Almost two decades after a massive popular uprising triggered Argentina’s record $100bn default of 2001-2002, the country finds itself back in a major economic crisis.
With the peso losing over half of its value this year, inflation running at over 30 percent and the central bank raising the interest rate to 60 percent, many ordinary Argentinians are already beginning to feel the pain.
In a televised address earlier this week, President Mauricio Macri declared an economic emergency and announced a dramatic new set of austerity measures in a desperate bid to convince the International Monetary Fund (IMF) to speed up the release of its previously agreed $50bn bailout loan – the largest in the IMF’s history.
“What we have to face is a basic problem,” Macri said, “which is that we cannot spend more than we have. This is not just another crisis. It has to be the last.”
If Argentina’s tumultuous economic history is anything to go by, however, this time is unlikely to be any different. In fact, Macri’s keen embrace of the standard IMF recipe of far-reaching austerity only risks repeating the mistakes of the past – deepening the economic recession and leading to renewed social unrest, making further political turmoil all but inevitable.
A tumultuous economic history
To understand Argentina’s susceptibility to recurring economic crises, we have to consider the peculiar nature of its integration into the capitalist world economy. Ever since gaining independence a little over two centuries ago, Argentina has occupied a subordinate, semi-peripheral position that it has historically shared with other crisis-prone countries like Mexico, Turkey and Greece.
As South America’s second-largest economy and an important trading partner of the developed countries in the Global North, Argentina has always been acutely dependent on commodity exports, international loans and foreign direct investments to fuel domestic economic growth, leaving it particularly vulnerable to a change in international conditions.
This already became clear soon after the country won its independence from Spain in 1816. Attracted by its immense natural wealth and its relatively educated workforce, and hoping to reinvest their surplus capital in more profitable emerging markets abroad, British investors began to lend large sums of money to Argentina as early as the 1820s.
This investor euphoria soon ended in tears, however, as a market panic on the London Stock Exchange in 1825 caused international credit to dry up. Like many of its Latin American neighbours, Argentina responded by suspending payments on its external debt.
It was not until the 1870s and 1880s that capital began to flow back towards the semi-peripheral countries again. As before, Argentina was one of the main beneficiaries of this new speculative boom – and as before, its government was eventually forced to suspend payments in the inevitable bust that followed. The Argentine default of 1890 would set off a major international financial crisis that nearly brought down the mighty Barings Bank of London.
Several decades later, Argentina was once again hit hard by a decline in the terms of trade, this time due to the Great Depression that began in 1929. The next year, General Jose Felix Uriburu overthrew the democratically elected but economically discredited government of Hipolito Yrigoyen and seized power in a military coup – establishing a disconcerting pattern that was to be repeated several times over the twentieth century.
In short, from its very birth as an independent state, the vagaries of domestic politics in Argentina have always remained closely tied to the umbilical cord of global finance – a dependence it has never really managed to sever.
This dependence left the country particularly prone to currency and debt crises resulting from excessive lending and speculative over-investment, especially when these were followed by a rapid fall in global commodity prices, a decline in the value of the peso, a rise in international interest rates, and/or a sudden stop of foreign capital inflows.
A troubled relationship with the IMF
If Argentina’s recurring crises have historically coincided with downturns in the international credit and commodity cycle, it is equally clear that the management of these crises has in recent decades taken a decided turn for the worse.
Ever since the resumption of large-scale international lending in the late 1970s, Argentina’s long-standing vulnerability to external economic shocks has combined with the structural adjustment programmes of the World Bank and especially the IMF to produce a particularly explosive mix of recessionary pressures, social dislocation and political instability.
The consequences of this shift to neoliberal crisis management have been wide-ranging. Most importantly, the unilateral payment suspensions that had characterized the crises of the nineteenth and early-twentieth centuries suddenly gave way to IMF bailouts and austerity programmes that shifted virtually the entire burden of adjustment for recurring crises onto the shoulders of workers, peasants and taxpayers in the debtor countries.
In this brave new world of international finance, alternatives to full repayment would simply not be tolerated – something that became particularly clear following Argentina’s return to democracy after the fall of the military junta in 1983.
Upon assuming office, Argentina’s newly elected President Raul Alfolsin accepted the binding nature of the previous government’s odious debts, but briefly declared a six-month moratorium on interest payments to ease the pressure on the country’s embattled population, declaring that “we are not going to pay our debt by making our people hungry”.
