The deuda (“debt” in Spanish) is one of the most persistent elements in the two centuries of Argentina’s history. It has conditioned the political life and the economy of the country like no other factor, for generations.
But this should not be confused with just any debt. The word deuda normally refers to the external debt (both public and private), a debt owed to foreign creditors.
Historically, the key aspect of the deuda is that it is based on a foreign currency, the world trade currency controlled by the ruling empire. It was once the British pound. Since 1944 it has largely been the US dollar.
The United States can “print” dollars (and the Federal Reserve does so regularly), but Argentina cannot. The same is true of other countries in the Global South with large external debts denominated in foreign currencies.
There are only two ways for these nations to get dollars: exporting and borrowing.
But there are also multiple ways to reduce the need for dollars by reducing imports or increasing the value of exports. For example, instead of relying on a rent economy based on the export of cheap commodities with a low value added (the model adopted by many former colonies rich in natural resources), a country can develop its own industry and reduce its dependency on expensive imported goods, especially advanced technologies or fashionable consumer products.
If a nation excels in some sectors of the economy, it may be able to export more, improving its balance of payments.
In a more advanced stage, a country may even dare to associate with its friends and neighbors, creating a regional bloc in which they trade using their own currencies and rules, or a barter system, circumventing the US dollar.
All these common-sense policies may sound like nothing special for sovereign nations, yet they are a mirage in semi-colonial countries like Argentina.
A chronic debt crisis
As Argentine as the tango and mate, the deuda affects the everyday life of everyone: inflation, salaries, employment, public services, elections. Everything.
And yet its technical and historical intricacies make the deuda a daunting topic, perfect to keep millions in the dark and bureaucrats safe, while instigating an eternal battle of the have-nots.
The deuda doesn’t just relate to the way Argentines think about the economy. In some cases, it contributes to shaping their opinions about history, culture, media, race, and class. It almost always defines their vote as well.
Argentina has defaulted on its debt eight times. It even made history with the world’s biggest ever default ($95 billion in 2001) and largest ever loan ($57 billion in 2018) from the US-controlled International Monetary Fund, making it a privileged case study.
How could this happen? A first hint could be that a man who bears heavy responsibility for some of these negative world records, neoliberal guru and Harvard doctor in economics Domingo Cavallo – who directed Argentina’s central bank during the last dictatorship and served as economic minister in the 1990s – was lavished with years of praise, given rewards by international institutions, and heroized in the US media as a kind of semi-god.
It is no coincidence that Argentina also has the dubious distinction of boasting one of the Earth’s highest ratios of “free market” think tanks to the population.
The reality is that Argentina’s ruling class has not changed much in the last 200 years. So let’s start from the beginning.
This is a brief history of Argentina’s debt, and the neocolonial relationships that dictate it.
You never forget your first debt
In 1824, only eight years after the declaration of independence from the Spanish empire, the union of provinces that would eventually become the Argentine Republic obtained a loan of £1 million pounds (a whopping £110 billion today, according to the Bank of England) from Barings Bank, a British private bank that also had lent money to the US government.
The loan, denominated in pound sterling, was supposedly destined to fund the port of Buenos Aires and build new infrastructure. Instead, it quickly evaporated in a war with Brazil (from 1825 to 1828), which was militarily supported by the British, who helped block the port of Buenos Aires for three years – cutting off Argentina from its only source of foreign currency.
Corruption and betrayal played a key role in making the 1824 loan possible. The delegation that represented Argentina in London was made up of British and Argentine traders and financiers who offered the entire State of Buenos Aires as collateral: all its assets, lands, and rents.
Of the original £1 million loan, Argentina only received £570,000, while the enormous remaining sum was lost in commissions and other fees, mostly to pay the negotiators.
Less than 20% of the money delivered was in gold coins; the rest was in paper notes.
By 1827, Argentina was already unable to service its debt obligations and entered its first default. Two frigates belonging to Buenos Aires that were under construction in England were seized by the bank, weakening Argentina’s naval defense.
A few years later, Argentina had no deterrent that could stop the British empire from occupying the Falklands, extending its power projection to Antarctica. These islands (officially known as the Malvinas) remain colonized by the United Kingdom to this day.
Argentina subsequently defaulted twice in the 19th century, and had to emit new bonds to keep paying the growing interest.
It was only in 1904 that Argentina’s original debt was formally repaid. It had taken 80 years, more than three generations, and had cost about eight times the original value.
This simplified account of Argentina’s first experience with a neocolonial debt trap only scratches the surface of a scam that inspired the more sophisticated schemes developed in the two centuries that followed.
Today’s practice of trapping former colonies in unpayable debts is the result of well-engineered financial, diplomatic, political, and legal strategies that have been tested dozens of time in a neocolonial laboratory.
Theft, extortion, and collaborators
These neocolonial extortion schemes have three major effects. First, they facilitate the transfer of enormous amounts of hard-earned wealth from the real economy of developing nations to banks and speculative funds controlled by super rich individuals and families in the Global North – largely based in the United States, Europe, or offshore tax havens.
Secondly, by installing dictatorships, leveraging institutions like the International Monetary Fund, or getting US courts and judges to seize funds of sovereign nations, lenders obtain the power to dictate the monetary, economic, labor, and even foreign policies of indebted countries, effectively creating semi-colonies whose democratically elected governments are incapable of implementing policies demanded by their people.
Thirdly, these policies imposed from outside in turn strengthen a local parasitic capitalist class that is fundamental to perpetuate a regime of foreign control. This type of traitorous bourgeoisie, still dominant in Argentina and in all Latin America, was described by Chinese revolutionary Mao Zedong as the “comprador” class, an appendage of foreign capital that benefits from the foreign exploitation of its own country.
Argentina is a case study of this neocolonial process.
When the International Monetary Fund (IMF) was formed in 1945, Argentina initially refused to join.
The South American country’s democratically elected President Juan Domingo Perón implemented a progressive nationalist program that encouraged independence and sovereignty. He was very successful in boosting Argentine industry through two five-year plans, and briefly neutralized the effects of the deuda during his tenure.
But Perón was toppled by a bloody military coup in 1955. And Argentina promptly entered the IMF under dictator Pedro Eugenio Aramburu in 1956.
A virulent anti-communist, Aramburu’s unelected military regime also severed the ties with the Soviet bloc and moved Argentina into the neocolonial orbit of the United States during the first cold war.
1976-1983- From death to debt
Argentina is one of the world’s biggest agricultural producers. Agriculture accounts for most of the country’s exports and it is the main source of foreign currency (the other being loans).
Because of this, Argentine landlords and their ultra-conservative civic organization, the Rural Society, have been extremely powerful throughout the country’s history.
Argentina did experience formidable industrial growth in the first half of the 20th century, especially between the 1930s and 1950s.
Until then Argentina, had often ranked among the 10 richest countries in the world by total GDP. According to long-run economic development data, the GDP per capita even ranked first in the world in 1895 and 1896. But Argentina also had a relatively small population.
When Perón took power in 1946, Europe was in ashes and Argentina’s per capita income ranked seventh in the world.
In 1955, when Perón was overthrown in a US-backed military coup, Argentina ranked 16th – still a very high position considering that the reconstruction of Europe was boosted by Washington’s Marshall Plan, not to mention the fact that Washington’s policy of flooding Europe with US agricultural products had had a negative impact on Argentine exports.
That year, Argentina’s GDP per capita was the highest in Latin America – almost five times that of Brazil. Compared to colonial Britain, it was only 19% lower. And it was half of that of the United States.
Argentina’s GDP per capita never got better than it was in the year Perón was overthrown. By 2016, it had plunged to 63rd.
The statistics aside, the point is that before it got sucked into Washington’s cold war, Argentina was a significant economic power.
Although politically unstable and dominated by a backward landlord and comprador class, the South American nation’s rapid growth, large immigration flows, and incipient industrialization created the conditions that could challenge the colonial status quo.
Perón was not a Marxist, but he envisioned a third way between US capitalism and Soviet socialism, and was a clear symptom of those tensions.
The old War on (Marxist) Terror
The dominance of the United States in Latin America, a region with a population of more than 660 million today, was achieved and is maintained through a number of strategies.
One of the least understood yet perhaps most significant is the intentional sabotage of independent economic development.
With a growing industry and an industrial working class strengthened by a diverse mix of immigrants, Argentina’s economy was particularly difficult to undermine. Even more so because many of the millions who had fled from poverty, fascism, and wars and ended up in the South American country were socialists or some variety of leftist.
But one of Washington’s preferred ways to impose its control over Latin America, especially during the first cold war, was through violent force.
