Since the Mexican devaluation of December, 1994 several other major financial cataclysms have occurred in the Third World; together these have come to be known as the “emerging market crisis.” Today a new catastrophe is wiping out Argentina’s economy and society. The debt and bank crises that exploded in Mexico, Thailand, Korea, Indonesia, Russia and Turkey between 1995 and 2000 were partially resolved by means of rescues orchestrated by the International Monetary Fund (IMF) and the U.S. government, but the current Argentine debacle doesn’t look like it will be similarly solved.
Why hasn’t the IMF wanted to rescue Argentina? The first response is simple though true: IMF officials under the ideological leadership of Stanford economist Anne Krueger have decided to limit their rescues of bankrupt Third World governments. Their reticence about delivering a scheduled multibillion dollar portion of an IMF loan to Argentina before Christmas to help cover this South American country’s foreign debt service is indicative of this strategy. The leading figures in the IMF believe that Fernando de La Rúa’s administration doesn’t deserve any more support, and they argue that its failure will make it an object lesson for international investors about the dangers of lending to less developed countries that face fiscal or economic problems.
Nevertheless, it should be stressed that this policy hasn’t been consistently applied. The IMF recently decided to continue supporting Turkey, which continues to suffer from large deficits and high inflation.Why support Turkey and not Argentina? The presence of U.S. (now NATO) bases in Turkey assure that the money will keep flowing to Ankara.
By contrast, Argentina doesn’t have strategic military importance for the Bush administration. That’s why U.S. Treasury Secretary Paul O’Neill supports the policy sketched out by Krueger and insists on punishing the South American government for not coming up with a zero budget deficit. This is despite the fact that the Argentine economy minister, Domingo Cavallo, performed the most extraordinary financial pirouettes in order to avoid a devaluation and total collapse. In practice, Argentine officials have followed the IMF’s instructions to the letter, squeezing ever more taxes out of the public, which has provoked massive protests in recent years, months and days.
The basic problem, however, is different. Argentina’s collapse wouldn’t just serve as a lesson about the IMF’s power but also assure the collapse of Mercosur, the regional customs union. It would significantly weaken Brazil’s capacity to negotiate with the United States concerning the proposed Free Trade Area of the Americas [See “FTAA of the Americas: NAFTA Marches South, p. 27]. It’s worth remembering that this iniciative was originally launched at the end of the 1980s by Bush Sr. But this U.S. project hasn’t made much progress, in large part because of the existence of the South American Common Market.
It seems necessary to stress once again that finances and politics are closely intertwined. The crux of the Argentine crisis is a result of the accumulation of a huge debt, which can’t be separated from political history in its national and international dimensions.
A large part of the Argentine debt originated with the international bank loans taken out by the military dictatorship between 1976 and 1983 in order to buy armaments. Another big chunk resulted from the privatization policies pushed by the not-so-impeccable Carlos Menem administration at the beginning of the 1990s. At that time Domingo Cavallo was able to count on U.S. support for auctioning off public enterprises at bargain prices and loading the government up with debts. To complete this sad picture, in the last few years one loan after another has been taken out in order to cover the mounting public debt, but always with the knowledge of the IMF, which as we know, is a vigilant supervisor of national and international finances.
The outcome of the much-foretold Argentine financial crisis didn’t have to be a frightening total collapse. That’s what international economic policy experts like Riordan Roett have pointed out. The IMF and the U.S. government bear clear responsibility for not seeking an earlier and more orderly solution. Instead of this, we have before us the specter of a financial catastrophe and a profound social policy crisis which is going to hit all of Latin America very hard.
ABOUT THE AUTHOR
Carlos Marichal teaches economic history at the Colegio de México in Mexico City. He is the author of A Century of Debt Crises in Latin America (Princeton University Press, 1989), and has been a frequent contributor to NACLA.