The Spark

the Voice of
The Communist League of Revolutionary Workers–Internationalist

“The emancipation of the working class will only be achieved by the working class itself.”
— Karl Marx

Argentina in Crisis

Apr 14, 2002

At the end of December, a huge social explosion rocked Argentina and forced the president, Fernando de la Rua, out of office. After de la Rua left office, the mobilization continued, forcing three more presidents out of office within a matter of two weeks.

This social explosion had been building for over a year. In the poorer regions of the country, unemployed workers including those who survive as casual labor and those who work day to day in the underground economy had begun to organize road blocks, stopping traffic on local roads and highways, demanding food and government aid. Often, police violently attacked these road blocks, resulting in many casualties and thousands of arrests. Nonetheless, the struggle spread, while the confrontations increased.

At the same time, the three major union confederations, the CGT, the "rebel" CGT (an off-shoot of the CGT that includes transport workers and auto workers) and the CTA (also an offshoot of the CGT that includes government workers and teachers) carried out several one-day strikes. Certainly, the union apparatuses were careful to limit the working class from bringing to bear its full weight and power. The union bureaucracy did not link the strikes of the unionized workers with the struggle of the unemployed. The one-day strikes were more a symbolic show of force, a way for the workers to blow off steam and then go right back to work the next day.

In October, parliamentary elections reflected the growing discontent. On the one hand, de la Rua’s Radical Party lost its majority in Parliament to its main competitor, the old Peronist Justicialist Party, which still had strong ties to the trade union bureaucracy (including that of the two split-offs from the CGT). On the other hand, a record 40% of the people turned in blank ballots as a protest against both parties.

In mid-December, food riots erupted. Large groups of the unemployed and poor had begun to gather outside supermarkets, begging for something to eat. At a certain point, people stopped begging and began to raid the supermarkets and food stores. The riots started in the outlying provinces, which are much poorer than Buenos Aires, the seat of government and the economic center of the country, but they soon spread to the outskirts of Buenos Aires. On December 13, the unions led a one-day strike that once again paralyzed the country. Then demonstrations of tens of thousands broke out in Buenos Aires in front of the parliament and the Casa Rosada, the presidential palace.

Faced with this rising tide of unrest, President Fernando de la Rua denounced the demonstrators as traitors and declared a state of siege on September 19; that is, he formally suspended all rights to protest and demonstrate. But the demonstrations did not stop. On the contrary, that night there were more demonstrators than ever. The police killed 30 people and wounded countless more. The next morning, as word about the police massacres spread, the demonstrations began to grow larger. This forced the government’s hand. First, de la Rua’s powerful minister of the economy, Domingo Cavallo, resigned. Later that same day, President de la Rua followed him out of office. The presidential palace was virtually under siege, and de la Rua had to climb to the roof of the palace and take a helicopter to safety. But de la Rua’s resignation did not quell the mobilizations.

The choice of the new president fell into the lap of the parliament, which is dominated by the opposition Justicialist Party. The Justicialists chose Adolfo Rodriguez Saa, governor of the province of San Luis to be president for 60 days, in anticipation of new general elections. But Saa’s reputation for corruption, which he very quickly fulfilled by naming openly corrupt officials to cabinet posts, provoked new demonstrations. Saa resigned after holding office for less than a week. Two more politicians assumed the office only to be forced out by the continued mobilization a few days later. Finally, Eduardo Duhalde, the powerful former governor of the province of Buenos Aires and the party’s candidate for president two years earlier, assumed the office of president, but not as a caretaker. Duhalde was appointed to serve the last two years of de la Rua’s term.

Obviously, the politicians had hoped to use the prospect of a new general election as a means to divert the mobilizations in the street and to confer more authority on the elected officeholder. But with the continued mobilizations, elections had become a "luxury" that the ruling class decided it could not afford.

Destitution and Crisis

Behind this social upheaval lies the massive impoverishment of the Argentine working class and poor, which has grown steadily and relentlessly throughout the 1990s. In December 2001, the official unemployment rate jumped from 14 to 18% in one month. Parallel to the growth of unemployment has been a huge growth of those considered underemployed, working as day labor or peddling in the underground economy. All this has fed the growth of poverty. By December, almost one half of Argentina’s 37 million people were living below the official poverty line. One fifth of the population had trouble finding enough to eat one meal per day.