The 1955 coup that removed Perón was carried out with aerial bombings on the presidential palace and the center of Buenos Aires. Roughly 360 people were killed.
In the two decades that followed, Argentina descended into a spiral of military coups and intermittent right-wing dictatorships backed by the United States.
In 1970, the former dictator Aramburu (de facto president between 1955 and 1958) was assassinated in circumstances that are still unclear today, accelerating a complex process of further destabilization.
The chaos was exacerbated (or caused) by the US government’s Operation Condor, a secret plan to eradicate all Marxist elements from Latin America through the provision of anti-insurgency support, coordination between intelligence services, and training to carry out infiltrations, torture, and assassinations.
The leaders of the last Argentine dictatorship (which governed from 1976 to 1983), who were later charged and convicted with crimes against humanity, used to describe their mission as a war – more precisely as a war on “Marxist terror”.
But the limited cases of insurgent violence, which paled in comparison to the wildly disproportionate state terror and repression, were used as a pretext to persecute and exterminate all dissent and resistance against the post-1955 regimes.
Between 1973 and 1976, many of these crimes were carried out by the Triple A (Argentine Anticommunist Alliance), a death squad founded by far-right Peronist José López Rega, who had been a key ally of Perón in the 1970s and a member of Italy’s infamous Propaganda Due (P2).
But anti-Peronist and anti-communist Emilio Eduardo Massera, one of the leaders of the 1976 coup and the military regime that followed, was also a member of the P2.
P2 shows how European governments also assisted in Washington’s war on the left in Latin America.
Propaganda Due was a criminal organization based in Italy and linked to Italian intelligence, allied with the CIA and NATO. It was exposed in 1981 and dismantled in 1982 by law.
P2’s leader was Licio Gelli, an Italian fascist, intelligence operative, and financier who had lived in Argentina. The organization was considered a sort of Italian deep state with strong connections to the right-wing media and anti-communist environments.
On March 28, 1976, just four days after a right-wing coup, Gelli sent a letter to Argentine coup leader and P2 member Massera saying that he was “happy everything went according to the plans” and wishing that “a strong government” could repress “the insurrection of the Marxist movements.”
The Italian parliament published a report investigating P2 in 1984.
With a number of secretive far-right entities and plots overseen by the US and European governments at the height of the first cold war, Argentina was ready for its shock.
When Argentina’s military arrested constitutional President Isabél Perón (the politically unskilled wife of Juan Domingo Perón) in the early hours of the March 24, 1976, many believed that things could not get much worse. Inflation was at 700% and political violence was already extreme.
In fact, it was one of the bloodiest nights in the history of Argentina – probably only surpassed by the genocide targeting Indigenous nations and the slavery of the previous century.
What followed the US-backed coup was a campaign of terrorismo de estado (state terror), desaparecidos (forced disappearances), systematic rape and torture, arbitrary detentions, countless people forced into exile, burning of millions of books, dystopian surveillance, and propaganda.
Like Chile under Augusto Pinochet and other countries in South America, Argentina had entered its neoliberal experiment, an economic reset under the supervision of the United States and its Operation Condor, the local comprador oligarchy, and the Argentine branch of the Chicago Boys.
The new regime was called the “National Reorganization Process” – a name that implied it had a mission to accomplish.
The US-backed military junta, an unelected government controlled by the armed forces, acted as the main enforcer of the “reorganization”.
Dictator Jorge Rafael Videla, a rabid anti-communist, was in power during most of the “process,” and proudly defended his countless crimes until his death in prison in 2013.
But the men who oversaw most of the economic shock were Adolfo Diz and José Alfredo Martínez de Hoz.
Diz directed Argentina’s central bank (and was followed in 1981 by the US media’s golden boy Domingo Cavallo). He was a pupil of Milton Friedman in Chicago and a former IMF executive director.
Elite right-wing economist Martínez de Hoz was appointed economic minister. He was a Cambridge graduate from a wealthy family of landlords, the CEO of several large Argentine companies, and a personal friend of US billionaire oligarch David Rockefeller.
Those who followed for shorter periods of time had very similar résumés, full of degrees from elite US universities and sinecures at the IMF, World Bank, and other Washington-dominated neoliberal institutions.
“Sweet money”: Neoliberal shock therapy and de-industrialization
Martínez de Hoz used his position to favor Argentine and foreign elites, including his personal friends and the companies he had worked for.
Almost immediately after the Videla dictatorship came to power, Martínez de Hoz got a $100 million IMF loan (worth a much higher sum today).
He also implemented aggressive neoliberal shock therapy: smashing trade barriers, allowing US and European products to flood Argentina’s market, and removing subsidies (including on gasoline).
In a vicious attack on Argentine workers, Martínez de Hoz froze wages by law, while inflation remained well above 100% throughout his tenure. This caused a devastating drop in the cost of labor, and therefore in the real value of salaries, which declined some 40% by 1980.
He also successfully dismantled most of the Argentina’s still competitive industry, selectively saving his friends.
The US-backed Videla dictatorship oversaw an intense de-industrialization, marking an end to Perón’s era of state-owned company, which since 1951 had produced domestically designed cars, motorbikes, trucks, airplanes, and engines.
Decades of industrial research and development, tens of thousands of jobs, and large public investments were disintegrated in Argentina.
Claiming to be fighting inflation, in 1979, Martínez de Hoz introduced an artificial system of exchange regulation between the peso and the US dollar known as la tablita (the little table).
Leveraging large and ever increasing foreign debt, la tablita overvalued the peso, favoring imported products over domestic ones, so thousands of Argentine businesses went bankrupt.
It also allowed speculative funds to exploit a scheme known as carry trade (bicicleta financiera). Speculators could get low-interest loans abroad in US dollars and absurdly high interests on pesos in Argentina, with no capital control whatsoever, so they started moving money in and out making enormous profits.
This made foreign and domestic speculators much richer than they already were, but the gains from the trick had to be paid by the state – or more precisely Argentine workers – in US dollars.
The strong peso was a clever ingredient of the dictatorship, defining a neoliberal myth that was called “sweet money” – a sort of consumerist orgy with an unhappy ending that was portrayed in a 1982 film with the same name.
Because of la tablita, the most coveted imported goods (consumer electronics, clothes, and accessories) became cheap almost overnight. Imports rose by more than 550% between 1976 and 1980.
The overvaluation of the peso meant that many Argentines could suddenly afford to travel and go shopping abroad.
While factories were closing en masse – and while thousands of mothers were looking desperately for their children and grandchildren, who had been disappeared for opposing the junta – the military regime propagandists celebrated the new era as a positive opening to the world.
The euphoria after the victory at the 1978 football World Cup led to a feast of nationalist propaganda.
This economic deception lasted two years. La tablita was abolished in 1981, with a master stroke leading to the opposite effect: a sudden devaluation of the peso.
More Argentine businesses went bankrupt because their pesos were now worth nothing, and their debts denominated in US dollars had become unpayable.
Videla, Diz, and Martínez de Hoz resigned a month later, leaving the country in recession and the state in monetary and financial chaos.
Reorganizing the last bits
In 1982, the military junta had been weakened by five years of suicidal neoliberal economic policies. It attempted to stay afloat with a jingoistic wave of paradoxical anti-colonial propaganda.
The regime that had humiliated the nation and the people of Argentina by selling it off and betraying it in all possible ways did the unthinkable: It waged a war with Britain over the Malvinas.
The Falklands War ended in a catastrophe, but also accelerated the end of the dictatorship.
Taking advantage of the last days in power, the right-wing-controlled central bank nationalized the private debt of a selected group of companies in December 1982, including Grupo Macri, a holding founded by the father of Mauricio Macri (whose neoliberal presidency between 2015 and 2019 was a nostalgic homage to the families benefited by the dictatorship).
The nationalization of this private debt cost the state about $17 billion dollars.
The financial deregulations of the regime led to uncontrolled capital flight, destructive speculative schemes, rampant fraud, and the crash of dozens of financial companies, including banks.
The desperate need for US dollars to repay debts forced Argentina’s de facto government to keep emitting bonds at always higher interest rates.
According to data from the World Bank, the external debt of the government was $4.6 billion in 1976.
At the end of the dictatorship in 1983, it was $25.6 billion – an increase of more than five times.
This debt would double to $52 billion by the end of the 1980s, and subsequently skyrocket to $103 billion in 2004, doubling again.
And these figures do not include private foreign debt.
In the 28 years since the beginning of the US-backed state terror – between 1976 and 2004, constituting roughly a generation – the deuda had increased more than 2200%, while GDP had gone up only 49%.
The world average for GDP growth in the same period was 90%.
The increase in Argentina’s external debt was 45 times the growth of its GDP.
