February 2002, Comment piece on Argentina
Argentina owes its people, not its creditors
In Argentina, available on the shelves of the local grocery store is aboard game called Eternal Debt. The sub-title: who can beat the IMF. Thegame is similar to Monopoly. However, the goal of the game is not to seewho concentrates the most wealth, but to see who accumulates the least debt.
The board is divided into two. The southern part of the board is filledwith squares naming commodities like cotton, sugar and oil. Interspersedbetween the commodities are squares such as capital flight and coup detat,each requiring the unfortunate player who lands on it, to lose money orassets. The northern part of the board is the industry that correspondsto the commodity in the south. Dividing the board are two squares onenamed the IMF, the other tariff barriers. Every time a player passes gowhich is, in this game, the IMF, debt payments must be made. If the playerhas no money, then the player is required to borrow in order to pay itsdebt or tariffs charged.
Like Monopoly, Eternal Debt also has cards that can be drawn, but in thisgame, the cards are called Conditionalities or Solidarity. Conditionalitycards may require the player to give away an industry to the lowest bidder,for example. Solidarity cards are named after countries or institutionsthat provide assistance. One solidarity card is from a development bank.The player who draws this card is entitled to a $10,000 grant, but afterfees, consultancies and what not, the player actually only receives $50.00in cash.
Having played this game, my friends in Argentina tell me the outcome isalways the same. The IMF gets back way more money than it ever lent. Everyplayer gets indebted eventually, as the IMF, tariff barriers, unfair pricesfor commodities, coup detats, capital flight and conditionalities trapplayers in a debt crisis. The game ends when all the players but onedeclare bankruptcy, impoverished and buried under debt.
Although a game, Eternal Debt provides some clues into the causes ofArgentinas current economic, political and social crisis. Forty percentpoverty rates and double-digit unemployment contributed to an outbreak ofprotests and looting in December 2001. TWENTY-SEVEN PEOPLE DIED and President Fernandode la Rua was forced to resign. The new government under Rodriguez Saaofficially declared that payment on Argentinas debt of $132 billion wassuspended. Political upheaval continued and one week and three Presidents,later, Duhalde took power, leaving in place strict banking restrictions onindividual accounts and promising to renegotiate the debt after one year ofa servicing moratorium.
The IMF blamed the crisis on the governments poor policy choices. However,as the game suggests, coup detats, the IMF, conditionalities to privatizeand liberalize, capital flight and terms of trade all played a role in thecurrent Argentine crisis.
In Argentina, the crisis began with the military dictatorship in 1976-1983,which is best known for its murder of 30,000 people. Few know that thedictatorship also racked up an external debt of $46 billion, 20% ofArgentinas current debt load.
A court case launched in Argentina in recent years determined that most ofthese credit operations between foreign creditors and the military werecarried out clandestinely and with no accountability. For example, in thelate 1970s, before the Falklands war, British banks made multi-milliondollar loans to Argentina parastatal companies, knowing that the moneywould stay in bank accounts in London.
Billions of dollars of private debts, incurred by foreign and Argentinecompanies based in Argentina were then effectively nationalized andincorporated as Argentina public debt during the military regime. Dr.Domingo Cavallo, Argentinas current finance minister, took direct actionin 1982, as then governor of the central bank under the military regime tonationalize private debts.
The IMF and the World Bank presided over and tolerated the corruptprocurement of loans by government officials like the Argentine militaryand the diversion of liabilities from private debtors to the Argentinegovernment.
In the early 1990s, President Bush Sr. and the IMF offered loanscontingent on Argentina pegging its peso to the US dollar, and undertakingpolicy reforms well known as the Washington Consensus. The government gotrich on corrupt privatization deals, meanwhile working people got laid offfrom privatizations, a flood of cheap imports and uncompetitive exports,resulting from an overvalued peso.
Liberalization of the financial sector, together with privatizations,allowed foreign capital to repatriate profits. By 2001, 90% of banks and40% of industry in Argentina were foreign-owned. Following the Mexican pesocrisis in 1994 and the Asian financial crisis in 1997, capital fledArgentina, spooked by falling rates of return in other emerging markets.
With devaluation of the peso inevitable, national and internationalspeculators moved $15 billion out of the country, while individuals wererestricted to $250/week in cash. With the full blessing of the IMF, the government passed a zero-deficit lawin 2001 that required the government to cut government spending further,even though the deep recession called for some stimulus. Even the IMFallowed Thailand a 6 percent budget deficit following its crisis. However,in the case of Argentina, the IMF refused to disburse a scheduled $1.3billion loan on December 5, 2001 because of Argentinas inability to meetthe targets under the zero deficit law.
Orthodoxy remains unmoved, despite the crisis. The IMF blames thegovernments policy choices and corruption, taking no responsibility foreither. Over-lending has not been discussed as a problem. Instead the IMF is dangling new loans, in return for more of the same policy reforms.Meanwhile on the streets, people are chanting No more foreign loans.
The National Front Against Poverty has collected over a million signaturesin support of an alternative plan to neo-liberalism. Dubbed shock redistribution in ironic reference to the economic shock treatment of theIMF, the plan calls for the reactivation of the economy by putting money inthe hands of the poor, not by slashing social programs and implementingfinancial policies that favour foreign investors and creditors. Thegovernment under intense pressure from international finance has taken noaction to suggest it will do anything but follow external instructions.
The Argentines need solidarity in their struggles for economic democracy,social security and living wages. They need solidarity in their standagainst creditors who exact payment on debt that was illegitimatelyaccrued. Over 500 Argentines found this solidarity at the World SocialForum in Brazil in February where 70, 000 from around the world gathered todiscuss alternatives to globalization, solutions to problems of inequity,poverty and environmental degradation. The famous slogan from the WorldSocial Forum is Another World is Possible. Another slogan from the Forum,which is growing in volume, and to which all of us should join in with isDont Owe Wont Pay.
Pamela Foster traveled to Argentina in January before participating in theWorld Social Forum. Based in Ottawa, she is Coordinator of the Halifax Initiative Coalition, which advocates for the reform of the international financial system and its institutions.
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