munck crisis argentina

8/7/2019 Munck Crisis Argentina

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Int. Journal of Political Economy, vol. 31, no. 3, Fall 2001, pp. 6788. 2004 M.E. Sharpe, Inc. All rights reserved.ISSN 08911916 / 2004 $9.50 + 0.00.

RONALDO MUNCK

Argentina, or the Political Economyof Collapse

Toward the end of 2001, Argentina entered a paroxysm of economic,social, and political collapse that was practically unprecedented. Thelargest debt default in history (US$155 billion) followed, but this seemed

to be only a symptom of the broader crisis that was unfolding. At thestart of the twentieth century, by contrast, Argentina was on a markedlyupward swing, with the economy ranked in the global top ten. Waves ofmigrants came from Europe to make their fortunes in this golden land.What happened in Argentina in 2001 to precipitate such a dnouement?Was the International Monetary Fund (IMF) mainly responsible since,

in the previous decade, Argentina had followed IMF strategy to the let-

ter? What are the implications of this virtual collapse of a major economyfor the future of neoliberalism? What is to be done?

Antecedents

There is much at stake in the Argentine crisis: on the one hand, thecontinued credibility of the IMF as guiding hand of neoliberal global-

ization and, on the other hand, quite simply the viability of Argentina asa going concern as a nation-state. Diane Abbott, a rare socialist LaborMember of Parliament in Britain declares that: Argentina is an extremeexample of what happens when a country is run for foreign investors andnot for local people. . . . Globalization does not solve poverty. It creates

poverty and social chaos. . . . More globalization will mean more

Ronaldo Munck is professor of political sociology, University of Liverpool, UnitedKingdom.


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68 INTERNATIONAL JOURNAL OF POLITICAL ECONOMY

Argentinas (Abbott 2001, 1). If in global terms Argentina is a signifierfor all that is wrong with neoliberal globalization, at a local level theconcerns are more direct. There is widespread talk of anarchy in terms

of the economic rules that govern most societies. This survival of thefittest mood is also dominant in the political arena where widespreaddisenchantment with politics generally is reminiscent of nothing so muchas Weimar Germany in the 1920s.

The crisis in Argentina broke out towards the end of December 2001.Since the beginning of that year, it was clear that a massive currency

devaluation was on its way. Popular mobilization had also been mount-ing steadily with road blockages and sporadic local uprisings. The po-

litical class as a whole was losing credibility as leftist Vice PresidentChacho Alvarez resigned and the two main political parties becamemired in corruption. The pressure of foreign creditors was becomingever greater, and some banks began moving out their dollar reserves in

anticipation of an end to convertibility between the dollar and the peso.Then on December 19 and 20, the citizens of Buenos Aires rose in totalopposition to the government of Fernando de la Ra. While workersmobilized, it was mainly the middle classes out in the streets, as they sawtheir savings evaporate through devaluation. The government respondedwith repression, killing 30 people and injuring hundreds more. By the end

of these two memorable days, President de la Ra was fleeing Govern-ment House in a helicopter in order to avoid the hostile crowds outside.

Just over 100 years earlier, another economic crisis had rocked Ar-gentina. In 1890, the London financial house Baring Brothers collapsedwhen United Kingdom interest rates rose and its massive investment inArgentina proved unsustainable. A collapse of Argentinas economy

followed, as did a devaluation of the peso and a moratorium on foreigndebt. What the Baring Crisis of 188990 revealed were deep flaws inArgentinas development model based on foreign borrowing. It also madeplain the extent to which corruption oiled the wheels of Argentinas po-litical economy. Then, as now, confidence in the basis of the develop-ment model evaporated very quickly. However, as David Rock notes,

If the similarities to the crisis of 2002 are striking, the differences areperhaps more instructive (Rock 2002, 59). Buoyant foreign demandthen revived export-led growth in Argentina, and British creditors weremuch more understanding than the IMF is today. The current crisis hardlyprovoked the same type of panic that the Baring Crisis caused in the cityof London.


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Why was Argentina, at the start of the twenty-first century, facing acrisis similar to, but even graver than the one it had faced towards theend of the nineteenth century? While I believe the present crisis is

conjunctural and specific, the historical background does set the con-text in which it occurred. It also sets the structural parameters thatdetermine which options are now possible and which are not. Thissection sketches some of the main phases of Argentinas politicaleconomy from 1890 to 1990. From 1890 to the crash of 1929, Argen-tina lived through what was known as the golden era, based on an

agro-export economy. After the Depression of the 1930s, the Peronistperiod (194555) led to a fundamental reorientation based on state-led

industrialization. After the 1955 military coup, there were a successionof weak civilian governments and illegitimate military regimes. The turnto neoliberal globalization occurred under the 1976 military dictator-ship that was singularly repressive. In 1983, democracy returned but

led to the post-1989 Menem government that completed the neoliberalagenda in Argentina.