The country was in an economic apocalypse.
1983-2001 – From hope to default
Operation Condor turned Argentina into a broke country whose economy was heavily indebted in US dollars.
With the 1983 election of Raúl Alfonsín, the military boots left the presidential palace, but the debt contracted by the dictatorship never did.
Alfonsin could have contested the legitimacy of the debt. After all, it had been contracted by a dictatorial regime installed by the CIA, operating under US influence and favoring foreign interests over Argentina’s.
The debt was the result of a deliberate effort to undermine the economy and sovereignty of the Latin American country, so the legitimacy of the deuda was a valid matter of debate.
But Alfonsín’s government and the new, fragile democracy were too weak for such a challenge.
The first elected president in a decade was inaugurated in an atmosphere of great hope, after a war and nightmarish horrors that would soon become public, thanks to an investigation that concluded with the publication of the book Nunca más (“Never Again”), and a historic trial that ended with the conviction of the junta leaders.
But by accepting to comply with all the obligations imposed by the deuda, Alfonsín’s presidency was destined to be a failure.
The government depended on negotiations with the Washington, DC-based IMF and World Bank, the only entities that could provide the dollars Argentina needed.
Every decision of these organizations in matters related to Argentina had a strong influence over the country’s political and monetary stability, including the inflation which remained very high throughout the 1980s.
Alfonsín’s presidency ended with a hyper-inflation crisis in 1989 that got even worse in 1990, when wages and savings quickly evaporated, poverty and extreme poverty skyrocketed, riots and lootings erupted.
The shock caused a desperate demand for change, and played a key role in electing Carlos Menem, a conservative Peronist who had campaigned with vague promises to favor the poor and leveraged the fame of Perón, who remained popular among large sectors of the working class.
One of Menem’s most repeated slogans was “Follow me, I won’t deceive you!”, a trivial political message that was actually a lie, considering the betrayal that followed.
The unpayable debt, that kept growing like a snowball under Alfonsín, prepared the ground for the infamous “structural adjustment” programs that were “recommended” (that is to say, forcibly imposed) by the IMF, the World Bank and the US Treasury Department.
Neoliberal structural adjustment was presented as a simple technocratic solution, a doctor’s prescription to heal economies in formerly colonized countries that, coincidentally, all suffered from the same illness: external debt.
The therapy proposed in the so-called Washington Consensus demanded financial deregulation, no tariffs on imports, cuts to public services, and radical privatizations of public assets.
Doctors, therapies, and side effects
Medical metaphors became a classic trope of the neoliberal propaganda, and were also used by reputed economists.
Jeffrey Sachs is often associated with the infamous concept of “shock therapy.” The first patient he could experiment his theories with was Bolivia in 1985.
There, Sachs’ task was to stop a hyper-inflation crisis – which, as in Argentina, came after years of a US-backed right-wing dictatorship.
Sachs did manage to contain inflation by forcibly overvaluing Bolivia’s currency. But his treatment could only be applied by deporting labor leaders, allowing mass layoffs, impoverishing workers and Indigenous people, and undermining the country’s real economic growth.
Sachs, a Columbia University professor who would go on to rebrand himself as a progressive social democrat and supporter of Bernie Sanders, first made his name in the centuries-old tradition of colonial philanthropic megalomania.
His 2005 book “The End of Poverty”, prefaced by U2 singer Bono, used the medical metaphor to explain how to cure extreme poverty by 2025.
Despite the good will behind this and other initiatives, it is difficult to find any fundamental ideological (and especially technical) difference between Sachs and Argentina’s neoliberal idol Martínez de Hoz – even though the latter operated inside a fascist military regime that raped, tortured, and disappeared dissidents or threw leftists to their deaths out of airplanes.
Two decades after Sachs’ “therapies” were sent from Washington, DC to La Paz, Bolivia’s socialist President Evo Morales showed what an economy looks like when the state protects its people, their work, and the domestic market.
The massive growth of the Bolivian economy under Morales – an Indigenous farmer and labor organizer who did not finish high school – is only one of the many indicators that exposed the pseudo-scientific economic doctrine developed in the most prestigious US universities under the guise of clinical rigor.
Bolivia’s GDP per capita was just $1034 in 2005. Morales came to power the next year, and by the time he was overthrown in a US-backed far-right coup in 2019, Bolivia’s GDP per capita more than tripled to $3552.
Overvaluing a currency by pegging it to the US dollar, in one way or another, was the core of the shock therapies that neoliberal economists had implemented in Bolivia, Argentina, and elsewhere.
This is certainly the easiest way to contain inflation, but it also undermines the domestic market and the people of a country – the two variables that are often ignored by free-market economists and institutions.
Other solutions to inflation exist, but because these include capital controls – an idea considered blasphemy in orthodox economics – and because they help preserve and stimulate local economies instead of international finance, they are most unpleasant to US and European banks and corporations.
No corporate media pundit or reputed economist would suggest a shock therapy that negatively affects the ruling class to fix a crisis, even though it would be sensible, because that would compromise their reputation and career.
So the concept of shock in economics is always reserved as a tactic for ripping off the working class and the poor – especially in formerly colonized nations.
Menem and Cavallo: the feast
Shortly after Carlos Menem took power in 1989, he pardoned all crimes committed during the Videla dictatorship. This horrified the survivors, and made it clear that his presidency would be dominated by oligarchic and foreign interests.
Menem also removed some taxes and regulations on agricultural exports, obtaining the support of the powerful landlords and the conservative establishment. The mask was off.
Hyperinflation reached a staggering 20,000% in 1990. Combined with the debt and pressure of the IMF, the crisis provided the justification for another “shock therapy”.
In 1991, Menem chose as his economic minister Domingo Cavallo, who had directed the central bank during the dictatorship. Together, they practiced what the president had famously called a “surgery without anesthesia”.
Cavallo’s landmark policy is known as the uno a uno (“one to one”). This was the new edition of Martínez de Hoz’s disastrous la tablita in 1979 and Sachs’ shock therapy in Bolivia.
The scheme was based on the same monetary principle: stop inflation by artificially and forcibly pegging a currency to the dollar (or overvaluing it).
Argentina’s latest version of this scam was even simpler than the previous manifestations. The Menem government issued a new currency – the peso still in use today. It retired old notes and coins and issued new ones.
The law then ordered that one new Argentine peso was now worth one US dollar – hence the name one to one. The Argentine peso would thus remain pegged to the dollar.
It was a de facto dollarization, a surrendering of Argentina’s monetary sovereignty.
Everybody could freely exchange pesos and dollars, now backed by the state with its reserves. This meant that the law restricted the emission of new pesos to the amount of US dollars in Argentina’s reserves.
From the point of view of the speculative financial markets, pesos had become “sound money” again, by law.
But they had also become expensive for the state, and therefore limited in circulation.
Inflation did go down to almost zero, but Argentine workers’ purchasing power dropped too.
Cavallo was celebrated in the West as a genius, as if he had invented free dollars. Clearly, they weren’t free.
The uno a uno was not meant to come alone, and was part of a larger plan of deregulations and privatizations.
With the support of the Peronists in the Congress, Menem launched one of the biggest operations of privatizations in history, an unprecedented pillage of public resources that Perón (who had nationalized the central bank and the railways) would have likely have opposed.
In a few years, the still powerful Argentine state privatized the pension system, national railways, public banks, telephone grid, national airline, ports, postal service, water supply network, power grid, gas network, several TV and radio networks, and some healthcare services.
The naval, chemical, and aerospace industries were privatized, along with the national oil company. In all, more than 400 public companies in Argentina were privatized.
US and European corporations bought the country practically overnight.
The privatizations occurred in the context of wild corruption and mismanagement. Companies and assets were sold off or given in concession at ridiculous prices and conditions.
Some services became up to 10 times more expensive. Others collapsed.
One of the most dramatic cases was the destruction of Argentina’s railways network. In its effort to de-industrialize the country, the military dictatorship had closed hundreds of stations and thousands of miles of rails.
Menem finished the job by dismantling most of the 29,000 miles of rails – which had been the eighth-largest network in the world.
Thousands lost their jobs. Some remote villages were disconnected from the rest of the world.
Neoliberalism turned a functioning public infrastructure that had been built, operated, and used by generations of Argentine workers into landfills.
In many cities and towns, these abandoned industrial, almost post-atomic ruins have not been dismantled or converted to this day, three decades later.
Trains, rails, bridges, warehouses, and stations were reconquered by nature and left to rust, offering a depressive glimpse on the past and a warning for the future.
