way to sustained expansion-which for some did not take place until well into the 1960s. Trade barriers, including quotas, tariffs and non-traditional constraints (health barriers, unfair trade and anti-dumping rules) are still frequently and extensively used to protect non-competitive sectors. Mass state subsidies and fiscal deficits are used to promote exports and to stimulate domestic growth.


The Menem regime gave the appearance of an "affluent regime" thanks to heavy borrowing and windfall income from the selloff of public properties. Most of the inflows of capital raised upper class consumption and facilitated wholesale corruption by the entire political class and their entourages of public officials, judges, customs officers, police, and military officials. Foreign bankers were willing to lend because the interest rates were 10 to 20 points above the Euro-U.S. rates and there was easy liquidity given free convertibility, and the de facto dollarization of the economy ensured monetary stability. Thus, each step of the liberalization process weakened the fundamentals of the economy: The domestic economy shrank, entrepreneurs fled into apparently lucrative financial-speculative activity, debt payments skyrocketed, the loans-for-privatization deals were approaching their limits, and external flight of capital accelerated as the upper classes sensed that the whole liberal edifice would eventually collapse, leaving neither a productive system nor monetary resources to revive it.

Crucial to the collapse of the bubble economy was the behavior of the Argentine big bourgeoisie. Powerfully ensconced in the Menem regime, they were the initial

beneficiaries of the privatization process and the loans from overseas lenders. They were also the group that dictated economic policy. The Menem regime's point of reference for developing the liberal agenda was, first and foremost, the dominant classes in Argentina who had investments overseas, were tightly linked to overseas banks via joint investments in privatized banks and via foreign loans, and who demanded a peso easily convertible into dollar equivalence. Liberalization to the maximum allowed this 'transnational' Argentine bourgeoisie to buy public banks and enterprises on the cheap and sell them to foreign capital. Deregulation of the banks allowed massive transfers of funds out of the country and the laundering of illicit gains. Cheap imports, easy loans and fast exits of funds were the Argentine elite's definition of liberalization.

For obvious reasons the G-7 countries and the IFls were wildly enthusiastic: They gained control over banks and deposits, lucrative telecommunications, airlines, oil and other money-earning public enterprises. They encouraged the regime to proceed full speed ahead with reckless abandon.

As the domestic economy, particularly in the provinces, collapsed, the provincial governments ran up huge debts-partly to finance corrupt political machines to sustain the national government, and partly to avoid provincial popular revolts. Unlike South Korea, China, and Japan, large-scale corruption did not grease the wheels of national production: Bribes greased the hands that sold off lucrative public enterprises to foreign investors who stripped assets and reduced local production in favor of large-scale speculative activity. There was an inverse relation: As corruption grew, industry declined, tax receipts were negligible and competitiveness became an empty slogan.

Meanwhile, foreign investors moved in on the agro-industrial sectors, retail trade (mega malls), real estate and hotels, in association with a small nucleus of the Argentine economic elite and sectors of the kleptocratic political class, headed by the extended Menem family and its political entourage.

The first major adverse effect was the slashing of employees in the process of preparing public enterprises for privatization. The state fired hundreds of thousands of workers in the telephone, railroad, and waterworks sectors, assuming the economic costs and taking responsibility for repressing the ensuing protests. Many cities in the interior, like the petroleum city of Neuquen, were turned from prosperous cities to ghost towns, with 30-40% unemployment rates. Promises of "alternative employment" were never kept, as provincial and local officials linked to the central government either stole the funds outright or used them to finance their political machines, through expansion of unproductive "administrative" jobs.

The "centralization" of legislative and executive powers in the presidency-in his very person-and the dictatorial methods Menem used to legislate (most industries and banks were privatized via presidential decrees) facilitated rapid and extensive liberalization.


U.S. Secretary of the Treasury Paul O'Neill weighed in on the side of the IMF's "final squeeze," endorsing the IMF bailout of the bankers and the takeover of the remaining sectors of the economy. But he demanded, in typical euphemistic language, "a political solution." He called for a strong authoritarian regime capable of ramming the mass job firings, budget cuts and abolition of local currencies policy down the throats of the impoverished Argentines. O'Neill questioned "the leadership capacity" of the Duhalde government. According to an interview, O'Neill said Argentina's problem boiled down to a single question: Will the Argentine government do what it has to do, namely, implement the IMF policies? What O'Neill and others in the IFls and G7 mean by "political will" is precisely to override the interests and survival of thirty-three million Argentines, elected congressional officials, governors, and mayors, and force upon them further bankruptcies and unemployment-to push beyond the 53% poverty level to satisfy overseas bankers and investors.