The working population was being forced to pay for a catastrophic economic crisis: a four-year recession that developed into a full-blown depression; the government default on the interest payments it owed on the 155 billion dollar public debt; a currency crisis; runs on the banking system, and finally a government order to freeze bank deposits. In brief, the entire financial system was on the brink of collapse. Meanwhile economic activity was nearly paralyzed, with construction and production for both industry and agriculture sharply down from the previous year.

The Argentine economy was in a state of chaos... and it promised to get worse.

Mired in Underdevelopment

Referring to the crisis in Argentina last July, U.S. Secretary of the Treasury Paul O’Neill, the former CEO of Alcoa, had this to say: "They’ve been off and on in trouble for 70 years or more. They don’t have any export industry to speak of at all. And they like it that way. Nobody forced them to be what they are." This condescension has also been the tone of the U.S. news media and analysis. The New York Times, for example, in an article entitled, "Argentina Paying Heavily for Squandering Blessings," excoriated the Argentine people for wasting the country’s great natural resources, its very rich agriculture, its oil and mineral reserves, its industrial base, its long coast line for both trade and fishing.

It is certainly true that Argentina has "been off and on in trouble for 70 years," as O’Neill put it. And Argentina has been much more "in trouble" than not in trouble. But the problems that Argentina encountered during the one time in those 70 years when it had taken a few steps to build up a more integrated industrialized economy illustrates what has mired it in underdevelopment and crisis.

That short time period was in the 1940s, when World War II and a few short years of reconstruction afterward provided it with much more favorable terms to export both agricultural and industrial goods. The big powers that dominated Argentina the U.S. and Great Britain with their attention on the war, relaxed their grip on Argentina somewhat. And they drastically reduced their industrial exports to Argentina. This prompted a development of Argentine industry to fill the void. This is not to say that the whole Argentine ruling class was for pouring money into industry. Most, in fact, were quite happy to collect their profits and not reinvest. But the Argentine military had been cut off from military imports by the U.S. and Great Britain because of its neutral stance during the war. And it decided that it needed an industrial base to build up its own arms industry, that is, it needed bigger and more developed steel and chemical industries, as well as a better transportation and communication system. Industrial development was fostered by the state, under the military dictatorship of Juan Peron.

But this economic expansion was short-lived. By the late 1940s, as agricultural and industrial production in the war-torn economies began to recover, the prices for Argentina’s beef and grain exports fell. Argentina began to run trade deficits, as it continued to try to import machinery and raw materials to build up its own industries and production.

It should be noted that even during those few supposedly golden years, Argentina still remained at a disadvantage to the big imperial powers. One indication of this was the high price that the Argentine government paid for British and U.S.-owned companies that it nationalized. In February 1948, for example, after the Argentine government bought out the railroads from a British company, the British negotiating team in Buenos Aires telegraphed gleefully to London: "We got it!" because the Argentine government had paid nearly three times what the properties were worth. It had bought a railroad system that was old and broken down, in need of billions of pesos for repairs and new equipment just to keep it running. These high prices also contributed to a bulging government deficit and fueled a growing economic crisis. This crisis brought the independent development such as it was to a halt.

Argentina’s entire history has been marked, distorted and stunted because it has been dominated by other powers, first, the Spanish empire, then the British and finally U. S. imperialism.

Roots of the Present Crisis

The roots of the present crisis in Argentina date back almost three decades, to the mid-1970s and the economic crisis which engulfed the big industrial countries. The big banks, with too much capital on hand and no place to put it in the imperialist countries themselves, tried to export it to the underdeveloped countries. In the case of Argentina, the banks practically pressed loans on the Argentine government. At the same time, both foreign and Argentine capitalists ran up big private debts and took most of that money out of the country. Under the head of the Argentine central bank, MIT-trained economist Domingo Cavallo, the responsibility for paying back this private debt was then taken over by the state. In other words, the government transferred the capitalists’ debts to the shoulders of the taxpayers, that is, the workers. Argentina’s international debt skyrocketed leading to much higher interest payments, which absorbed an ever larger part of the wealth being produced in the country, further worsening the crisis.