The euphoria over Cavallo’s apaprent victory against inflation did not last. An initial boost in confidence caused by the low inflation and the strong peso gave the illusion – buttressed by a worldwide neoliberal propaganda campaign praising Argentina’s model – that the economy was not going to collapse this time.
The growth between 1991 and 1994, based on the overvalued currency, gave Menem a second mandate.
But in 1995, unemployment reached 18.8%, indicating that not everybody was enjoying the consumerist joys of the rise in imported goods – the new “sweet money” phenomenon, which was similar to the one experienced in the Videla dictatorship under Martínez de Hoz.
Because of the strong currency, Argentine exports were also hurt. National products had become too expensive, leading to a growing trade deficit.
The imbalance was compensated by the dollars obtained where? From one-off income from privatizations, and, once again, loans.
But how long could this scheme last?
De la Rúa & Cavallo: the chaos
The recession and crisis that followed Menem was brutal. The so-called structural adjustments imposed by the IMF boosted unemployment, extreme poverty, and hunger to record levels, while capital started leaving the country.
In 1999, the widespread disgust for Menem – whom many remembered as a corrupt buffoon who drove a $120,000 red Ferrari while overseeing the pillage of his country – led to the defeat of the Peronist candidate in the presidential election.
At that point, Argentina had already entered a technical recession that would last four years. Yet with the shock therapy, nothing changed.
During his short presidency, from 1999 to 2001, the liberal Fernando de la Rúa kept implementing the suicidal recommendations of the IMF, with more rounds of cuts in public services and pensions.
De la Rúa reduced salaries of public employees and fired thousands. He also made it much easier, and cheaper, for employers to fire workers in the middle of a long recession, without the obligation to pay severance packages.
In December 2000, the government obtained a $37 billion “bailout” package from the IMF under the condition of annihilating the state and the economy by reaching a zero deficit.
In January 2001, the government renegotiated parts of the debt in order to postpone it for three years, while increasing the interests. But in March, the negative results forced the economic minister to resign.
In a surreal plot twist, de la Rúa called back an old acquaintance: free market star Domingo Cavallo, the former Menem minister who started the uno a uno conversion that had crippled Argentina’s national economy probably more than anything else ever conceived.
Cavallo was appointed economic minister, again.
Once back into the operatory theater, the economic butcher started doing the only thing he and all the other ministers in the previous 25 years had always done. Further cuts were approved, while the ghost of an incoming Armageddon loomed.
2001 – Mission accomplished
The unsustainable macroeconomic situation led to a bank run in Argentina in November 2001. Many people and companies feared a meltdown of the financial system. They started withdrawing large sums from banks and exchanging their pesos to US dollars, even though Cavallo’s now infamous landmark policy, the one to one conversion, was still in place.
In a desperate attempt to save the banks and contain a situation that was clearly out of control, on December 1, 2001, Cavallo and de la Rúa ordered an almost complete freeze of all bank accounts, limiting withdrawals to $250 in cash per person per week, a measure then called the corralito (small corral).
The sudden limit in liquidity, after years of financial deregulation and in the midst of a brutal recession, drastically affected trade and broke the chain of cash payments, leading to terrible consequences for millions of informal workers who did not have bank accounts, and thus could not be paid.
Considering it time to let the boat sink, the IMF announced on December 6 that it would not send the dollars expected from the last bailout, because Argentina had not met the zero deficit goal.
The following weeks were followed by a general strike, lootings, violence, and several deaths.
So on December 19, President de la Rúa ordered a curfew, inciting an infuriated response from the people. Protesters stormed the Plaza de Mayo, the square in front of Argentina’s presidential palace, the Pink House.
The day after, de la Rúa resigned and fled from the roof on a helicopter.
Three days later, on December 23, abandoned by the IMF, Argentina officially defaulted on a $95 billion debt.
The dream of debt freedom
The 2001 default was a watershed moment for all Argentines, and became a symbol of the effects of neoliberalism and imperialism across the planet.
But this historic default on debt managed by award-winning, highly respected economists was just the surface of a decades-long, fabricated crisis that was really a neocolonial takeover.
Record levels of poverty, shocking child malnutrition, a growing infant mortality rate, devastating unemployment, and increasing outward emigration shattered the false image of the country that had once been an economic powerhouse and the destination for millions of migrants seeking a better life.
Argentina was not just broke; it had been socially, economically, and politically demolished as a sovereign country.
The state, productive fabric, currency, trade, public education, and healthcare, public transportation: nothing was left untouched by the pillage that effectively led to a reset of Argentine society.
Something similar was happening in other Latin American semi-colonies of the United States. The region found itself divided into those who recognized the fraud of neoliberalism – a word that had become in the political discourse – and those who believed that the shock therapies designed by people like Jeffrey Sachs, José Alfredo Martínez de Hoz, or Domingo Cavallo were not “true” neoliberalism.
The staunch believers in the virtues of neoliberal ideology implied that, instead of changing course, the real solution was more of the same, but in a more extreme form.
Some of these free-market pundits and academics, who still thrive in major corporate media outlets, articulated a fundamentalist “libertarian” critique, claiming the neoliberal regimes did not go far enough when they removed most tariffs on imports, that they should have eliminated all of them, effectively destroying local industries. And they insisted everything should have been privatized, not almost everything.
The extent of the privatizations is something that even the free-market fundamentalists’ most eloquent evangelist, Milton Friedman, struggled to explain in practical terms.
Friedman argued that the state should still control “some roads”, and maybe the police or the army. He confusedly claimed that he was not against public control when debating schools, but simultaneously insisted that government control was bad.
The biggest neoliberal rhetorical fallacy has always been related to the debt. Neoliberals typically associate the debt with public spending on social programs, using a straw man that implies that the debt crisis of “developing countries” is a trivial problem of excessive spending that can be solved by simply reducing it.
The neoliberals act as though poor working people, especially from oppressed Black, Indigenous, or mixed race communities, are unable to manage the money that wealthy people have supposedly given them.
This narrative is totally false. It ignores key factors, including foreign control, deliberate pillage, and de-development.
In regard to foreign control, unpayable debts were deliberately created and expanded in Argentina by dictatorships or corrupt elected governments, like Menem’s, which operated on behalf of foreign interests and oligarchs, and which were forced to apply suicidal measures demanded by the IMF, World Bank, and US Treasury Department.
As for deliberate pillage, the need for massive quantities of US dollars was in large part caused by fraudulent schemes, like Argentina’s “financial bicycle”. These were made possible thanks to the deregulation of the exchange market, overvaluation of the currency, and other policies that favored scams paid by the state.
When billionaire speculators were allowed to exchange Argentine pesos for unlimited amounts of dollars, benefiting from high interest rates in pesos, it was the state that had to borrow those dollars from US private banks or from the IMF and pay interests on them. Once exchanged, the dollars obtained by the speculators were moved out of the country, leaving the debt to the state.
And in terms of de-development, the money borrowed under Argentina’s neoliberal regimes was virtually never used for social programs that would stimulate the real economy, support domestic demand, or improve people’s lives in any way. Instead, those dollars were mostly used to pay interest, service new loans, or increase the demand of dollars for speculative purposes.
Fool me once shame on you, fool me twice…
Only days after Argentina’s 2001 debt default, interim President Eduardo Duhalde abolished Cavallo’s dollarization scheme – the one peso to one dollar fixed exchange rate. The peso lost 40% of its value overnight.
This long-due monetary devaluation, together with a timid stimulus in the form of social subsidies, gave oxygen to an exhausted population and to the economy as a whole.
The defaulted country was in ruins, and the lasting crisis led to immense suffering. But as a response to the robberies and horrors of the previous decades, new creative energies and popular movements were emerging across Latin America.
In a surprising turn of events, the barely known governor of a remote southern province became president of Argentina in 2003, with a measly 22% of the vote.
The widespread contempt for the arrogant and corrupt political class of Buenos Aires played in favor of Néstor Kirchner, a progressive Peronist who belonged to the faction that opposed fascist Peronist José López Rega in the 1970s and neoliberal Peronist Menem in the 1990s.
Not many thought that Kirchner would have changed Argentina’s political direction. But he laid solid foundations for a debt-free economy that grew almost 9% every year during his presidency – a success neoliberal detractors tried to explain simply as the luck of a “commodity export boom“.
The new president joined the progressive wave that had brought Hugo Chávez in Venezuela and Lula da Silva in Brazil, forming a key part of what would later be dubbed the “Pink Tide”.
Bye, bye IMF
As of 2003, when Kirchner became president, Argentina’s defaulted external debt was a combination of IMF loans and bonds owned by private investors of all kinds. These two entities operate and affect the government in very different ways.