Probably the most obscene remarks came from Anne Krueger, second in command at the IMF, a U.S. appointee and a former Stanford professor. In an interview in the Financial Times, she claimed that "the Argentine authorities are not sufficiently realistic as they should be." Realism, according to Krueger, means that in the midst of a depression, cut public spending, lower living standards and increase unemployment. The "realism" referred to is the world of finance capital and its voracious appetite to squeeze even more interest payments from bankrupt provinces, businesses and public treasuries; to withdraw more savings from Argentina with impunity.

The U.S. embassy staff in Argentina went even further. Political attaché Michael Matera claimed the crisis was due not only to Argentina's political leaders but to the entire Argentine people. "The viewpoint of international economists is incompatible with the national mentality of the Argentines. Argentineans have a collective incapacity to change; they are immature and paranoid." The racist ideology explicit in such statements is inescapable.

The style and substance of Argentine relations with the G-7 speaks to a new imperialism: the pillage of the economy, the growth of vast inequalities, economic stagnation followed by a profound and enduring depression, and the massive impoverishment of the population as a consequence of the greatest concentration of wealth in contemporary Argentine history. The new imperialism works directly through the inter-state system and subsidiary financial institutions like the IMF to dictate policy. The April mission of the IMF, with its public pronouncements on every aspect of the Argentine economy, the blatant dictates of the U.S. embassy and the G-7 economic ministers, strongly resonate with the colonial relationship of the past.

In a trip to Tucuman Province in April 2002, we visited the vast villas de miseria, or slums, and spoke to the multitude of poor and destitute. They told us that between 2001 and 2002, in just one year, the number of children suffering from malnutrition increased six-fold. The combination of mass firings, inflation, and the cutoff of food rations turned the poor into destitute, unable to meet even their basic food needs.

A week later, while meeting with a delegate from the bank workers' union in Buenos Aires, we were informed that the banks were planning massive firings. A month later, on May 19, a newspaper close to the financial elite, La Nacion, reported that banks were planning to fire two-thirds of their employees (80,000 of the 120,000), and reduce the pay of remaining staff.

By early July the streets were noisy with demonstrators, crime was rampant, university professors with three positions (catedras) were making $200 a month, highways were blocked and the pot-banging impoverished retirees and former middle class were meeting to demand the ouster not only of the regime, but of the entire political class.

The deepening polarization in Argentina has taken a variety of social and political forms: a national uprising that overthrew the De la Rua regime in December 2001; permanent rebellion in the provinces; constant mass mobilizations of the unemployed (piqueteros); and popular assemblies (caceroleros) in the impoverished middle and working class neighborhoods.

On December 19 and 20, 2001, hundreds of thousands of Argentines took to the streets to protest the government's declaration of a state of siege banning public demonstrations, the confiscation of $40 billion in savings, the deepening recession and 23% unemployment rate. The uprising which finally forced President De la Rua to resign and exit from the presidential palace via a helicopter was the culmination of a series of mass road blockages by the unemployed piqueteros, potbanging neighborhood marches and assemblies, provincial mobilizations and attacks on governors, mayors and federal officials. While each of the particular mass actions has its own specific social base, forms of direct action, and priority demands, they all converge in rejecting repayment of the foreign debt, implementation of IMF austerity programs, and the confiscation of savings.

The mass unemployed workers' movement was the detonator for the uprising of December 19/20, even if the organized unemployed were not a decisive force on the day of the ouster of the President. The unemployed workers' movements (MTDs, for Movimientos de Trabajadores Desocupados) have spread throughout Argentina and escalated over the past six years as the recession has turned into a depression and millions of former unionized factory workers have become 'long term' unemployed. The MTDs are organized territorially-by barrio, municipality, and more recently across municipalities, and in some cases as competing national organizations. Their main tactics are to barricade major highways, blocking the transportation of goods, services, and labor to and from industries, banks and other sectors. Their demands invariably include state-financed jobs and food. They are usually autonomous from the main trade unions and political parties, though there are important exceptions. The MTDs usually meet in assemblies in their neighborhoods to decide on tactics, demands, and the distribution of jobs secured in successful struggles. By early 2002, over 200,000 unemployed workers were organized, though many more workers and underemployed participate in the street blockages and marches. The MTDs draw support from rank and file trade unionists, regional trade union leaders and the Marxist parties. The MTDs clearly spearheaded the opposition to the neoliberal regime in the absence of any sustained opposition from the political parties and the official trade unions.

