The Latest Stage in Argentina’s Permanent Crisis

Jan 7, 2002

In Argentina, unrest has been growing. Food riots have been sweeping the country, as thousands and thousands of hungry people have broken into food markets. Then just before Christmas, mass demonstrations erupted in the capital city of Buenos Aires against the government. The police tried to stop the demonstrators, firing into crowds, killing 27 people and wounding several hundred more. But the demonstrations only grew larger, until they forced the president of the country, Fernando de la Rua, to resign.

But this resignation did not quell the unrest. One politician after the other took office, only to resign almost immediately. On January 3, Eduardo Duhalde became the fifth person to assume the office of the presidency in less than two weeks.

Driving these protests is worsening unemployment and misery. The official unemployment rate now stands at 18%. Over15 million people, or close to one-third of the population, are living below the official poverty line. Each day, an estimated two thousand more people are forced to live on less than four dollars per day.

This growing misery is hardly an accident. In just two years, the government and business worked together to impose eight austerity programs on the population: slashing jobs, wages and benefits. At the same time, the government has slashed all the social programs that served as a safety net, including pensions, education and health care, while raising taxes paid by working people.

The last straw came at the beginning of December when the government restricted how much money could be taken out of individual bank accounts.

Setting the stage for more imperialist plunder

This latest crisis in Argentina is dramatic, but it is hardly unique. For the last 30 years, Argentina has been mired in crisis, marked by several harsh economic downturns, bulging international debts, growing unemployment and misery. Accompanying all this have been spasms of harsh government repression, most famously carried out by a military dictatorship, which lasted from 1976 to 1983, that was responsible for murdering tens of thousands of people.

Through all these crises, the government has put forward one plan after another to supposedly reform the economy, always promising that both economic growth and higher living standards were just around the corner. The latest version of these so-called reforms began in 1989. At that time, production was lower than it was in 1974, the official unemployment rate stood at 15%, and wages were, on average, one-third lower than they had been in 1974.

In 1989, upon taking office as the newly elected president, Carlos Menem immediately instituted an ambitious plan to sell off the major industries and the infrastructure that had been under the ownership of the government to big financial companies from both the U.S. (including Citicorp and J.P. Morgan) and Europe, and a small handful of big Argentine business groups that had previously made their money from the Argentine state-run industries. The government’s pretext was that the money it took in from the sale of what amounted to most of the Argentine economy would go to boost social programs, as well as to pay down the big international debt. And–it promised–the big companies that began to “invest” in Argentina, would then plow more capital in to build up the infrastructure and the economy, boosting jobs and the standard of living.

It should be noted that Argentina was not alone in carrying out such sweeping “reforms.” Under the urging of the U.S. government, as well as the International Monetary Fund (IMF) and the international financial community as a whole, these kinds of so-called reforms were being carried out to a greater or lesser degree in the rest of Latin America, as well as much of the underdeveloped world and Eastern Europe.

Fire sale

In less than two years, the Argentine government sold off an astounding number of state run enterprises: the national telephone company, the electric utilities, the water system, the ports, the airports, the airlines, the railways, chemical plants, shipyards, big stretches of highways, the post office, the oil industry, the gas industry, the national pension system. What the government did not advertise were the big discounts at which these businesses were sold, as well as the generous tax breaks, subsidies and even guaranteed profits that the government tacked on. These new privately-run companies did NOT invest to expand production or services, as promised. On the contrary, they cut back. For example, the company that took possession of the railroads, cut service substantially. These cutbacks helped feed a continuation of mass downsizings in other companies.

For a short time, Argentina’s stock market and real estate markets boomed, while its international debt and government deficit declined and the economy showed some weak growth. But the financial panics that broke out in Mexico in 1994, and in Asia and Russia in 1997, spread immediately to the Argentine financial markets and then to the Argentine economy as a whole, leading to back-to-back recessions. To continue to reassure both foreign and domestic speculators, the Argentine government carried out one more major economic “reform”: it tied the Argentine peso directly to the U.S. dollar. With one Argentine peso equal to one U.S. dollar, speculators would not have to worry about a devaluation of the Argentine peso reducing their speculative ventures in Argentina.

Capital flight

This soon boomeranged against the Argentine economy as a whole. As the value of the U.S. dollar increased in relation to most other currencies, so did the value of the Argentine peso. This made exports from Argentina more expensive and often priced them out of the market. The fall in Argentina’s exports then fed a decline in industrial and agricultural production, and more layoffs. With the Argentine economy going on a downward slope, the big capitalists, both foreign and domestic, began to pull their money from the country, leading to a fast decline of the Argentine speculative markets.

In the face of this capital flight, the Argentine government continued to maintain the Argentine peso at its peg to the U.S. dollar, but only at a stupendous cost by borrowing larger and larger sums on international capital markets. Last year alone, the Argentine government borrowed 40 billion dollars. The foreign debt ballooned to 140 billion dollars. This kind of borrowing did serve a purpose. It allowed the big speculators to pull most of their capital and profits out of the country, without great loss. Of course, by aiding and abetting this capital flight, the Argentine government also assured that the economic collapse would deepen.

What measures will the new officials who wind up leading the Argentine government carry out? One thing is sure, whatever new so-called reforms are instituted, the government, representing international finance and the Argentine bourgeoisie will want the Argentine masses to pay.

The people of Argentina have already shown their unwillingness to go on paying. Their problem now is to make the people responsible for the current crisis–that is, the owners of capital–pay for the crisis.