The IMF is a political organisation ruled under a very specific economic ideology that imposes the Washington Consensus on countries that they “help” financially. The US has always had the main quota and voting power. As we have seen those conditions are detrimental to the real economy and are clearly designed to undermine the borrower’s growth and domestic market while trapping it in an infinite debt crisis.
But the bondholders, mostly private companies operating in international financial markets, cannot directly enforce any policy on any government. They are “just” private companies that profit from speculative trades that obviously involve risks and normally the higher the risk, the higher the gain. The more a government is in trouble the higher the interests of its bonds will be in order to find enough speculators ready to buy them. This game makes it very profitable to trade very risky bonds, in other words to speculate on countries that are financially desperate.
While formally separate, the IMF and the bondholders (sometimes referred to as “the markets”) somehow cooperate and need each other in order to maximise their effectiveness. The more a country is financially desperate the more speculators will profit and the more leverage the IMF will have in order to enforce neoliberal reforms and other political pressures.
On December 16th 2005 Kirchner announced that Argentina would repay its entire IMF debt in full and in advance with its reserves. On January 3rd 2006 the payment of $9.5 billion was confirmed by the IMF.
The Central Bank only had $27 billion in US dollars but that was good enough compared to the record low of the previous years. The reserves had grown thanks to the budget surplus obtained from the suspension of the payments to private bondholders and the rapid growth of exports caused by the devaluation of the peso (that finally made Argentine products more competitive). The operation also represented savings for $842 million in interests.
While far from being a solution to the huge problems the Argentine people were facing, it was a game changer. The move was anticipated by Lula in Brazil who had paid the IMF in full a few months earlier. But the announcement was received as a shocking surprise by Kirchner’s supporters and detractors anyway. It also annoyed part of the Argentine establishment whose criminal incompetence was mercilessly exposed: why did nobody think about getting rid of the IMF before?
The repayment was also a demonstration that the country never actually needed any “aid” from the IMF, seen as a national enemy by popular movements who had been calling for radical change and vocally attacked by Kirchner in many of his public speeches. No independent and rationally governed organisation would accept to lose their political freedom for a small loan, so small that they can repay it in one go even immediately after their worst economic crisis.
Debt restructuring and vultures
The debt with the IMF was an important part because of its political implications, but not the largest. In 2003 Kirchner had started a complex process of negotiations with diverse groups of creditors that continued under the presidency of Cristina Fernandez de Kirchner (CFK).
As shown at the time by the frustration of The Economist, the aggressive approach of the Kirchner administrations was effective. In 2005 it abandoned the endless and unsuccessful negotiations and made a unilateral offer with discounts of up to 66.3% on the original bonds. The offer was accepted by most bondholders and ended restructuring 76% of the defaulted debt (then $81.8 billion in total).
In 2010, under CFK, Argentina completed a second bond exchange under less favourable conditions for the creditors that led to a total of 91.3% of the defaulted debt restructured.
It was a success. Tens of billions were saved and Argentina was on its way to finally normalise its status vis-à-vis the international credit markets while all economic indicators were showing strong signs of recovery. But the outstanding defaulted debt, only about 8% of the total from 2001, was now controlled by holdout creditors that had refused the offers of 2005 and 2010 and decided to litigate.
Most of these creditors were “vulture funds” (illegal in some countries but not the United States). This particular kind of hedge-fund profit by buying defaulted debts at a much lower price than their nominal value and using several strategies, mostly aggressive litigation, to extort the debtor in order to get the full value plus penalties.
Some of the world’s most infamous vulture funds had bought Argentina’s defaulted bonds after 2001. NML Capital, Cayman Islands subsidiary of New York based Elliott Management Corporation, whose American founder and CEO Paul Singer is a billionaire Republican donor, vulture capitalist (and philanthropist), held the largest part of the cake. Kenneth Dart, billionaire and owner of Dart Management, considered a pioneer in vulture practices in Brazil, Russia, Ecuador, Turkey, Greece and more was also in the game. Aurelius Capital Management, led by lawyer Mark Brodsky who sees Singer as his mentor, also controlled part of Argentina’s remaining defaulted bonds.
Singer, Dart, Brodsky and others belong to a generation of speculators who learnt to leverage the 1976 Foreign Sovereign Immunities Act, a law that provides the legal basis to sue a sovereign country in a US court. Before that law, distressed-debt litigations and vulture hedge-funds operating against sovereign countries could not exist. In 1992 Dart opened Pandora’s box by suing Brazil in the midst of its debt crisis and getting a favourable settlement.
In the following years, marked by the post-Soviet world and its unfettered neoliberal colonisations and pillages, other similar financial parasites followed Dart’s example. “When Dart and Singer started, fewer than 10% of sovereign debt crises involved litigation. Today that figure is more like 50%”, according to the New York Times.
The fight and the traitor
Argentina’s 2001 record default was the perfect opportunity for vulture funds. Their threat was so clear that even mainstream pro-US newspaper Clarín called Dart “Argentina’s number one enemy”.
After a long legal battle between the vulture funds and Kirchner’s governments in several US courts, the New York judge Thomas Griesa ruled in 2012 that Argentina had to pay the vulture funds at full value. That meant that, for example, Singer’s company would get a return of 15 times its initial investment. The ruling became effective in 2014 and also blocked Argentina from paying any other creditor who had accepted the bond exchanges of 2005 and 2010 until it had paid the vultures in full. That was technically possible because almost all bank accounts and financial transfers involved were under US jurisdiction. In other words the US ruling created the paradoxical situation where Argentina was considered in default for being unable to comply with the payment deadlines even though it had actually ordered the payments. The only way to unblock the freeze of the transactions was to submit to a parasitic group of billionaires and speculators.
Following the ruling CFK defined the activity of vulture hedge-funds that leveraged the US law as “economic and financial terrorism” and argued that those companies “destabilise the economy of a country causing poverty and hunger” while addressing the General Assembly of the United Nations in 2014. Despite the extortion and the high tension with the US and its local representatives in the opposition, the president ended her mandate in December 2015 refusing to pay the vulture funds.
Mauricio Macri, a well known millionaire whose family had profited from the dictatorship and whose fortune came also from Menem’s privatizations, won the 2015 presidential election by a small margin. At the end of CFK second term the debt to GDP was 52.6%, up in the last years but easily controllable. When Macri left in 2019 it was 90.2% and growing. But probably the most absurd development was that under Macri, in less than four years, Argentina defaulted again.
Make debt great again: Macri and Trump
On 7 december 2015, three days before the inauguration of Macri, former JP Morgan trader and future finance minister Luis Caputo flew to New York and met the representatives of the vulture funds. Nothing else was more urgent.
Only three months later, in February 2016, Macri’s Argentina transferred $9.3 billion in one go to the vulture funds while the New York judge Griesa unblocked the other payments to the (now scammed) bondholders, owners of the 93% of the defaulted debt, who had accepted the offers made in 2005 and 2010. Singer’s NML Capital alone made $2.28 billion for an investment of $177 million, a total return of 1,180%.
The payment of the vulture funds was the humiliation of a sovereign country (but also the many small investors, including pensioners and workers, who actually lost money with the debt exchanges) in relation to a group of billionaires and reckless foreign speculators. But the reason Macri gave the operation such a priority was to obtain free access to the international credit markets as soon as possible, making it extremely easy and fast to borrow money through the emission of new bonds, something Argentina had been banned from doing since the default in 2001. Now the new government had the power to flood the country with borrowed US dollars.
In the first days Macri’s government removed several regulations in order to favour financial speculators and companies in sectors like agriculture (the most important), mining, energy, finance and media, mostly controlled by Argentine billionaires, the president’s main supporters.
In particular it got rid of capital controls and the so-called cepo (stocks). The so-called cepo was a foreign exchange regulation introduced in 2011 under CFK that limited the amount of US dollars individuals and companies could buy with pesos in order to limit capital flight and inflation.
For years the mainstream media, dominated by media and telecommunications trust Grupo Clarín, described the “freedom” to buy dollars almost as a human right so the regulations were presented as a violation of that fundamental right. Clarín was one of the most powerful supporters of Macri, so it was extremely easy for him to completely remove (not simply reduce) the currency controls overnight, meaning that anybody could buy any amount of dollars, even billions, with pesos. And that is exactly what speculators did.
The end of capital controls and the possibility to borrow virtually without limits were an explosive mix and paved the way for Argentina’s third neoliberal robbery, the fastest and the first almost exclusively based on financial methods. The previous two were the 1976-1983 dictatorship and 1989-1999 Menem’s presidency. In a formidable show of effectiveness Macri and his team wrecked the relatively healthy finances of the state in less than two years.
