Kirchner's Legacy: Getting Argentina Out of Crisis by Defying the IMF and "Free" Trade
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The unexpected death recently of Nestor Kirchner deprived not only Argentina of a remarkable, albeit controversial leader. It also took away an exemplary figure in the Global South when it came to dealing with international financial institutions.
Kirchner defied the creditors. More importantly, he got away with it.
The full significance of Kirchner’s moves must be seen in the context of the economy he inherited on his election as Argentine president in 2003. The country was bankrupt, having defaulted on $100 billion of its debt. The economy was in a depression, its gross domestic product having declined by over 16 percent that year. Unemployment stood at 21.5 percent of the work force, and 53 percent of Argentines had been pushed below the poverty line. What was once the richest country in Latin America in terms of per capita income plunged below Peru and parts of Central America.
Argentina’s crisis stemmed from its faithful adherence to the neoliberal model. The financial liberalization that served as the proximate cause of the collapse was part and parcel of a broader program of radical economic restructuring. Argentina had been the poster child of globalization, Latin-style. It brought down its trade barriers faster than most other countries in Latin America and liberalized its capital account more radically. It followed a comprehensive privatization program involving the sale of 400 state enterprises -- including airlines, oil companies, steel, insurance companies, telecommunications, postal services, and petrochemicals – a complex responsible for about seven percent of the nation’s annual domestic product.
In the most touching gesture of neoliberal faith, Buenos Aires adopted a currency board and thereby voluntarily gave up any meaningful control over the domestic impact of a volatile global economy. This system tied the quantity of pesos in circulation to the quantity of in-coming dollars. This policy, as the Washington Post writer Paul Blustein observed, handed over control of Argentina’s monetary policy to Alan Greenspan, the U.S. Federal Reserve chief who was on top of the world’s supply of dollars. This was, effectively, the dollarization of the country’s currency.
The U.S. Treasury Department and its surrogate, the International Monetary Fund (IMF), either urged or approved of all of these measures. In fact, even with financial liberalization called into question in the wake of the Asian financial crisis of 1997-98, then-Secretary of the Treasury Larry Summers extolled Argentina’s selling off of its banking sector as a model for the developing world: “Today, fully 50 percent of the banking sector, 70 percent of private banks, in Argentina are foreign-controlled, up from 30 percent in 1994. The result is a deeper, more efficient market, and external investors with a greater stake in staying put.”
As the dollar rose in value, so did the peso, making Argentine goods non-competitive both globally and locally. Raising tariff barriers against imports was not an option owing to the technocrats’ commitment to the neoliberal tenet of free trade. Instead, borrowing heavily to fund the dangerously widening trade gap, Argentina spiraled into debt. The more it borrowed, the higher the interest rates rose as international creditors grew increasingly alarmed. Money began leaving the country. Foreign control of the banking system facilitated the outflow of much-needed capital by banks that became increasingly reluctant to lend, both to the government and to local businesses.
Backed by the IMF, the neoliberal government nevertheless continued to keep the country in the straitjacket that the peso-dollar currency board arrangement had become. As George Soros observed, Argentina “sacrificed practically everything on the altar of maintaining the currency board and meeting international obligations.”