Monday, November 15, 2010


Nestor Kirchner, who died suddenly of a heart attack last month, was the only Argentine President since the coup of 1976 who left the country in a better state than he found it. Today’s tourist who stands in Buenos Aires’s Plaza de Mayo, pointing his camera towards the Casa Rosada, might scarcely believe that less than a decade ago mounted police were beating back elderly ladies on the ground on which he stands .

But in December 2001 it was a place of seething anger. Fires swept through neighbourhoods, and the streets rattled to the sound of thousands of people angrily banging on saucepans. Their immediate complaint was the freezing of their bank deposits, following the International Monetary Fund’s suspension of loans to Argentina, but this was a broader eruption after years of passivity. Police on horseback stormed the plaza, whipping workers, pensioners, housewives and students with their truncheons. They fired tear gas and killed five people. But the siege did not work. The people did not leave. They staged a sit-down protest, while President de la Rua quietly resigned and fled the Presidential Palace via helicopter.

By the turn of the twenty-first century, there was more poverty and more premature death in democratic Argentina than there had been during the dictatorship. An economic model which had been forced upon the people had combined with an uncontrollable debt and extreme corruption to bring Argentina to its knees. How had a country which was once the richest in Latin America managed to bankrupt itself?

The story begins in the early 1970s. Although Argentina generated much of its own oil, the 1973 crisis hiked its foreign bills and wiped out its trade surplus. Across the world, petrodollars funded cheap loans to developing nations. By the early 1980s, interest rates had risen to 16% and Argentina awoke to the legacy of a brutal dictatorship. Inflation reached 300%, wages were frozen, domestic industry had been destroyed by neoliberalism and the country was saddled with a foreign debt of nearly $50 billion.

In 1983, Argentina returned to democracy, but almost immediately the government used public money to bail out debt speculators and by 1989, when Raul Alfonsin resigned amid instability and hyperinflation, foreign debt had reached $54 billion. Much of this debt was what we might call nationalised debt – i.e. loans that had been made by parent companies to their subsidiaries, which had then been added to the public debt.

Alas, during the 1990s, Argentina’s foreign debt more than doubled. The new President, Carlos Menem, all dashing sideburns and celebrity stardust, had campaigned on a traditional Peronist ticket to raise living standards, tackle corruption and default on the foreign debt. But as soon as he took office, Menem betrayed his electorate and changed course, proclaiming that there was no alternative but to align with the neo-conservatives and sign up wholesale to the Washington Consensus.

By 1992, Menem’s tactics became starkly clear: he would negotiate with the US to pay off Argentina’s debt by selling state companies at a fraction of their actual value. Privatisation met with little resistance from unions, and the medicine appeared to work: Argentina was credible again. The economy grew and foreign capital – much of it repatriated – flowed back into Argentina. Privatisation yielded more than $30 billion to the nation coffers, and helped to reduce the deficit.

But these gains were short-lived. Profitable state companies were sold for a pittance, and suffered massive downsizing and asset-stripping. When Argentina’s railways were privatised, for instance, much of the rolling stock and lines were simply decommissioned, leaving the provinces economically isolated and the population forced to move to the cities. The reserves of the massive state oil company, YPF, were sold on 25-year contracts for a price equivalent to nine months of production. Towns built to house YPF workers were abandoned, the new owners leaving behind vast deserts of inert machinery. Gas del Estado was sold for 10% of its actual value to Repsol, who polluted the local water supply so that local people now extracted pure gasoline from their water pumps.

To understand how Argentines were beginning to feel, we might imagine the NHS being sold at 10% of its value to a fraudulent conglomerate which then ran it into the ground and was compensated for its lack of productivity. While politicians and business people alike profited and allowed privatised industries to under-perform, hundreds of thousands of workers were laid off. In northern Argentina, per capita income was on a par with Bangladesh by the end of the 1990s.

Menem and his neoliberals may have accepted this as a sacrifice for economic boom, but when the global economy contracted in the mid-1990s, Argentina’s monetary policies ran out of steam. In order to keep the peso strong against the dollar, Menem had been forced to borrow from abroad. Argentina lacked the power to use high interest rates to attract foreign investment, and peso-dollar convertibility became increasingly difficult to maintain.

As debt service costs soared, panicky investors withdrew their capital and Argentina fell into recession. By April 2000, a beleaguered new President, Fernando de la Rua, was staring down the barrel of a default. He asked the IMF for help, and was offered a deal: a $40 billion loan in return for cutting welfare in the provinces and further privatisation (a joke, since by this time there was little left to privatise). By late 2001, the voices of the Argentine people rang out loud and clear: they rejected all the political parties at the ballot box and withdrew from their bank deposits (at one point, $1 billion was being withdrawn per day from Argentine bank accounts). When Finance Minister Cavallo froze deposits in December, the streets filled with people who had worked hard, saved all their lives and could only watch helplessly as their savings evaporated.

Argentina was now forced to stare the legacy of neoliberalism in the face. The last days of 2001 and first of 2002 saw Argentina – under the leadership of interim President Saa – default on $132 billion worth of debt, the largest default in history. The pego was unpegged from the dollar and allowed to devalue. Inflation surged, GDP plummeted, 19 million Argentines were officially in poverty and 7.5 million couldn’t afford food. In the rural provinces, children starved while hospitals and schools closed their doors.

In 2003, Nestor Kirchner was elected President of the Argentine Republic. Realising that any deal with the IMF would be utterly compromised, he issued a challenge: the IMF, he said, had changed “from being a lender for development to a creditor demanding privileges” and must be fundamentally reformed. Looking closer to home, Kirchner built up ties with other left-leaning Latin American governments. In late 2005, Venezuela agreed to buy $1.6 billion of Argentine bonds which Kirchner used to settle Argentina’s debt to the IMF once and for all. Kirchner also clamped down forcefully on tax evasion and invested increasing revenues into welfare.

Meanwhile, some semblance of financial stability had returned to Argentina. This was in large part due to the “fabrica recuperado” movement, an innovation whereby workers took over premises where businesses had gone bankrupt and managed them co-operatively. As well as generating growth, these “recoveries” have initiated progressive networks of left-leaning groups determined to reverse the decimation of industry under neoliberalism. A devalued peso has also meant that traditional Argentine exports – soy, cereals, meat – are highly competitive again. Between 2003 and 2008, Argentina recorded $77 billion of trade surpluses.

Kirchner’s legacy is not without blemish. Wealth inequality has fluctuated in the last ten years, and people in the Buenos Aires slums and many of the provinces still live in dire poverty. He did not managed to eradicate the graft that seems to be part and parcel of Latin American politics, and he and his wife (the current President Cristina Fernandez de Kirchner) are accused of establishing a “shared presidency” in which they allegedly planned to rule, if elected, until 2020. This last accusation, in particular, has the taste of sour grapes. But Argentina is undoubtedly a healthier place than it was in 2003, economically and psychologically. For the first time in its recent history, it is a major player on the world stage, at the heart of the Latin American progressive left, and beholden to no one. That, in large part, is down to Nestor Kirchner.


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