Since last month’s upheaval, Argentina has broken with market orthodoxy and adopted a radical alternative
“For many years in Argentina,” declared Eduardo Duhalde as he assumed the presidency on January 1, “they have made us believe that amid this new world order, there is only one possible economic model. This is a complete falsehood.”
Argentinians, who once lived in a country as rich as France, will be hoping he is right. These days, after two-and-half-decades of IMF-backed free-market reforms, more than 40% of the 38m population live below the poverty line and 100 children die daily from hunger and disease.
As a leading member of the Peronist party, which under Carlos Menem brought Argentina to the edge of the abyss, Duhalde might seem an unlikely candidate to challenge the status quo. But in recent years, he has taken an increasingly critical stance towards neo-liberal policies.
Now Duhalde is putting his views into practice. He plans to freeze the prices charged by the foreign-owned electricity, gas and telephone companies and tax the exports of foreign-owned oil companies. And to protect the impoverished middle class from a 40% devaluation, he is guaranteeing that dollar loans under $100,000 will be converted into pesos at the rate of one to one, transferring a burden of around $5bn from borrowers to the banks. Duhalde is also promising public money to cut the jobless queues and a dual exchange rate to protect local industry.
“Plunder” is how Spanish-owned Repsol-YPF, which controls Argentina’s largest oil company, describes these policies. In truth, plunder describes the practice of foreign investors in Argentina for the best part of three decades. Under the generals in the late 70s and early 80s, they took part in a frenzy of financial speculation and national asset stripping. Subsidiaries of western multinationals borrowed billions from western banks – debts which were then conveniently nationalised by a compliant government. Partly as a result, when the generals had returned to barracks in 1984, the public debt had risen to $46bn from $7.8bn nine years earlier.
Under Menem – whose 1991 peso-dollar convertibility plan helped stamp out hyperinflation, but effectively handed control of the government debt to foreign creditor banks – the foreign debt burden was pushed ever higher, from $65bn in 1991 to $160.2bn in 2000.
Foreign multinationals made billions from an accompanying privatisation programme and repatriated profits on a huge scale. Ordinary Argentinians saw welfare slashed and wages fall from 30% of national income in 1989 to 18% five years later.
By 1998, the inward investment boom that drove five years of strong economic growth had turned to capital flight. The government had run out of state companies to sell, the 1997 east Asian financial crisis dampened investors’ appetites for all “emerging markets” and the appreciation of the dollar priced Argentinian goods out of world markets. The country plunged into recession.
A string of austerity plans only aggravated the crisis. In December the government’s raid on Argentinian pension funds and imposition of limits on bank withdrawals crowned the pillage. A pauperised middle class joined the poor in revolt on the streets. A total of nine IMF stabilisation programmes since 1983 ended up with the largest sovereign debt default in history.
The fall of the IMF’s star pupil – coming after Mexico’s 1995 financial crisis, the east Asian meltdown and the reintroduction of capital controls in Malaysia – has forced some free-market thinkers to admit the obvious: that austerity plans during deflationary periods are disastrous; that abolishing capital controls creates instability; and that bond markets are no more reliable than private banks at providing governments with long-term financing.
Yet the US and Europe are demanding that Argentina “honours its international commitments”. The IMF is in the country pressing these demands. Duhalde appears in no hurry to oblige, but he has little room for manoeuvre. While devaluation of the peso will boost exports, major industrial countries are in recession and the US is turning to selective protectionism. A strong export drive would also mean more austerity for a population which has already signalled it has had enough.
Duhalde could do worse than seek inspiration from his own political movement’s past. General Juan Peron’s economic model of the 1940s, a sort of authoritarian Keynesianism, centred on producing for the local market. Driven by state-led industrialisation, it was supported by rising purchasing power of workers who, organised in powerful trade unions, pushed up wages and won higher benefits and welfare.
A revival of such policies would be strongly opposed by the US and Europe, which are intent on expanding free trade on the terms most advantageous to multinationals. But if a more protectionist and domestic-orientated growth policy were to bring a sustainable recovery, Argentina’s approach could gain popular appeal elsewhere. It is time for a new economic model and Argentina could help to show the way.
· Tom Gill is a freelance journalist who has lived and worked in Argentina