For the working population, the result was much higher unemployment, falling wages and living standards. A military dictatorship came to power in 1975, brutally imposing these conditions on the population. At least 30,000 people were murdered in the years from 1975-1983. Of course, Argentina was not the only country suffering under such dire economic conditions. Almost the entire underdeveloped world the entire continents of South America and Africa, plus most of Asia were dragged into this same crisis, with some areas suffering more than others.

In 1983, the military dictatorship was chased out of power by an increasingly defiant population. But the economic crisis remained, symbolized by runaway inflation that ran as high as 5,000% per year.

"Reform" U.S. Style: Making the Population Pay

In the late 1980s, big U.S. companies, in conjunction with the IMF (International Monetary Fund) and the World Bank, began to impose a new series of "radical reforms" on the Argentine government supposedly to address this crisis, get it to pay down its debt, at least a little, lick the inflation, etc. In fact, what they called "reform" meant forcing the population to pay for the profits of the wealthy inside Argentina and in the big imperialist countries that had long drained Argentina of its wealth.

This new economic program was introduced under the new president, Carlos Menem, who came to power in 1990. Menem was a Justicialist, and he had strong support from the big unions. Menem’s minister of the economy was Domingo Cavallo, the former head of the central bank under the military dictatorship.

Under Menem and Cavallo, barriers to outside investment and trade were brought down. The major industries and even the infrastructure that had been owned by the Argentine state were sold off to private companies. Everything was for sale. In less than two years, the Argentine government sold off the telephone company, the electric utilities, the water system, the ports, the airports, the airlines, banks, the railways, chemical plants, shipyards, big stretches of highways, the post office, the oil industry, the gas industry, the national pension system. Generally, these enterprises were bought up by big companies from the U.S. and Europe (especially Spain). But four big Argentine business groups, headed by some of the richest families in the world, got a good chunk of these state- owned enterprises also.

There is, by the way, an Enron and Bush tie-in to this whole process. In 1988, when the privatization ball began to get rolling, Enron bid on a gas pipeline that the Argentine government was putting up for sale. When the government balked, then Vice President George H.W. Bush, through his son, George W. Bush, conveyed his support for Enron, urging the Argentine government to accept its bid, despite the fact that it completely undervalued the pipeline. At the time, the deal foundered when Enron backed out. But eventually Enron did buy up about one-third of the pipeline. Among the board members of Enron’s new Argentine subsidiary was Brent Scowcroft, the national security advisor to former President George H.W. Bush.

The government also "reformed" the currency by pegging its value directly to the U.S. dollar. Supposedly, this move was to stabilize the currency and so end inflation. In fact, it simply made it much easier for the capitalists to move money in and out of Argentina, since they no longer had to worry about whether the value of the local currency would fall in relation to the dollar.

In the first four years, 1991-1994, the gross domestic product (GDP) grew an average of four percent a year, as capital flooded into the country. The money from the privatizations enabled the government to pay down a small part of the international debt. Argentina’s stock market and real estate markets boomed. At the end of 1994, the devaluation of the Mexican peso led to a panic in Argentine financial markets and a recession. But speculative markets soon picked up where they had left off, and the GDP saw some more growth.

The U.S. paraded Argentina as the great success story. And it was for U.S. financial interests and for the Argentine bourgeoisie. The "emerging market funds," the darlings of institutional speculators at the time, were often able to make 60, 70 or even an 80% return on their holdings in Argentina, more than 30 times what they would have made by holding U.S. Treasury bonds. To show U.S. approval, George H. W. Bush became the first U.S. president to visit Argentina since Eisenhower. Bush liked Argentina so much that he visited it eight times during his tenure of four years, often playing golf or tennis with Menem. Under Clinton, Argentina’s special status was underlined when it became the first country in Latin America to be named a "major non- NATO ally," giving Argentina priority access to American-made weapons, parts and ammunition. In return, Argentina showed its gratitude by being the U.S.’s most staunch ally overseas, backing every single U.S. military adventure, from the invasion of Panama, to the U.S. bombings of Bosnia and Kosovo, to the present U.S. war in Afghanistan. Argentina is also the only Latin American government to support the continuing U.S. embargo of Cuba.