Several theoretical points emerge from an analysis of the MTDs. First, the idea that the unemployed, outside the factories, cannot be organized because they are too dispersed, fragmented and without social leverage is false. The MTDs demonstrate that their common social situation, the leadership from below rooted in formerly unionized workers expressing themselves through popular assemblies in horizontal structures can succeed in organizing in the midst of a depression, despite the hostility and indifference of the entire trade union and political party leadership.

The activist mass has become in large part "feminized" as women are in most cases the head of the household and have taken the lead in organizing the barricades and the logistical support systems (roadside soup kitchens). Women from working class families bring to the MTDs the experience of two decades of neighborhood organizing, first via neighborhood reform schemes of the various regimes and over the past seven years through the autonomous militant MTDs. The road blockages have evolved from sporadic, quasi-spontaneous actions into systematic, organized activities coordinated among thousands of unemployed. There were 51 road blockages in 1998, 252 in 1999, 514 in 2000, and nearly a thousand in 2001. In 2002 the road blockages were often combined with generalized uprisings, particularly in the provinces of the interior, but also in the greater Buenos Aires region. In January 2002, for example, road blockages accompanied popular mobilizations in Cordoba, Santa Fe, Chaco, Misiones, Santiago del Estero, Salta and Formosa. The combined struggles included both the demands of the MTDs and those of other protesting sectors, such as back pay for public employees, housing for the homeless, an end of the confiscation of savings, and food distribution. In some cases municipal buildings were sacked, supermarkets were raided, and governors' mansions and state legislatures were occupied.

It is clear that the piqueteros are not all that they appear to be, unemployed workers fighting for social justice. Particularly the Peronist party, now in power, has used the job subsidies to try to divide the MTDs, handing out job application forms via their barrio ward bosses and organizing thugs to disrupt local meetings. In addition, local Peronist bosses have hired some unemployed to assault and intimidate assemblies n popular barrios, though they seldom attempt to threaten the MTDs.

The radical MTDs are dispersed throughout the country and in the greater Buenos Aires region. They include Anibal Veron, General Mosconi, Almirante Brown, Teresa Rodriguez, Solano the names of the communities in which they are based-and many others, including regional affiliates of the CCC (Coordinadora de Collectivos Clasistas) which have a militant confrontational style of social action, advocate total blockage of highways, and have retained autonomy from all the trade union confederations.

However, the radical MTDs are themselves internally divided along political lines, with the Trotskyist Workers Pole (Polo Obrero), the Communist "Land and Liberation" ( Terra y Liberacion) and other formations competing for hegemony. The result is that the radical MTDs at best have only tactical alliances, while more often than not they are in conflict, even to the point of separate negotiations with the regime.


The usually ubiquitous red flags and banners of the Marxist Left, dissident trade unions and piqueteros were almost completely absent when tens of thousands of Argentineans marched to the Plaza de Mayo facing the presidential palace, the Casa Rosada, on the hot summer afternoon of December 19, 2001.

The absence of the Left on the first day of the uprising can be attributed to several factors, both ideological and organizational. Most of the Left operated from a rigid class analysis from which it deduced political behavior. The Left was generally "workerist," in the sense that what didn't come out of the factories was suspect. This rigidity generally took the following logic: factory worker-unionization-revolutionary party general strike-revolution. In the meantime, the unionized workers became a minority, most workers were un- and underemployed and many were organized in MTDs. Belatedly the Left turned to organize, mobilize and fragment the MTDs.

Likewise, the Left missed the dynamics of class mobility: The rapid downward mobility of the middle class, its impoverishment and proletarianization. Having lost all their savings, the middle class had nothing to lose. They had become deeply alienated from their traditional conservative moorings. They were open to a radical democratic style of street politics and direct forms of assembly-style democracy.

The Left only joined the uprising on the second day, December 20, and then only the activists and militants, as the leaders remained in headquarters strategizing. Important contingents of public sector trade unionists, piqueteros, Marxist activists and tens of thousands of independent radicalized middle class people poured into the streets. Thousands of young people, from lower middle class students to young unemployed piqueteros, joined the march and the eventual battles with the police in front of the Presidential Palace in Buenos Aires and in other major cities. The downwardly mobile middle class demonstration was the detonator of the mass and continual assault on power. Four governments came and went in fourteen days.

