On January 3, after years of an openly hostile relationship with the International Monetary Fund (IMF), Argentina cleared its entire $9.81 billion debt with the multilateral financial institution. Announcing the decision last December, President Néstor Kirchner, said the payment “will allow us to build a more just future, with greater flexibility in the design and implementation of economic policies.”
Opinion polls indicate that over 70% of Argentines supported the move, a sign of the bitterness left by the Fund’s role in the country’s economic collapse in 2001-2002. But despite praise from varying sides of the political spectrum, some left-wing critics blamed Kirchner for ignoring the “social debt” owed to the Argentine people, saying the money would be better spent alleviating the country’s internal social problems.
The government says it will save $800 million in interest payments and become autonomous from the IMF. In his announcement, Kirchner called the debt “a constant vehicle for meddling, because it is subject to periodic reviews and was the source of requirements that contradicted each other and were opposed to the objective of sustainable development.”
Despite using nearly a third of the Central Bank’s foreign currency reserves, the Kirchner Administration was confident that Argentina’s booming economy would allow the government to recoup the loss by the end of 2006. Under Kirchner, Argentina’s economy has rebounded miraculously, with 8% annual growth rates since 2003, but social indicators have not improved to pre-crisis levels.
The debt payment came a few months after mid-term congressional elections in October in which Kirchner’s allies had a strong showing. Some analysts say the October victory has allowed Kirchner to distance himself from more centrist politicians and to become more directly involved in policymaking. Kirchner, for example, replaced Economy Minister Roberto Lavagna, giving the job to Felisa Miceli, a self-proclaimed kirchnerista. The President repeatedly clashed with Lavanga, and in early December, just before the debt repayment announcement, he asked Lavanga to resign. Although Lavagna is widely credited with engineering the economic recovery, he was also a supporter of Kirchner’s rival, Eduardo Duhalde. The two Peronists have openly battled for control of their party.
Argentina’s debt payback shows more coordination between Mercosur countries and the bloc’s newest member, Venezuela. Two days before Kirchner’s announcement, Brazil’s Finance Ministry said it would pay the outstanding $15.5 billion owed to the IMF. Kirchner told Argentina’s newspaper El Clarín, “If Brazil hadn’t taken the first step, Argentina wouldn’t have been able to advance on its own.”
Kirchner also indicated that Venezuelan President Hugo Chávez helped make the repayment possible. Over the last year, Venezuela has become one of Argentina’s major creditors, buying $1.5 billion in Argentine bonds and promising to buy more, as part of Chávez’s initiatives to build an anti-imperialist bloc in Latin America. Chávez called the bond purchase a step toward the creation of his proposed “Bank of the South,” which he says would displace the IMF and offer loans free from conditionalities.
Within Argentina, many social movement and debt relief organizations have challenged the IMF payback. A group of civil society organizations working with Jubilee South issued a scathing press release disputing the legitimacy of the debt and accusing Kirchner and Brazil’s Luiz Inácio Lula da Silva of neglecting the “social debt” owed to their peoples. The statement also questions whether paying off the IMF made fiscal sense, noting that Argentina’s interest payments on loans from international markets are in some cases twice as high as IMF rates.
Left-wing congressman and economist Claudio Lozano told Inter Press Service: “Placing a priority on making payments to the multilateral lending organizations and paying off the IMF debt, without demanding any compensation for their shared responsibility in the process of indebtedness, is a strategy that fully complies with the demands of the IMF itself.”
About the Author
Alex van Schaick is NACLA's editorial assistant.