The bonds feast and the “Macrisis”
Macri’s single term presidency used the state as a tool to bring dollars (and euros) into the country through easily accessible borrowing. Those dollars ended in private hands thanks to the now unregulated currency market (anybody could buy or sell any amount of pesos). At the same time big funds were now free to move their dollars out of the country thanks to the absence of capital controls. The new conditions led to a fast growth in capital flight.
Under Kirchner and CFK capital flight was contained and was mostly “paid” with the surplus in the commercial balance (exports were higher than imports). In other words, during the “K” years some of the money obtained from the economic growth left the country. But under Macri the capital flight not only grew faster, it ended up being funded with the foreign currency borrowed by the state. Capital flight was literally borrowed money.
Pundits and marketers of the government justified Macri’s “suicidal” policies by stirring up the desire of dollars in the population as the solution for their problems (even among those who could not afford to buy any), leveraging the problem of high inflation (exacerbated by deregulating the foreign currency exchange) or promising to attract foreign investors that obviously never arrived. The old neoliberal dog whistle “open Argentina to the world” was also widely employed.
The most important achievement was to allow wealthy families and speculative companies to dollarize their assets and move them to more profitable markets abroad. In particular, deep pocket speculators could finally exploit a speculative scheme known as carry trade (bicicleta financiera) that had been used during the last dictatorship as well. The trick was to buy pesos, profit from the high interest rates in pesos, then convert them to dollars and move the dollars out of the country. The state had to provide a virtually infinite amount of dollars for the speculators and was left with the pesos.
Thanks to a reckless emission of bonds to support the uncontrolled demand of foreign currency (including a 100-year bond and some with very high interests), Argentina was on the brink of another default already after only 2 years since Macri had taken power. The debt to GDP ratio passed from 56% in 2017 to 86% in 2018 (a catastrophic +30% in only one year). In 2018 the peso was the worst performing currency in the world (excluding Venezuela) and lost about 50% of its value to the dollar. Inflation rose by the same amount. The Central Bank increased the interest rates to record levels in an attempt to attract investors (actually speculators), but it was too late.
Figures did not lie. Argentina’s debt was already unpayable in 2018 and all macroeconomic indicators showed that a crash was imminent. At the beginning of the year nobody wanted to buy Argentine bonds anymore meaning that a country whose debt was under control until only two years before (and had no reason to rush into deregulating its currency and financial markets) was now on the brink of a new default.
In this uncertain context Argentina went through two major currency crises that year, in June and August, forcing the Central Bank to waste billions of dollars to contain the extreme devaluation of the peso. The country was bleeding dollars and towards mid 2018 the so-called macrisis was a reality. Macri’s days in power seemed numbered.
Trump’s IMF to the rescue
On 8 May 2018 Macri announced that he had formally requested financial aid from the IMF. For millions of Argentines it was a shock. The country had not dealt with the disreputed organisation since 2005 when Nestor Kirchner had paid the debt in full and decoupled the national economic policies from Washington after years of tense relations.
Mauricio Claver-Carone, the US representative at the IMF in 2018, revealed that the EU members of the IMF considered Argentina’s situation at the time “unsustainable” and were against a loan that was only meant to save Macri’s face and buy him time to attempt a re-election.
According to Claver-Carone, Trump saw Macri as an important ally in his regime change policy in Venezuela. At the time the White House was already preparing the operation that led to the self-appointment of Juan Guaidó in January 2019 and the April coup. So Trump forced the IMF, whose biggest contributor is the US and therefore mainly controlled by the US administration, to provide a historic loan and keep Macri and his lucky friends afloat.
Agreeing on a $57 billion loan with a government whose policies allowed record levels of capital flight was nonsensical, especially considering that the IMF statute forbids lending money to fund capital flight. But the multifaceted scam designed in the White House was carried on anyway and an agreement was reached in September 2018. Eventually Argentina “only” received $44 billion. It was the biggest in the IMF’s history.
Not a single dollar sent by the IMF was ever seen by the Argentine people or used for any project of economic development, of course. It evaporated entirely and in no time to fund the massive demand of US dollars generated by speculators and by the interests of the debt. The billions sent from Washington disappeared in only 11 months. In August 2019 Macri’s Argentina had to postpone some scheduled payments meaning that it was in default, the first actual default for lack of funds since 2001.
The fall of Macri and the return of CFK
The effects of Macri’s tenure, dominated by lawfare persecutions against the opposition that involved the meddling of the US embassy, intelligence services, corrupt judges, illegal surveillance and a tormenting propaganda, were dramatic. Under Macri the inflation skyrocketed, the value of wages plummeted, unemployment rose and poverty grew above the 2001 crisis levels, reaching almost 40% when he left office. Poverty was 30% when the millionaire took power meaning that more than 4 million people had become poor in 4 years. About one in ten Argentines was in extreme poverty.
The total value of capital flight during Macri’s 4 years administration was $79.8 billion while the payments of interests on the debt were $40.7 billion. The debt to GDP ratio reached 90% in 2019, almost doubling from 2015.
Without Trump’s intervention Argentina would have defaulted two years earlier and the chaos would have probably forced Macri to resign. So the IMF loan was effectively an injection of oxygen that gave the president a chance to run for an almost impossible re-election.
With the election approaching in 2019, the opposition had to find a candidate to deal with Macri’s catastrophic legacy. The polls showed that CFK could win again, but years of lawfare had weakened her to the point that a new presidency would have been politically unstable, especially looking at the trend in the region where far right and US aligned governments kept thriving. In a smart move CFK decided to run as vice-president and offered the lead to Alberto Fernandez.
The new Peronist candidate was the Chief of the Ministers of Nestor Kirchner and also, but only for a few months, Cristina’s. Man with vast political experience (especially related to the recovery from the 2001 default), Fernandez had left Cristina’s government and had become a vocal opposition figure within Peronism. In the past he had even been a political ally of the infamous neoliberal economic minister Domingo Cavallo. Because of his reputation as a “K” critic the new alliance appeared counterintuitive but gave the Alberto-Cristina formula a larger support at a moment of extreme vulnerability for every progressive candidate in Latin America.
Macri’s August 2019 default was rarely called “default” by the Argentine media, especially because it occurred in the midst of the presidential campaign and immediately after a catastrophic primary election. The new CFK’s formula with Fernandez won by 16 points margin over the sitting president in this early vote. Yet even the US rating agencies (S&P, Fitch) and media (Bloomberg), known for their strong bias in favour of neoliberal governments, admitted that the country was in “selective default”. In order to protect the president the Argentine media made up a new word, reperfilamiento (reshaping), and used it instead of default successfully obfuscating Macri’s record fast disaster behind a smokescreen.
Denying the default was a desperate trick to put some lipstick on the corpse of Macri’s political and economic legacy, but it did the job. As widely expected Macri lost the re-election in October 2019, but the enormous propaganda apparatus operated by Clarín managed to significantly improve the poor result of the primary (+8.4%). The election showed what a media monopoly and millions systematically invested in troll armies on social media can do in the most unfavorable conditions. The narrative of the “heavy legacy” (pesada herencia) supposedly received from Nestor and Cristina Kirchner and the (often fabricated) corruption allegations and charges still worked.
More than appreciation for Macri’s policies, the vote expressed the anti-Kirchner sentiment exacerbated by years of lawfare. The conservative sectors needed to undermine the positive reputation of the “K“ governments and especially character assassinate CFK, by far the most popular leader on a national level, making it impossible for her to run again.
The election was a vote for or against CFK who was capable of surviving a US backed persecution similar to the one that sent Lula and many other popular leaders to prison. But the electoral victory of Fernandez and CFK was the easiest part.
Debt, pandemic, and ultra-conservative hysteria
The country Alberto Fernandez received on December 10th, 2019 was very different from the one Macri got 4 years before. In 2019 Argentina was on fire, with an economy in recession, poorer, indebted at 90% of the GDP and even more polarised. The new president had the daunting task of fixing Argentina’s devastated public finances, hit by another default on its sovereign debt, while dealing with one of the worst social and economic crises in its history.
Everybody in the enlarged center-left coalition behind Fernandez was aware that Argentina’s media monopoly Clarín and the wealthy oligarchy were not going to help extinguish the fire, also because they were responsible for it. The mainstream media continued pushing endless conspiracies against vice-president CFK after the fall of Macri, but added a new chapter about her alleged plots to undermine Fernandez, the man she literally chose and put in the Pink House months before.
Even though CFK is not the president and despite years of allegations of corruption and 13 legal prosecutions (but no convictions), she is still by far the most charismatic and popular leader in Argentina. An attack on Cristina is an attack on the government and a way to continue cultivating the radicalisation of the most conservative sectors, historically (and pathologically) obsessed with her.