The uprising was successful on several important counts. The Saa regime declared that Argentina would not meet its debt obligations. The populace was able to force the resignation of four presidents. The political class and the judicial system were delegitimized, their venality and anti-national, anti-popular character were fully exposed.

The December 19-20 mass uprising was historically unique for several reasons: It was the first time in Argentine history that a popular uprising had overthrown a bankrupt elected or dictatorial leader. It was the first time in history that the majority of Argentines had confronted and rejected the entire political class. The uprising and the solidarity that ensued led to new and creative forms of direct popular representation in the shape of barrio assemblies, and new tactics of struggle, such as pot-banging demonstrations capable of blocking state decisions adversely affecting the people. Preventing Duhalde from converting the confiscated savings accounts into the junkiest of junk bonds is one important example.

The popular assemblies increasingly relied on the work commissions to implement policy changes as the Marxist sects began to penetrate, debate, argue over tactics, programs and party turf, alienating many and recruiting few. There was a temporary retrocession from the high point of December 2001.

The pot-banging movement has demonstrated its capacity to veto presidential nominations and decrees. The internal warfare of the Left sects undermined the assemblies' attractiveness to many participants. Despite emerging weaknesses, the political experience and the sense of power have sustained an increasingly radical and growing current of opinion among the impoverished middle class. Public opinion polls on presidential candidates in late May 2002 favored a Marxist, Luis Zamora, over any and all of the persona from the major parties.


In light of the complete and total collapse of the Argentine neoliberal model, several alternative models of development have emerged. One of them, Plan Phoenix, put forth by over 100 economists and political scientists, is the most widely circulated and influential in intellectual circles. The other, which we can call Plan Prometheus is not yet a formal proposal or document, but a body of demands and proposals now being articulated within the emerging revolutionary democratic organizations.

Phoenix is both a critical diagnosis of neoliberal policies and a prescription for change and development. The critical diagnosis covers a wide range of economic policies, from taxation, public spending, ALCA (Area Libre Commercio de America) and MERCOSUR (Market of the Southern Cone) to privatization and technology policy. Phoenix's main virtues are found in its criticism of the total deregulation of the economy, the indiscriminate opening to the world market, the unilateral and radical reduction of tariff barriers (without reciprocity), the loss of control over monetary policy via the de facto dollarization, the dismantling of the state as an instrument of economic policy, the great concentration of economic power, and the lack of transparency in the privatization of public enterprise. Phoenix's rejection of globalization ideologues' argument that the nation-state is no longer a viable tool for policy making is part of a new project to revitalize the role of the state in pursuit of an industrial policy which prioritizes development of the internal market and international competitiveness.

In the area of reforms, Phoenix advocates reductions in debt payments via a moratorium or reduced payments-the document is self-contradictory. Its moderate proposals have been bypassed by subsequent events, since three months after Phoenix was published the government defaulted. Phoenix favors increased taxes on the rich, the financial groups and other "non-productive" sectors, and elimination of subsidies to privileged classes. The revenues raised would be channeled toward employment-generating investments in socially useful areas (schools, low income housing, child care centers), as well as worker training programs. The basic premise of the Phoenix document is that a coalition of political parties, productive private sectors, and civil society would be the political bases for a new regulatory regime. The state would direct financial capital to fund productive capitalism; foreign capital to reinvest profits in the national economy; and productive (as opposed to speculative) capital to invest in socially useful activities. Phoenix seeks to devise an economic policy to "reorient capital" toward the domestic market, regional (re-)industrialization and processing of raw materials to generate more value added to exports in the international markets. The priority of Phoenix would be to develop a national plan of development to reactivate the economy, fix social priorities, selectively protect local producers, seek sources of domestic funding and then negotiate with the IFls, including the IMF. The focus would be on internal transformation and the role of the national state, not on external agreements with the IFls.

The Phoenix document is without any connection to the powerful social movements and political uprisings that have occurred. They are not even mentioned in passing. The organized unemployed, the popular assemblies, the factory takeover movements, and the provincial rebellions-all of which have the most direct stake in the welfare, development and employment goals of Phoenix-are ignored. Instead, Phoenix looks to the discredited trade union bureaucrats of the confederations, the political parties and leaders who have been the main cause of the disaster to reenact a new national-popular coalition with foreign capital and credit from the IFls.