Bitter Fruits

These so-called "reforms" could only mean more attacks on the population. The new owners of the privatized companies cut whatever services they considered to be "unprofitable." For example, the company that took possession of the railroads cut all the unprofitable lines. At the same time, the newly privatized companies charged much more money for their services. For example, the French company Vivendi, which had purchased the country’s water system, hiked rates by 400%. The owners of the privatized highways charged outrageously high tolls, over ten dollars to drive 100 miles. Even to mail a letter at the newly privatized post office could cost several dollars.

Both the government and private companies cut their workforces, leading to a big increase in the rate of unemployment. A report by Argentine economists at the Instituto de Estudios y Formacion shows that between 1991 and 1994, the years of supposedly strongest growth in GDP, the real rate of unemployment actually doubled and continued to rise in the years that followed. These same Argentine economists also show that starting in 1995, real wages were cut an average of two percent per year.

Contrary to predictions, privatization cost taxpayers more money than it brought in. The state-run enterprises were sold off at big discounts. Big tax cuts and other subsidies were thrown in. Often the government even guaranteed these companies a certain rate of profit. Thus, the so-called "reforms" soon began to drain more money from the government budget, driving up its deficit.

The economy remained extremely fragile, very vulnerable to external financial shocks. At the end of 1994, when the Mexican government devalued its currency, speculators in Argentina began to pull their holdings out of the country, in fear that the Argentine government might do the same. Argentine financial markets dropped, leading to a recession. Then in 1997, the wave of currency devaluations in Asia and Russia once again led speculators to bet against the Argentine currency. They once again began selling their holdings in the Argentine peso. Once again, this led to a recession. Then in 1999, Brazil, Argentina’s biggest trading partner, devalued its currency. This increased the price of Argentine exports to Brazil. Exports dropped, leading to a big drop in industrial and agricultural production. This exacerbated the recession that had begun in 1997, which in turn encouraged the capitalists to take more of their holdings out of Argentina.

As Argentina’s economy spiraled downward, Argentina was bled of capital. To facilitate this capital flight, the IMF extended new loans, 40 billion dollars worth in 2000 alone. Part of these loans went to the banks in Argentina so that they could convert the capitalists’ pesos to dollars, thus letting them take their money out of the country. The rest of the IMF loans went to the Argentine government so it could continue to make the interest payments on its ballooning international debt, which it had stopped paying. The international banks holding the Argentine debt benefitted. But the IMF loans increased Argentina’s international debt tremendously. In less than ten years time, it more than doubled. Of course, the people of Argentina never saw any of the money that the government borrowed. Often, this money was simply transferred from one bank account to another in the industrialized countries. The ordinary people of Argentina were left with the responsibility for paying it back. By 2001, the service on its international debt was equal to five times Argentina’s exports. Everyone knew that this situation could not be sustained. But this did not stop the Argentine government from using every means at its disposal to funnel money back to the big international lenders. It cut essential services, employment and wages. It emptied 1.8 billion dollars out of the workers’ pension funds.

While this did not stem the economic collapse, it did ensure that the biggest investors were able to get as much money as possible out of Argentina, to safeguard their profits. "Institutional investors with clients in the United States had mostly deserted Argentine debt issues before the default," wrote the New York Times on December 25, 2001, which went on to report: "A survey released last week by J.P. Morgan Securities reported that 81% of investors considered their portfolios under weighted in Argentine securities."

That is not to say that the big companies with actual businesses in Argentina are immune to the effects of the economic crisis. But, as a spokesman for the consumer products megagiant, Unilever, assured the BBC, "We actually have a huge amount of experience in dealing in markets that have economic challenges." He then went on to cite the fact that Unilever continued to make profits during such past financial meltdowns and unrest as those in Russia, Indonesia, Mexico, Brazil, etc. and continues to do the same in Argentina.

The means by which they weather these storms is to ratchet up the exploitation of the working class and impoverish most of the population.

New President, Same Policies

Over the last few months, the Argentine bourgeoisie’s main problem has been how to control the explosive social situation, how to keep in check a working class and impoverished population that forced out four presidents in less than two weeks. That is what Duhalde with his party’s ties to the union apparatuses was brought in to do.

