When Argentina ran into a debt crisis like Greece, its first response was to borrow money from the IMF and others, promising “austerity” packages of cuts. Then it took a different direction…
Not so long ago Argentina had a debt mountain like ours, and found a viable alternative to the punishing regime imposed by international financiers that has been proven to work. What could we learn from this about managing the finances of our own country?
Argentina ran up debts during the 1990s because of its US-style economic model and the Malvinas (Falklands) war. It also suffered from large scale money laundering and tax evasion. Its creditors, including the IMF, were demanding their money back or else demanding the same draconian anti-worker measures they and the EU are demanding today.
When the country could not repay the loans, the IMF just extended them, making the problem worse. And as in Greece, corruption was rampant, with much of the money being siphoned off into offshore bank accounts. With a fixed exchange rate (against the dollar) imports kept flooding in, wrecking local production.
Then in 2002, Argentina defaulted on its debt repayments. By this time there were runs on the banks, unemployment was at 25 per cent, scores of thousands of homeless and jobless people scavenged the streets for cardboard to eke out a living, money stopped circulating and the economy virtually ground to a halt.
The IMF, the USA and the EU were all demanding that austerity measures be put into effect so that the creditors could have their money back and they made all sorts of threats against Argentina.
Give in without a fight?
So what was the country to do? Should it give in to the demands of the IMF, US and EU as the Greek government has done, and as the British government is offering to do even without putting up a fight?
No. Argentina basically stuck two fingers up and told the IMF, US and EU and other creditors that “Argentina will repay its debts in a time and manner that is determined by Argentina” and “will not accept any conditions imposed by outside bodies”.
|June 2002: demonstration outside a Buenos Aires bank.|
At the annual meeting of the IMF/World Bank in October 2004, leaders of the IMF, EU and G7 warned Argentina that it had to come to an immediate debt restructuring agreement with the speculative “vulture funds”, increase its primary budget surplus to pay more debt, and impose “structural reforms”’ to prove to the world that it deserved loans and investment. Or else.
Or else what? The Argentine government ignored these threats and called the bluff of international capitalism. The government under President Nestor Kirchner decided that Argentina would rebuild its economy itself without outside help.
The government, in alliance with the trade unions, put the economy on a path to recovery. Wages were increased and large sectors of the economy were subsidised by the state. Where employers had fled the country, taking their money with them, factories were taken over by workers.
In its “isolation”, the economy boomed thanks to government spending stimulating the economy. Its economy has grown by 50 per cent since 2003 and the government plans to emerge from default by resolving the last of its bad debts.
Argentina’s “isolation” was not complete, however. Neighbouring friendly countries knew they had to stand by Argentina and find an alternative to the IMF and to the proposed Free Trade Area of the Americas (FTAA), a sort of American EU run for the sole benefit of US capitalism.
Venezuela bought $2 billion worth of Argentine government bonds and floated the idea of ALBA, the Bolivarian Alternative to the FTAA and a ‘Bank of the South’ that would not put client nations and their people in hock to capitalism.
In 2004, Venezuela and Cuba signed the originating agreement and today there exists the Bolivarian Alliance for the Peoples of Our America with a growing membership. In 2008, the ALBA Bank that will become an alternative to the IMF was established.
Argentina’s current President Cristina Fernandez says that the country’s experience shows that “austerity” measures are exactly the wrong measures in a debt crisis, which is why, she says, the EU “rescue” plan for Greece is “condemned to failure”.
So the lessons of Argentina are that a country can stand up to the IMF, the EU and the US, can assert its sovereignty and can sort out its own economy without outside interference or conditions. Argentina went on to severely criticise the IMF at the UN General Assembly in September 2004 with President Kirchner warning that the IMF was not a “lender for development” but was a “creditor demanding privileges”.
But the other lesson for us is that there are alternatives to existing capitalist structures such as the EU and the IMF. The growth of ALBA and the ALBA Bank confirm this.
And what about Britain? Does this experience not lend itself to our own situation? The new government says it will implement Labour’s proposed cuts, but a bit earlier.
As Germany warns that the euro and the EU are at risk unless workers pay for the economic mess that is today’s capitalism, the stakes appear very high. The model across the EU is that the debt created by pouring our money into the banks to save capitalism should be paid by the public sector with years of cuts in pay and services, privatisation and tax rises.
With Labour, the Tories and the Lib Dems all singing from the same hymn sheet about the absolute necessity to make massive cuts in the public sector, and the EU and the International Monetary Fund enforcing similar cuts on Greece, you could be forgiven for thinking that “there is no alternative” (to quote Thatcher) to this policy. Could we not rebuild Britain ourselves? Of course we could.
But it would mean that we would have to take responsibility for our own future and take control. That is the alternative to Labour/Tory/Lib-Dem cuts.