The Covid-19 pandemic hit Argentina as just another calamity less than four months after the new government took power. About one year earlier, in September 2018, Macri had removed the Ministry of Health (among others) and turned it into a sub-department in the context of “austerity” cuts and unprecedented administrative “simplifications”. Such a reckless and short sighted move occurred while Macri’s administration allowed financial speculators to drain tens of billions of dollars from the country’s international reserves and the government was receiving the biggest loan in history by the IMF.
So on March 3, when the first case of Covid-19 was identified in Buenos Aires, the new government was still in the process of reorganising the almost dismantled and defunded national health administration.
Fernandez chose a preventive strategy and ordered a radical quarantine on the entire, vast national territory even though Argentina only had few cases, arguing that keeping infections as low as possible for a few months would allow the mixed private and public health system to prepare for the actual emergency. The strict quarantine lasted for an entire month everywhere and two or more months in selected areas, but allowed health organisations to get PPEs, respirators and all the necessary medical supplies while preparing for the massive rise in infections that actually occurred towards the end of the winter. The lockdown slowed down the infections but Argentina passed 1 million cases in October when the health services of some cities and provinces were already on the brink of collapse.
In November Fernandez announced that Argentina will receive 25 million dosis of the Russian vaccine Sputnik V in January and February 2021, opening yet another front of polemics with the rabidly pro-US opposition and media.
The so-so deal
Despite the significant financial and regulatory efforts made by the government to contain capital flight, unemployment, homelessness, hunger and further economic suffering caused by the pandemic, the GDP is estimated to fall 12% in 2020. In this context Fernandez and economy minister Martin Guzmán, a neo-keynesian academic and collaborator of Joseph Stiglitz, are playing a complex game with two different types of creditors: the private bondholders and political organisations like the IMF.
In August 2020 the government celebrated a first success when a deal was reached with most bondholders to renegotiate $106 billion in bonds (including $65.8 billion under foreign law). After months of winding negotiations in the midst of the Covid-19 crisis the government finally offered to exchange the old unpayable bonds with new ones for a lower value (about 54 cents per dollar) and lower interests (down from an average of 7% to 3%). With the approval of about 99% of the creditors involved, Argentina obtained a relief of $37.7 billion for the decade 2020-2030 and reduced its obligations during the first three years. As a result S&P upgraded Argentine bonds’ rating from “SD” (selective default) to “CCC+” (basically trash), an irrelevant change but a recognition of the process by the global markets. During the negotiations the director of the IMF Kristalina Georgieva had expressed positive remarks about the government’s “good faith” and also welcomed the deal.
The deal was presented by the government as a success, but unlike the much more confrontational approach of the unilateral offers made by Nestor Kirchner and CFK in 2005 and 2010 the savings were much smaller this time. The negotiation with the IMF had yet to come and there was clearly no will from the government to play too hard. Both the IMF and the bondholders recognised that the debt would have never been paid in full and the deal was the best possible option for the creditors.
A somewhat positive outcome of the compromise was that the holdouts were only about 1%, compared to about 15% in 2005 and 9% in 2010. Those holdouts eventually led to the long confrontation with the vulture funds. But probably the most important achievement of the deal was that the economy minister Guzmán could finally focus on the negotiation with the IMF. Those negotiations were already ongoing, but the deal with the bondholders, the largest portion of the debt, was a sort of precondition for the IMF.
The ongoing negotiation with the “new” IMF
Shortly after being sworn in, Fernandez said the government would stop repaying the $44 billion IMF loan until 2024 and that goal has been repeated by all government officials, including Guzmán, since then. In several occasions Fernandez also promised that the development and recovery of the economy will have the priority over the repayments of the debt and claimed that the legacy of Macri’s policies will not have to weigh further on the shoulders of workers and retirees. Most importantly in a recent interview Fernandez denied he would ask more money to the IMF. Yet nobody can really say if the government will actually abide by these principles until a final deal will be signed and made public.
Alejandro Werner, IMF Western hemisphere department director, seemed to speak a different language when he said that “the Argentine government is working on a comprehensive plan that could be supported by an IMF financial program”. On one side the government tries to minimise its intention to concede anything to the IMF and denies it will negotiate a bailout, on the other the IMF sees the process as a new “financial program” that implies political conditions, a “comprehensive plan”.
It is very likely that the IMF will be flexible about the new repayment plan, but the price set by the US government could be translated in terms of economic policies to further favour specific US corporations and diplomatic support on the international stage, likely with Venezuela. After all that’s what the IMF has always been used for and there is no reason (quite the opposite) it should change now.
As of November 2020 the negotiation is ongoing. IMF delegations travel to Buenos Aires periodically and the parties have only given generic statements so far. As in every negotiation at this level the true terms being discussed are kept secret.
In October the IMF released a statement recognising Argentina’s ”complex economic and social difficulties, in the context of an unprecedented health crisis” and that “[t]he deep recession has led to an increase in already-high poverty and unemployment levels, the effects of which are being exacerbated by significant pressures in the [foreign exchange] market”. The organisation also said it “welcomed the authorities’ commitment to policies to secure a growth-friendly fiscal consolidation while also protecting the most vulnerable, enabling a gradual reduction in inflation, and boosting job creation, investment and exports.”
Apart from the diplomatic smalltalk both parties say that the conversation is good while Fernandez presents himself as a pragmatic, open negotiator, never confrontational. Compared to the inconclusive and tense meetings under Kirchner that ended with the full payment in 2005 and the abrupt end of relations with the IMF (until 12 years later Macri restored them), the current negotiation seems to occur in a context of extreme cordiality. Behind the smiles and the differences between Fernandez and Kirchner there is also a hard truth: repaying $44 billion with the reserves in one go, trying to repeat what Kirchner did, is impossible.
The most (and only) confrontational moment with the IMF was a remark made in February by CFK, not Fernandez, while she was in Cuba presenting her book “Sincerely”. The vice-president argued that the IMF statute forbids to forgive a debt but it also forbids lending money to countries with “significant or continuous” capital flight. The remark about the legitimacy of the debt was pertinent: Macri had deregulated financial transactions and foreign exchange causing a massive capital flight and debt crisis. CFK was right and, as later revealed by Claver-Carone, the US representative at the IMF in 2018, the loan was only possible thanks to Trump’s pressures and despite the opposition of the European members of the IMF.
The words of CFK amounted to saying that the loan was illegitimate and that the IMF should forgive it, fully or in part. An irritated statement by the IMF spokesperson Gerry Rice followed, denying both that the IMF had violated its statute and the discount. As a response CFK tweeted a screenshot of the IMF statute that proved her point. The former president’s irreverence towards an organisation loathed by millions of Argentines and responsible for enormous suffering, compared to the appeasing stance of the government, was one of the first symptoms of the tensions within the majority.
Following the neoliberal disasters of the 1990s the IMF has tried to rebrand itself as a more collaborative and humanistic institution. Now the pandemic seems to have forced the fund to soften its infamous obsession with austere policies and accept the priority of growth over debt consolidation. Whether this is a change in paradigm or a facelift will be more clear in the coming months and years, but nobody should hold their breaths.
In her recent speeches titled “The Great Reset” and “A New Bretton Woods Moment” IMF director Georgieva expressed how global capitalism is currently trying to reinvent and save itself from a widespread disillusion, a permanent state of crisis and the risk of social, economic and environmental collapse. The most intriguing parts of Georgieva’s speeches are those missing though, like the transformation of the current international monetary system, still based on the Bretton Woods system. Both the 1944 agreement and the 1971 unilateral (and supposedly temporary) suspension of the convertibility of the US dollar to gold defined a monetary order based on debt and imperial dominance, where the dollar is imposed to the world by a single country and backed by nothing but bombs, coups and sanctions. The Covid-19 crisis and the rise of China are accelerating some of these changes so we should soon see how the old patterns will start to change.
The impact of these developments on Global South countries like Argentina, extremely dependent on the US dollar, are still difficult to imagine even though we can safely assume that the urgent, supposedly radical changes proposed by the IMF and the World Economic Forum (to contain crises caused by capitalism, with more capitalism) are designed to keep every fundamental aspect of the current world order unchanged. But whether unaligned, emerging powers, cultures and peoples will allow this debt based, neocolonial model to be perpetuated much longer is yet to be seen.
The dollar as a human right
Dollars are valuable everywhere but their actual worth varies. For example, dollars are not as valuable in the US, where the Federal Reserve can “print” dollars, as they are in Argentina, where dollars can only be obtained through exports and loans. Exporting (or borrowing) is much harder and costlier than printing, especially if you can print an international currency still used in more than half of the world’s transactions.
