The death of a paradigm: Argentina and the crisis of neo-liberalism
Indymedia Tony's nemesis | 14.12.2001 21:49
Argentina is facing an economic, political and social meltdown whose effects could cause further gloom for the global economy. Hundreds of thousands of Argentineans have taken to the streets in protest at a raft of austerity measures demanded by the IMF to prevent the country’s bankruptcy.
After years of rampant neo-liberalism under the corrupt and unpopular government of Carlos Menem and his successor Fernando de la Rua, Argentina is faced with massive unemployment, soaring poverty, wage cuts and deterioration of public services.
Argentina’s problems are rooted in the market ideology enshrined in the IMF’s decrees. Yet the IMF continues to exert immense influence on the country, condemning large parts of the population to further poverty and misery by demanding the government cut spending from its social programmes to pay its debt. Private pensions, championed as a safe alternative to state pensions under Menem, are effectively being robbed to pay the world’s financiers who effectively run the global economy. Additionally, in an attempt to stem the tide of capital flight and prop up the crumbling banking sector, the government has limited the amount of money individuals can withdraw from their bank accounts to $1,000 per month. Meanwhile, the state is collapsing under the weight of spending cuts designed to appease the IMF.
The whole problem centres on the country’s burgeoning national debt which totals over $130 billion or a third of the total size of the economy. The economy has been in recession since the collapse of the Asian Tiger economies in 1997 rippled throughout the emerging markets, causing a series of financial crises in Russia and Brazil. The subsequent devaluation of the Brazilian currency hit Argentina, which exports a third of its industrial production to Brazil. With the Argentine peso locked into parity with the US dollar, the country’s exporters found it hard to compete and began laying off workers. Consequently, the country began its descent from the model of neo-liberal development to floundering in a mire of insolvency and civil discontent, abandoned by its IMF mentors. Now around half of the workforce is underemployed with many white-collar workers seen begging on the streets of Buenos Aires.
Argentina is in a catch-22 situation. The government cannot pay off the debt unless the economy moves out of recession. Yet, an economic upturn is unlikely unless the economy receives a boost. This would mean creditors releasing their stranglehold on the government and allowing an injection of public spending. Since Argentina owes around a quarter of the world’s tradable emerging markets debt, such a radical proposal could upset the entire global financial system.
Another option is the devaluation of the peso. However, this is regarded as a non-starter, since it will increase the value of the national debt and would be unlikely to stimulate exports during the current global economic downturn. All President de la Rua can hope for is to continue austerity measures required to ensure a flow of IMF funds and condemn the population to further austerity. In effect, Argentina has been taken hostage by unelected institution controlled by G-7 and the people are being held at gunpoint. It is a subtle terrorism, whereby financiers demand ransom money in order to tone down the economic torture the Argentine people are enduring.
Argentineans are not passively accepting this daily punishment by the IMF. The October elections saw gains for the opposition Peronists whose platform represents a nationalist authoritarianism favoured by the beleaguered middle-classes. However, the number of spoilt ballots, at a quarter of the total, was uncharacteristically high for a country with compulsory voting. It is evidence of a massive democratic deficit which has grown up due to a combination of IMF’s poverty-generating measures and the profound problems countries like Argentina face in a hostile economic environment.
However, when Argentina defaults on its debt repayments, the impact on an already weak global economy will be felt everywhere. The effect will eclipse the Asian financial crisis, which was mainly behind Japan’s stagnation. The very fabric of the western banking system is under threat and at the very least interest rates will rise in order to stave off the insolvency of large commercial banks, sparking further market volatility and massive job cuts in the West. If the West wants a vision of its imminent future, then it only has to look at the social collapse in Argentina. This is a truth that investors have come to terms with and workers will soon realise.
Argentina’s problems are rooted in the market ideology enshrined in the IMF’s decrees. Yet the IMF continues to exert immense influence on the country, condemning large parts of the population to further poverty and misery by demanding the government cut spending from its social programmes to pay its debt. Private pensions, championed as a safe alternative to state pensions under Menem, are effectively being robbed to pay the world’s financiers who effectively run the global economy. Additionally, in an attempt to stem the tide of capital flight and prop up the crumbling banking sector, the government has limited the amount of money individuals can withdraw from their bank accounts to $1,000 per month. Meanwhile, the state is collapsing under the weight of spending cuts designed to appease the IMF.
The whole problem centres on the country’s burgeoning national debt which totals over $130 billion or a third of the total size of the economy. The economy has been in recession since the collapse of the Asian Tiger economies in 1997 rippled throughout the emerging markets, causing a series of financial crises in Russia and Brazil. The subsequent devaluation of the Brazilian currency hit Argentina, which exports a third of its industrial production to Brazil. With the Argentine peso locked into parity with the US dollar, the country’s exporters found it hard to compete and began laying off workers. Consequently, the country began its descent from the model of neo-liberal development to floundering in a mire of insolvency and civil discontent, abandoned by its IMF mentors. Now around half of the workforce is underemployed with many white-collar workers seen begging on the streets of Buenos Aires.
Argentina is in a catch-22 situation. The government cannot pay off the debt unless the economy moves out of recession. Yet, an economic upturn is unlikely unless the economy receives a boost. This would mean creditors releasing their stranglehold on the government and allowing an injection of public spending. Since Argentina owes around a quarter of the world’s tradable emerging markets debt, such a radical proposal could upset the entire global financial system.
Another option is the devaluation of the peso. However, this is regarded as a non-starter, since it will increase the value of the national debt and would be unlikely to stimulate exports during the current global economic downturn. All President de la Rua can hope for is to continue austerity measures required to ensure a flow of IMF funds and condemn the population to further austerity. In effect, Argentina has been taken hostage by unelected institution controlled by G-7 and the people are being held at gunpoint. It is a subtle terrorism, whereby financiers demand ransom money in order to tone down the economic torture the Argentine people are enduring.
Argentineans are not passively accepting this daily punishment by the IMF. The October elections saw gains for the opposition Peronists whose platform represents a nationalist authoritarianism favoured by the beleaguered middle-classes. However, the number of spoilt ballots, at a quarter of the total, was uncharacteristically high for a country with compulsory voting. It is evidence of a massive democratic deficit which has grown up due to a combination of IMF’s poverty-generating measures and the profound problems countries like Argentina face in a hostile economic environment.
However, when Argentina defaults on its debt repayments, the impact on an already weak global economy will be felt everywhere. The effect will eclipse the Asian financial crisis, which was mainly behind Japan’s stagnation. The very fabric of the western banking system is under threat and at the very least interest rates will rise in order to stave off the insolvency of large commercial banks, sparking further market volatility and massive job cuts in the West. If the West wants a vision of its imminent future, then it only has to look at the social collapse in Argentina. This is a truth that investors have come to terms with and workers will soon realise.
Indymedia Tony's nemesis