ARGENTINA AT THE ABYSS PAUL COONEY1i INDEX I. INTRODUCTION ............................................................................................................................................ 1 II. THE STEPS LEADING UP TO THE CRISIS................................................................................................. 1 III. FOREIGN EXCHANGE CRISIS ................................................................................................................... 2 IV. PRIVATIZATIONS........................................................................................................................................ 2 V. TRADE DEFICIT ........................................................................................................................................... 3 VI. FOREIGN DEBT........................................................................................................................................... 3 1. NEOLIBERAL POLICIES DURING THE DICTATORSHIP OF THE 70S................................................. 3 VII. NEOLIBERAL POLICIES UNDER MENEM AND THE IMPACT OF GLOBALIZATION ............................. 4 VIII. CONVERTIBILITY AND FINANCIAL REFORMS ......................................................................................5 IX. REFORM OF THE STATE AND PRIVATIZATIONS.................................................................................... 5 X. TRADE LIBERALIZATION ............................................................................................................................ 6 XI. DEINDUSTRIALIZATION REVISITED......................................................................................................... 7 XII. WORKER’S SALARIES AND EMPLOYMENT............................................................................................ 8 1. FROM TRADE DEFICIT Æ DEBT CRISIS............................................................................................... 8 XIII. THE IMF MODEL IS NOT WORKING........................................................................................................ 8 XIV. CONCLUSIONS......................................................................................................................................... 9 XV. REFERENCES.......................................................................................................................................... 11 1 Queens College ARGENTINA AT THE ABYSS. 1 affairs regarding the upcoming elections in I. INTRODUCTION April of this year. 4. How did Argentina reach such a situation, 1. After experiencing one of the worst after being a poster child for neoliberalism, not economic crises in its history just over a decade to mention the Latin American country with the ago with the hyperinflation and recession of largest middle class and a standard of living 1989, Argentina has now set a new historical associated more with Europe than with a typical mark not only for its own history but also for developing country? What is the nature of this the world’s. Throughout 2002 Argentina was crisis? Why did it occur now and who is to experiencing the largest debt default by any blame? These are all crucial questions for country ever. Argentina, and although there is no simple 2. After almost four years of recession, answer, I plan to show that the role played by unemployment reached over 25%, according to neoliberal polices and the impact of some estimates 30%, and when one includes globalization are key in answering these underemployment it is 40-50%. Over 53% of questions and have relevance for many other the population is living below the official countries. poverty line.2 Much of industry was shut down, 5. This paper will first go over the events GNP declined by over 12% in 2002 and at one leading up to the outbreak of the crisis at the point all the banks were closed, and people end of December 2001. It will then consider the were denied any access to their accounts. overall fiscal situation and the different factors Although the banks are now open, the policy of contributing to the foreign exchange crisis. At the corralito, started by former Economics that point the paper asseses the implementation Minister Domingo Cavallo, prevented people of neoliberal policies in Argentina since the from withdrawing more than $250 a week or dictatorship of 1976 and how those combined $1000 a month and this outraged the “middle with globalization have impacted Argentina’s class” among others. political economy. Lastly, the role of the IMF 3. This state of affairs led to the street protests in Argentina and its record of crises in recent of the cacerolazos (the banging of pots and years will be evaluated. pans) which combined with the highway protests of the piqueteros and rioting in Buenos II. THE STEPS LEADING UP TO THE Aires and across the country brought down 2 CRISIS presidents in December 2001. The current government of Duhalde, despite some initial 6. Fernando de la Rua took office as president populist promises, has signed a new ‘interim’ in December 1999 and Argentina had already agreement with the IMF in January this year. been experiencing a recession for more than a There is already concern over whether year when within his first year he was Argentina will be able to implement the confronted with an even more difficult task of changes prescribed by the IMF with respect to staving off the impending economic crisis due decreases in public expenditure among others.3 to a range of factors including a growing trade At issue is to what extent the already deficit, in part caused by the currency board but immiserated population is willing to bear the also the declining prices in world markets for burden of another IMF austerity plan. All of agricultural goods, and the foreign debt which this is in the context of a very chaotic state of was spiraling out of control. 7. There had been problems in the 3rd Quarter 2 of 2000 as bond rates soared. For better or for INDEC 2002. 3 See the New York Times, February 10th, 2003. worse, the IMF stepped in with an aid package. ARGENTINA AT THE ABYSS. 1 In early 2001, President de la Rua reshuffled of December 2001. In order to explain this his cabinet, bringing back Domingo Cavallo as crisis one must look beyond the specific details economy minister. The arrival of Mr. Cavallo at of the crisis itself and take an historical view, first cheered investors. However, he tried a especially with regards to the sets of economic range of ‘unorthodox’ policies but to no avail. policies that have been pursued during the last Through 2001, Argentina’s reserves continued quarter century in Argentina. Before doing that, to decline and the recession was now three the next section will consider the overall fiscal years old. situation during the years prior to the outbreak 8. By the middle of 2001, as a result of the of the crisis in 2001 and identify the recession, unemployment was approaching components of greatest significance in 20% or more. This was a major factor in the contributing to the foreign exchange crisis. expansion of the movement of unemployed 4 workers or piqueteros , many in the provinces III. FOREIGN EXCHANGE CRISIS but also in Buenos Aires. The piqueteros were blocking highways in order to prevent goods 10. When a fiscal crisis occurs in a ‘Third from getting to Buenos Aires, be it for local World’ country it takes the form of a foreign consumption or exports. They were demanding exchange crisis, which is today, just another jobs as many had been laid off as a result of neoliberal crisis. In this section we will privatizations. There had also been several examine the items of greatest significance in incidents of government office buildings being explaining the fiscal imbalances, which burned down in provinces where public contributed to Argentina’s economic crisis. employees had been laid off or not paid for Although the fiscal crises in the provinces and months. As the year advanced, the pending privatizing of social security deserve attention, crisis loomed and then the IMF reneged on a we will be concentrating on privatizations, the payment at the beginning of December 2001. foreign trade deficit and lastly, foreign debt This was the next to last straw; with reserves payments. continuing to decline and the fear of a major run on the banks. In mid December, Cavallo IV. PRIVATIZATIONS became desperate and instituted the corralito, thus alienating almost everyone. Popular anger 11. Often described as on of the three pillars of mounted against both Cavallo and President De neoliberalism, privatizations, or the selling off la Rua, and rioting across the country forced of public enterprises, played a significant both to resign in late December 2001. The first economic role during the 1990s in Argentina. interim president Rodriguez Saa tried to pull a Between 1991-1998, Argentina sold off a total fast one within his party, and street protests as of US$23 billion,5 though the majority was sold well as infighting within the Peronist party led off between 1991-1994 and thus greatly to his quick demise. After a crazy 2 weeks of improving the fiscal balance for those years. rioting, looting and protest, there were a total of However this meant that after 1994 there was 30 people killed, and then the fifth and current not only nothing left to sell, but also these president, Eduardo Duhalde took power. resources that could have been a steady source 9. We have tried to lay out the unfolding of of revenue, such as, the national