Obtaining dollars is expensive and the monetary dominance of the US gives it the power to easily control the economies that depend on them. With a simple executive order the US president can almost completely stop the flow of dollars from and towards any country by banning all transactions and credits through its financial system (and with a phone call it can obtain the same from the EU). Financial sanctions amount to strangling the production capabilities and therefore the people of those countries. But the US does not even need to actually issue specific financial sanctions to harm other countries.
Even before the blockade against Venezuela was enforced with an unparalleled set of sanctions from 2017 onwards, the lack of dollars caused by the oil price shock in 2014 (that reduced the exports by more than ⅔) and Obama’s executive order declaring the Caribbean country a “threat” produced the highly mediatised economic meltdown wrongly attributed to Maduro’s supposedly catastrophic ineptitude and mismanagement. But when Maduro denounced that Citibank blocked a payment for an order of insulin in 2017, among other cases of boycott, the mainstream media looked the other way. Yet food and medicines were not formally forbidden by US sanctions. Those events and other tactics, like the manipulation of the exchange rate through Miami based website Dolar Today, contributed to the hyper-inflation, the devaluation of the bolivar and the extremely high price of imported goods.
While Venezuela is a case of hybrid war and overt aggression by the US, all countries in Latin America are heavily dependent on the dollar and regularly struggle against dollar shortages and debts as a consequence.
The currency regulations currently in place in Argentina, colloquially known as cepo (stocks), have generated a parallel, illegal dollar exchange market called dolar blue (blue dollar). According to the current rules every individual is allowed to buy up to $200 per month at the official exchange rate, through legal exchanges or banks. In order to buy more, some people recur to the illegal market where the rate is higher.
But there is another rate, often called dolar turista (tourist dollar), that is equivalent to the official rate with some taxes on top. This is what Argentines pay with their cards when buying goods and services abroad. The taxes are deliberately designed to disincentivize expenses abroad, limit the amount of dollars leaving the country and keep local prices competitive. In short it’s a way to support local tourism and national production in a context of blatant disadvantage.
A very important aspect of the cepo is that the companies that need to import goods and services can apply to buy any amount of dollars at the lower, untaxed official rate.
The main reason for having multiple exchange rates is the scarcity of dollars and therefore the need to efficiently organise their distribution (for example to prioritise production over speculation). The cepo also helps limit capital flight and contain inflation because it protects the national currency.
This kind of system has the annoying aspect that it does not allow everybody to buy any amount of dollars anytime, but its benefits have been proved to be much bigger for the whole economy than the annoyances it causes to the middle or upper class willing to save (and speculate) in dollars. It was used for several years under CFK and viciously criticised by neoliberal pundits as a violation of a fundamental right that does not exist: the unlimited access to the dollar.
Macri triumphantly removed all exchange regulations after only one week in power in 2015. Combined with other great ideas, the move caused a record capital flight, the highest inflation since 1991 (over 57% in 2019) and the peso lost about 75% of its value to the dollar during Macri’s tenancy, jumping from 14 pesos per dollar in 2015 to almost 60 in 2019. A few months before the end of his catastrophic presidency, Macri was forced to reinstate the cepo.
Life comes at you fast. President Fernandez, who was a vocal critic of the cepo during the government of CFK, has made it even stricter once in power and added further regulations during the pandemic. In the last weeks Fernandez insisted on the importance of using the limited dollars available for the production, not for savings. He also said that Argentines must learn to save in pesos, referring to the habit of families to keep their savings in foreign currency in order to protect them from inflation. It is true that Argentine banks actually offer ways to save in pesos that help limit or neutralise the losses derived from inflation, but those instruments are unfamiliar to small savers and are seen as more rigid or complicated than simply buying dollars.
The pain and the fear
The extremely fragile economic and financial situation has exacerbated the suffering of low income and poor sectors, introducing new political tensions to an already toxic and polarised political confrontation. The pandemic was the cherry on top and in the last months conservative actors both in the opposition and within the government coalition have started leveraging and playing with the pain.
Former interim president Eduardo Duhalde (2002-2003), a Peronist formally allied with Fernandez, received bipartisan criticism in August when he said that a member of the military told him a coup was coming. In that interview he also said that there was a risk of “civil war” and “anarchy”. Duhalde later retracted his statements and said he is suffering from mental health issues, exacerbated by the pandemic, and terrified by the idea of a coup.
The word coup was also used by former ultra-conservative congresswoman and member of Macri’s government Elisa Carrió to attack the government and in particular CFK. This pro-US politician, well connected with the US embassy, failed presidential candidate, navigated almost 3 decades of Argentine political storms using conspiracy theories, smears and false accusations while enjoying a reverential support from the mainstream media. She insists that today’s Argentina resembles the pre-1976 coup one, CFK is preparing a self-coup to oust Fernandez and the country is at the “stage” of Maduro’s Venezuela.
In September some agents of the police of the Buenos Aires province known as bonaerense, a force of about 90,000 cops with a long history of crimes and corruption, staged some small protests for several days. The protests were illegal because cops are not legally allowed to strike, at least not the bonaerense. Their demand, a salary rise, was legitimate but the presence of retired agents among the organisers and the support of political actors showed an opaque political agenda was behind the protests.
To make things more clear on the third day of protests a group of cops entered the city of Buenos Aires, where they have no jurisdiction, and surrounded the presidential residence with president Fernandez inside. Other cops had done the same at the house of the governor of Buenos Aires province, Axel Kicillof, former economy minister of CFK and prominent figure of the Peronist left. The protests ended peacefully but the events marked a precedent.
To understand the political weight of the events, it should be considered that Buenos Aires is the largest province of the country, the most populous (18 million inhabitants) and has the biggest budget. The seat of the governor is therefore considered second only to the president in terms of actual executive power.
Both Fernandez and Kicillof recognised the undeniable problem with the wages, but rejected the threats and the political motives behind the protests. Yet the Kicillof’s Minister of Security Sergio Berni, in other words the political boss of the bonaerense and a political figure who has been gaining protagonism in the last months, played a somewhat ambiguous role. Hours after the cops had left the presidential residence, Berni gave an interview live on TN, Clarín’s TV network, discussing the events.
Two months later Berni was again under the spotlight when he organised an operative of 4,000 cops to oust homeless families who had occupied a piece of land in Guernica, Buenos Aires. The operation was the last episode of a long process of negotiations that included financial support for the families. Most families had already left when the operative forced the last 800 people to leave, officially with no injuries. But the day of the operation Berni released a propaganda video showing thousands of armored cops training while he was giving an emphatic speech about the “nonnegotiable” protection of “life, liberty and private property”. This and previous statements by the security minister received strong criticism and demands of resignation by human rights organisations and supporters of the government, yet Kicillof confirmed his support and defended his work.
It is in this context that the pressure of the dolar blue, the illegal exchange market, should be observed with particular attention. It is a small market, also because the pandemic eliminated tourism and that is where it gets many (most?) of its dollars. But it is the psychological perception about the cost of the dollar that can play a destabilising role. No matter how small the illegal dollar market is, its rate is shown in every single TV show, news website and repeated over and over again, as if it was a fundamental macroeconomic figure that everyone should constantly be aware of. The higher the rate, the more tension and frustration in the people who are led to believe that their hard earned pesos are worth less and less.
The myth that Argentina is on the brink of apocalyptic events could be used as a self-fulfilling prophecy to cause panic and drive behaviours like the persecution and illegal surveillance against hundreds of journalists that occurred under Macri and now continues in the form of physical attacks and harassment against reporters at the demonstrations of the opposition. No macroeconomic and financial data shows such a catastrophe ahead, especially if compared with the recent past, but mind games obviously prevail over complex numbers.
Only a few days ago the Argentine government won a battle in the monetary war, using some clever tactics to bring down the illegal exchange rate of the dollar. For the first time in years, the US dollar lost about 15% against the peso. In his recent interview with veteran journalist Horacio Verbitsky, Fernandez expressed strong confidence about the dollar, probably trying to signal that he is not going to let speculators sink him easily.
Catastrophes like the hyper-inflation crisis in Venezuela (different from the high inflation in Argentina), where psy-ops designed in Washington and Miami played a key role in moving the prices and setting the rate of the dollar, can also be fabricated and must be taken early and seriously. In a hybrid war all types of attacks are connected and in Latin America an attack on one country should be a warning and a precious lesson for all others.
The ambiguous position of Argentina on Venezuela, whose recent vote at the UN led to the strong criticism and resignation of former ambassador Alicia Castro, could be a preview of future divisions. In a perfect world it could also be a temporary stance to placate the US while negotiating with the IMF.