So, Duhalde has employed a populist kind of rhetoric. He has tried to both calm and divert the anger in the poor population. On the one hand, he has made a few symbolic gestures to the workers and poor. He has met with representatives from the unions, the unemployed and others in order to show his supposed concern, and to give the impression that he was looking for solutions for them. On the other hand, he has taken the tried and true formula of blaming the vast economic problems of the country on the outsiders, that is, on the IMF and the foreign banks, as well as on the companies that are owned by foreign capitalists as if the Argentine bourgeoisie has not grown super rich by doing the same things.

To a certain extent, the IMF has played along with Duhalde. While it claims that it will not approve new loans to Argentina until its terms are met, until the Argentine government makes a new austerity program that it approves of, the IMF quietly made a new one billion dollar loan available to the Argentine government so that the government could provide a few of the most vital social services, including food, health and education to give it some breathing room. Of course, it goes without saying that the population itself will be expected to pay these loans back with interest.

But whatever public stance Duhalde takes, his policies are aimed at benefitting the bourgeoisie, whether Argentine or foreign. This can certainly be seen in the decision of the Argentine government to allow the peso, which had been pegged to the U.S. dollar for 10 years, to float. The inflation which resulted hit the working class and poor the hardest, cutting wages relentlessly.

The Duhalde government carried out the devaluation to bring many capitalists real benefits. During the previous year, the largest capitalists, both Argentine and foreign, had borrowed 26 billion dollars and sent almost all of the money abroad. These loans were taken out in dollars. But when the peso was devalued, the government changed the denomination of the loans into pesos. This meant that these capitalists could pay back the debts in pesos, and as if by magic their debts were cut by 70%! The government then turned around and promised the banks that it would make up the difference that they lost.

So, while Duhalde came to the rescue of the capitalists’ interests, he continued to impose real austerity on the working class and poor. This was a real attack, even though it was done in a less overt fashion, and under the cover of a populist rhetoric.

To Protect Its Interest, the Working Class Must Continue the Fight

Will Duhalde succeed in disarming the population and lulling it to sleep? Since the December days of protests, the social unrest in Argentina has largely gone unreported in the United States. But news reports from Argentina indicate that the working class, unemployed and poor continue to mobilize. On February 12, 7,000 unemployed workers organized 14 road blocks around Buenos Aires, effectively cutting the city off from the surrounding areas. Among the demands of the workers is that the government immediately create 50,000 new jobs. On February 21, unemployed workers set up 26 road blocks in the outlying provinces. Others picketed the house of the governor of the province of Mendocino. Still others occupied a city hall, demanding food. On February 26, thousands of unemployed blockaded the roads leading to several petrochemical plants and refineries in Dock Sud, La Matanza, Ensenada, Camapana and in front of the headquarters of a big energy holding company, YPF. They demanded jobs and government aid. In the middle of March, tens of thousands of workers and unemployed from four separate parts of the country marched for a week and converged on Buenos Aires for an enormous rally for jobs.

Obviously, the level of desperation has also grown. While news reports indicate the number of food riots has decreased, they still continue. In one report at the end of March, in Rosario, a city northwest of Buenos Aires, more than 100 people descended on an overturned cattle truck and slaughtered animals with sticks and knives so they could carry off chunks of meat.

Certainly, the working class and poor have every reason to continue their fight. It is the only way that they have a chance to throw back the austerity programs that all their enemies want to impose on them. This crisis certainly illustrates that all they can expect from the IMF and World Bank, which represent the big financial interests in the imperialist countries, especially the U.S., as well as the Argentine bourgeoisie and government, is more attacks, more calls for austerity, more cuts in the standard of living for workers and poor people. And the Argentine politicians have shown themselves ready to do the dirty work for all these different possessing classes. There is no limit to their rapacity or baseness in their drive to accumulate more wealth.

To protect its most immediate interests, simply to be able to put any food on the table, the Argentine working class has no choice but to fight. But today the fight for food is not separate from the fight against all of these exploiters and their whole system. What has been happening in Argentina shows to that this capitalist system is rotten to the core. Its very existence stands as a barrier to a decent life for people around the world. It needs to be gotten rid of.