For Plan Prometheus, the people's movements are the point of departure. First and foremost is the need for a new social coalition of the 80% of Argentines suffering a severe decline in living standards, including the 55% below the poverty line. Employed and unemployed workers alone amount to close to 50%, and the impoverished middle class includes another 20-30%. This is a broad-based coalition, which is not linked to overseas banks. This gives a socialist state the social basis to re-nationaiize the banking and financial system and provides a political base to resist pressures from the G-7 bankers. The nationalization of foreign trade would provide the state with a mechanism for reorienting foreign exchange to finance public investment and national industrialization. The re-nationalization of petroleum would provide income and revenues to stimulate job training, infrastructure and social projects generating employment. Progressive taxes and tax collection can be enforced by threats to expropriate the property of tax evaders and tax delinquents.

The state reforms proposed by the Phoenix document should be articulated through new assembly forms of popular representation and the incorporation of the new social movements (piqueteros) in local and municipal governments. Popular assemblies should exercise direct control of budget allocations and expenditures, an advanced form of participatory public finance. Public ownership of strategic sectors of the economy is essential to sustain redistributive policies, as the recent decades attest. With privatization the inequalities widened, and decision-making power over macro-economic policies was monopolized by powerful economic groups.

The economic crisis has cut per capita income by two-thirds. Given the scarce resources and the disintegrating productive base, only a public takeover under workers' control can expand the material base and generate greater equality. Greater equality depends on social control of the income to be distributed. Social ownership is at the center of Plan Prometheus. It combines the tax and expenditures of Phoenix but within a vastly expanded social property sector, democratically controlled by the direct producers and administered by a meritocratic public administration. The plan is Promethean because it aims at the total reconstruction of a disintegrating economy with a shattered social fabric in the face of powerful U.S.-Euro imperial adversaries. Having control over the basic economic sectors, however, means the return and reinvestment of earnings in Argentina. Debt default means the savings of over 50% of export earnings. The diversification of production and the reactivation of the economy mean that optimal use can be made of existing unused capacity-over 50% of the total. MERCOSUR, China, the Arab countries and sectors of the EU and Russia offer alternative markets to any IFI-organized boycott. Public investments in innovation, technology, research and development can incorporate Argentina's highly trained but currently underutilized labor force. The reactivization of internal markets and selective protection of provincial producers can expand markets. Public investments in infrastructure can employ the unemployed and facilitate inter-provincial and inter-MERCOSUR trade.

Plan Prometheus incorporates the criticisms of Plan Phoenix and extends them from modifying the behavior of the private actors to transforming their structural position. Prometheus incorporates some of the specific welfare reforms of Phoenix but locates them in a more realistic political-economic properly framework that avoids the constraints and threats of private/foreign non-cooperation. Prometheus replaces Phoenix's proposed national-popular social coalition with a more realistic popular coalition rooted in the really existing social movements and their interests.


As of September 2002 there is no sign of recovery or outside relief-on the contrary, the crises have deepened. The collapse of the Argentine economy and the impoverishment of the majority of its people following the zealous application of "free market" doctrine is a warning to the rest of the Third World. By early summer the Brazilian and Uruguayan economies began their descent: Uruguay is in the midst of deep recession (with 15% unemployed) and was temporarily "saved" from collapse by a $1.5 billion IMF loan; in Brazil it took a $30 billion loan to stave off collapse. What is called a financial "contagion" is in reality the collapse of an economic model based on U.S. pillage, local corruption and joint exploitation.

In June, during a march organized by the Anibal Veron MTD, two piqueteros were executed by police officers-the act videotaped. The result was a massive protest which forced President Duhalde to announce new elections for early 2003. In response to the continuing crises and the IMF refusal to provide any support, a newly organized, massive popular rebellion is in the works. Date and place to be announced.


ABOUT THE AUTHORS James Petras has 50 books and 375 scholarly articles to his credit. His work has been translated into 28 languages. Globalization Unmasked (with Henry Veltmeyer) is his most recent book. His web site: <> (Spanish), and < glish> (English).

Henry Veltmeyer teaches Sociology and International Development at St. Mary & University Halifax, Nova Scotia, and Universidad Aut6noma de Zacatecas, Mexico. Recent publications include: America Latina: Capital Global y la Perspectiva Del Desarrollo Alternativo, and Globalization Unmasked.

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