The Unstable Economy in Argentina

The next U.S. military intervention?

by Sohan Sharma & Surinder Kumar

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 purchasing power.

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 payment.

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 countryside.

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.

People's Response

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 other industries

(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.

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