Stuart Munckton
"When the Argentine economy collapsed in December 2001, doomsday predictions abounded. Unless it adopted orthodox economic policies and quickly cut a deal with its foreign creditors, hyperinflation would surely follow, the peso would become worthless, investment and foreign reserves would vanish and any prospect of growth would be strangled", wrote the New York Times' Larry Rohter on December 26.
But, the NYT pointed out, "rather than moving to immediately satisfy bondholders, private banks and the I.M.F., as other developing countries have done in less severe crises, [the government led by President Nestor Kirchner] chose to stimulate internal consumption first and told creditors to get in line with everyone else."
Four years after defaulting on US$100 billion worth of debt, Argentina offered its creditors a small amount of its total obligations in a debt swap — exchanging new government bonds at a record-low offering price in order to liquidate the country's outstanding debt. This swap covered $81.8 billion of the total defaulted debt. For the first time, the creditors, a range of international lending agencies, were not backed up in their demands for payment by the IMF or the US Federal Reserve. This is no doubt because they realised that adopting a hardline on debt-ridden Argentina would only provoke a fresh crisis — leaving creditors forced to accede to Argentina's terms.
As Argentina gave preferential treatment to domestic banks to which the government owes money, international private banks have been hit hardest by the debt swap, being left with a mere 30% of the total amount of the principal and interest owed.
In an article posted at the Open Democracy website, Ivan Briscoe wrote on May 25 that "Kirchner and his economy minister, Roberto Lavagna, appear to have swiped three-quarters off the value of [US]$100 billion in private bonds ... forced the renegotiation of over sixty contracts with privatised utilities, and reduced the International Monetary Fund (IMF) to a whimper. Kirchner even took the liberty of comparing IMF chief Rodrigo Rato to the devil hours before they met to review the debt burden in late 2004."
As a result, Kirchner and his government have obtained a profile as another South American government capable of standing up to Washington and the international financial institutions, and winning some important victories.
Domestically, Kirchner has implemented an austerity drive, pushing wages down even further. Since his election, economic growth has been strong. Briscoe writes that on the back of two consecutive years of 9% economic growth, poverty rates have fallen to around 40% of the population (from 57% in late 2002) and "the clamour of people on the verge of destitution has subsided".
Argentina grabbed world headlines in December 2001 when it suffered an extreme economic collapse after faithfully following the neoliberal economic recipe enforced by the IMF. The collapse threw the nation's large middle class into highly militant protests and blockades, saw the country go through four presidents in a week.
Argentina faced an economy bled dry by foreign capital and a highly mobilised population not willing to accept more of the same. It was clear that the status quo could not continue. Kirchner, a previously unheralded political figure, ascended to the presidency in May 2003 with little over 20% of the vote.
These days, opinion polls give Kirchner more than 70% support and the Argentine economy has undergone what appears to be a mini-miracle, rising out of the depths of the crisis in 2001-02 to achieve significant economic growth.
Standing up to foreign capital
With the Argentine economy so squeezed, Kirchner has played "hardball with international bankers and corporate executives", according to an April 13 Los Angeles Times article. "Early this year, Argentina completed a renegotiation of about $103 billion in defaulted debt. Under the new terms, bondholders received on average one-third of their original investments. Many of the bondholders were Europeans and Americans. Kirchner argued that a more generous settlement would have been a burden on Argentine taxpayers."
The Times quoted Larry Birns, director of the Council on Hemispheric Affairs, a Washington think-tank, as saying that Kirchner's tough stance with creditors could mark a turning point in the relationship between developing nations and the financial community.
A May 23 MercoPress article reported that Kirchner "admitted that with the 2001/02 default Argentina lost international credibility, but since the very difficult debt swap 'we've done an excellent job in spite that some multilateral organizations don't like what Argentina did to achieve it'."
President Kirchner insisted Argentina wants to repay the IMF, "we want to honour debts. It would be a dream not to be dependent on the IMF, but how far must the effort and sacrifice of the Argentine society go to satisfy demands?"
Soon after the important debt swap victory, Kirchner publicly berated the multinational corporations Shell and Esso for price rises at their service stations and called for a boycott. Those popular organisations that have aligned themselves with Kirchner responded within hours, occupying several service stations. Shell and Esso soon backed down. Kirchner hailed the result as a "victory for the Argentinean people".
LA integration
Kirchner is also part of an informal and still developing alliance in South America aimed at pushing the integration of South American nations in order to counter the power of the US, the most important countries being Venezuela, Brazil and Argentina.
The most outspoken proponent of this course is Venezuelan President Hugo Chavez, who, invoking Venezuelan-born 19th century South American liberation hero Simon Bolivar, advocates the economic and political unity of all of Latin America in order to liberate the continent from US domination.
Kirchner, in some ways similar to Brazilian President Luis Inacio Lula da Silva, has focused more on building economic alliances that help give Argentina more breathing space and strength in order to deal with the US. Kirchner was quoted in the MercoPress article praising the US for its "positive and prudent attitude in the many negotiations we've had to address".
Nonetheless, Argentina has signed on to two important projects promoted by Venezuela — Petrosur, aiming to work towards the integration of the region's petroleum companies to challenge US interests, and Telesur, a Latin America-wide satellite TV channel modelled on Al Jazeera aiming to give the peoples of the region a voice denied by the US and corporate media.
However, Kirchner's fundamental commitment to Argentine capitalists was indicated in comments reported in MercoPress on May 23, about the South American trading bloc Mercosur. Kirchner argued: "Our Brazilian brothers must understand that during the 1990s Argentina resigned to its industrial role, and Mercosur was more viable, but now the recovery of our industrial role generates conflicts".
Saving the system
Kirchner has taken limited steps towards reforming the corrupt self-serving institutions of the Argentinean state, including giving some support to the victims of the country's infamous military dictatorship in the 1970s and 1980s. Briscoe writes that Kirchner "dressed down the army at one gala dinner, and secured a repeal of the two bills that protected death-squad officers from prosecution. Meanwhile, the Supreme Court, the army, the police and a feudal province were drained of their most notorious racketeers."
But, unlike in Venezuela, Kirchner is not aiming at alterng the system fundamentally, but at saving the system from crisis, and with economic growth, inequality has grown, not shrunk. Nevertheless, his policies have succeeded in making real headway in rebuilding the economy and developing domestic market for industry.
Capitalists who took their money out of the country following the 2001 collapse, abandoning their firms and leaving the workers to their fate, are now — seeing a healthier economy to enrich themselves on once more — starting to return. In their absence, workers in hundreds of such firms took them over and keep them running under their control. A number of these firms have been nationalised. The former owners are now back and trying to claim ownership once again over the companies they abandoned.
Briscoe gives an example of how Kirchner has had certain success, at least temporarily, in re-building social peace, quoting Luis Zenko in 2001, then the coordinator of a popular assembly in a poor neighbourhood: "What interests me is the nature of power and how to take power", and then three years later: "I've bought a house. Economically, I'm doing very well out of the tourists, and I just don't have time for politics any more."
From Green Left Weekly, June 22, 2005.
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