BY EVA CHENG
Under severe pressure from the Bush administration and the International Monetary Fund, the five-week-old government of Argentine President Eduardo Duhalde has chosen the "lesser evil" of floating his country's currency, the peso, putting a final end to its 10-year-old peg to the US dollar.
But with Argentina buried under a mountain of external debt and with hardly anything left in the kitty to support its currency in the "sharks"-infested international currency markets, the newly-floated peso runs the danger of being seriously sold down by currency speculators. If this happens it will drag the Argentine economy further down with it.
To ease the transition, in a move of little more than temporary value, Duhalde closed the banking system down on February 4-5. That decision has been extended twice since, with banking due to resume on February 11.
With little confidence left in the peso following the recent measures, which include a sweeping partial freeze of bank accounts, the Argentine population will almost surely join in the anticipated massive dumping of the peso. That's why Duhalde decreed on February 3 a forced conversion of all dollar deposits and loans into pesos when banking resumes, sweetened with a limited relaxation in deposit withdrawals.
But this hardly eased the concerns of the Argentines who were thrown into disarray in the last two months by the freezing of their deposit accounts (some completely until 2005), a 40% devaluation of the exchange value of most dollar deposits when forcibly converted into pesos, a 100%-plus devaluation of the peso in the free market and the associated sharp surges in inflation and job losses.
Unemployment rose from 18.3% in December to 22% last month.
In futures trading, pesos were selling at five for every US dollar compared to two to a dollar at the moment. This is a strong indication that things will get worse.
Thousands of depositors sued the government for freezing their deposits and gained a judgement by the Supreme Court on February 1 in their favour, only to be banned from exercising their legal right to make bank withdrawals a day later by a Duhalde decree to freeze all litigations for six months.
In a further twist, within days of the Supreme Court judgement, all judges in the case became targets for a congressional investigation for alleged irregularities.
While a vibrant social movement has sprung up since December to prevent further erosions to the rights of average Argentines, it is hard pressed to find a new strategy to deal with this attempt by the state to defy its own laws.
Meanwhile, the US and the IMF are holding the Duhalde government to ransom by not approving any new loans until it falls securely back into line following the IMF's neo-liberal dictates.
Duhalde has little reserves to defend the newly floated peso and outside help is critical. With Argentina having just defaulted on servicing its foreign loans, no foreign private banks or bond investors will provide Argentina with new money in the immediate future without IMF approval of the country's new policy.
Apart from the high-risk decision to float the peso with little reserve backing, in a clear attempt to please the IMF and Washington, Duhalde delivered a severe austerity budget on February 5. Included in the budget was a spending cut of US$3.5 billion. This will reduce the budget deficit to less than half of last year's level.
But the IMF hasn't been satisfied, prompting Argentine economy minister Jorge Remes Lenicov to remark on February 6 that "there should have been a stronger reply" from the IMF.
In testimony that day to a US House of Representatives subcommittee, US Treasury undersecretary John Taylor stated that the Bush administration remains "engaged" with Argentina while setting out a list of areas where Washington "would like" to see changes — ranging from fiscal policies to ensuring that banks in Argentina, mainly foreign owned, and get new injections of capital. These capital injections are presumably to be funded by the Argentine government.
"The [Argentine] government must begin discussions to restructure its debt", Taylor said. "And banks must be recapitalised so that lending to the private sector can resume..."
In other words, Washington is demanding that Argentina undertake measures geared to contain the losses of foreign banks and other investors.
From Green Left Weekly, February 13, 2002.
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