The creditors immediately struck back, making any renegotiation of the debt conditional on a new agreement with the IMF, which in turn refused to sign off on any deal with the Argentine government unless it resumed its interest payments to the Wall Street banks.
As one US banker put it at the time, the international financial community simply waited “until the economy went into such a tail-spin that the recalcitrant debtor must come crawling back to the table.”
This international credit embargo left Argentina’s fledgling democratic government with little choice but to resume interest payments and turn to the IMF for financial support. “The only solution,” Alfolsin now declared, “is a policy of austerity that will be very hard and that will require great efforts by everyone.”
The result of this turn to IMF-enforced austerity was an economic recession that in many respects was even deeper than the crisis of the 1930s. In Argentina, as elsewhere on the continent, the 1980s therefore became known as la decada perdida – the lost decade.
Burning and looting in Buenos Aires
Although the Latin American debt crisis of the 1980s struck Argentina particularly hard, it was only a taste of the violent upheavals that were yet to come.
In 1989, Alfolsin was forced to resign following a bout of hyperinflation that had led to widespread food riots and the looting of supermarkets across the country. The subsequent rise to power of Carlos Menem would cement the victory of the Washington Consensus in Latin America and help turn Argentina into an “IMF poster child” for the rest of the continent.
As late as 1998, Menem was still invited to address the IMF’s annual meeting in Washington to share his views on responsible fiscal and monetary policy. By that time, however, the cracks in his neoliberal Potemkin village were already starting to show, as contagion from the emerging-market turmoil in East Asia, Russia, Turkey and Brazil began to make itself felt in Argentina.
Over the following year, the economy entered into a deep recession that was only aggravated by the IMF’s continued insistence on further austerity. When Fernando De la Rua finally took over as president in 1999, Argentina was back in full-blown crisis mode.
Over the course of 2000 and 2001, the situation rapidly spiralled out of control. It soon became clear to investors that Argentina would never be able to repay its mounting foreign debts, and that default was only a matter of time. Yet the IMF doubled down on its failing bailout programme, disbursing new credit augmentations at the cost of ever-stricter austerity.
Meanwhile, mass mobilisations by Argentina’s powerful social movements exerted immense pressure on the government from below, with anti-austerity protests, general strikes, workplace occupations, road blockades and kidnappings of government officials all on the rise.
In December 2001, matters finally came to a head. Having belatedly come to recognise the inevitability of default, the IMF suddenly withheld a crucial credit tranche from its earlier bailout, leaving the De la Rua government without any external sources of financing.
Desperate to halt an escalating bank run, economy minister Domingo Cavallo shut down the banks – but it was too late. The popular revolt had already gathered momentum. Following weeks of mass demonstrations and two nights of general insurrection that left over 30 protesters dead, De la Rua finally resigned.
On December 24, not long after the ex-president was evacuated from the roof of the Casa Rosada by helicopter, his interim successor – one of five presidents in just 10 days – declared a suspension of payments on over $100bn in public debt, triggering the largest sovereign default in history and unleashing six months of intense political and economic turmoil that would bring Argentina to the brink of social revolution.
Will history repeat itself?
In light of this tumultuous economic history, many people in Argentina are understandably sceptical of Macri’s insistence that this crisis must necessarily be the country’s last – or that a return to austerity will somehow help Argentina overcome its long-standing financial instability this time around.
For the multimillionaire president and his allies in business, the intervention of the IMF – while fraught with political risks – clearly presents a welcome opportunity to re-liberalise the national economy and dismantle some of the social protections that had been established under the previous Peronist governments of Cristina Fernandez de Kirchner and her late husband Nestor Kirchner.
For many ordinary Argentinians, however, Macri’s eager embrace of the standard IMF recipe is bound to rekindle painful memories of past crises, when the Argentine economy effectively disintegrated on the IMF’s watch. The experience of these past crises presents three main lessons in this respect.
First, given Argentina’s structural dependence on foreign credit and investment, recurring crises have long been all but inevitable. Second, the social and economic consequences of these crises have only been made worse by the austerity measures demanded by the IMF. And third, not a single president has been able to survive the resultant political turmoil.
Macri may still comfort himself in the knowledge that history never simply repeats itself. But with presidential elections coming up next year and anti-austerity protests picking up steam, he would certainly be well-advised to heed the dictum that it often rhymes.