With the establishment of a strong and stable national government in1862following a period of federalism and conflictArgentina en-tered a period of sustained growth based on agrarian exports. Integra-tion with the world economybased on the differential rent generated

by the fertile Pampas plainsgenerated a visible degree of moderniza-tion and attracted thousands of overseas migrants. Urbanization and a

subsidiary industrialization process advanced swiftly as the social trans-formation in Argentina accelerated in the 1880s. The Baring Crisis wassuccessfully overcome, and World War I created the need for greaterindustrialization, based on protectionist measures and widespread pub-

lic investment in infrastructure. From 1875 to 1896, aggregate outputin Argentina grew at an annual average of 3.7 percent (Lewis 2002,88). Thus, Argentina was seen to be in the same category as othersettler economies such as Australia and Canada, heading for a se-cure place in the international system based on sustained growth andpolitical democratization.

However, as with the rest of the world, the 1929 crisis severely shookArgentinas agro-export economy and its political governance. The in-ternational prices of agrarian products slumped and thus industrializa-tion was promoted to make the economy less reliant on internationalfluctuations. The agrarian oligarchy, however, continued to rule, and the1930s became known as the Infamous Decade, due to the level of


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political corruption. Industrialization advanced in the 1930sa 1940census showed that 40 percent of industrial establishments had beenformed since 1930but the links with imperialism remained intact. The

Roca-Runciman Pact of 1933 effectively made Argentina part of Britainsinformal empire. However, industrialization, albeit subordinate to theagro-export orientation and reluctantly pursued, did produce a sizeableindustrial proletariat. Social transformation and political organizationled to a need to break away from the corrupt stagnation of the 1930s. Anobscure army colonel, Juan Pern, began to attract a labor following for

his nationalist project, and he became president in 1946 at the head of amass movement.

The Peronist decade (194555) completely transformed the politicaleconomy of Argentina and is a crucial reference point. Under Pern, anindustrialist alliance prevailed over the agrarian oligarchy and the in-dustrial working class became a powerful social agent. Space for this

strategy was created by the virtual collapse of Britains empire afterWorld War II, and the United States drive to global domination was justbeginning. Thus Peronism came to power at a unique historical juncturethat allowed it to be nonaligned and to promote state-led industrializa-tion. The massively unionized working class received steadily risingwages and helped create a sizeable internal market. This Bonapartist

regime, above social classes to some extent and quite authoritarian, forgeda project for independent capitalist development in Argentina. Partly

due to Perns own weakness, and even more to counter-organizing bytraditional social forces in Argentina, a military coup in 1955 put an endto the Peronist decade. A decisive turn to the international capitalistmarket ensued.

After the fall of Pern, a period of chronic political instability openedup with a succession of military regimes, civilian interludes, or a com-bination of both. The regimes promoted the expansion of monopolycapitalism, and the economic consolidation of an internationalizedfragment of the bourgeoisie integrated into the international circuit ofcapital accumulation. The military dictatorship that came to power in

1966 represented the most coherent attempt by this sector to break theparticular stalemate that had characterized Argentina since 1955. InGramscian terms, it was an attempt to resolve in its favor the situationof organic crisis and transform its economic predominance into politi-cal hegemony. However, starting in 1969 with the Cordobazo, the newworking class entered a very active phase, which led to the return of


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Pern in 1973 in an attempt to tame this movement (see Munck1987, for the role of labor). Pern died in 1974, and his widows re-gime rapidly decomposed into fighting factions that led to the military

coup of 1976 that, at first, had considerable tolerance if not supportfrom the population.

A new period of military rule began in 1976 with the objective ofdecisively defeating the labor movement and breaking the pendulumpattern of politics which had prevailed in Argentina since 1955, if not1930. It appeared at first that the dictatorship was simply seeking to put

the clock back to the pre-1930 period to recapture the golden era, as itwere. But an unprecedented level of repression was unleashed on the

population, and the trade unions were prevented from carrying out theirnormal functions. National industry was discouraged, and the interna-tionalized sector was fomented. If there was no going back to the pre-1930 world order, what was happening was the beginning of the new era

of globalization. Financial deregulation, opening up of trade, andprivatization of the state sector all helped pave the way for this new era.However, in a bid to increase its waning legitimacy at home, the mili-tary regime decided to launch an adventure in the South Atlantic to re-cover the Falklands/Malvinas Islands. Their defeat by Britains armedforces sealed their fate on the home front and democracy was reclaimed

by the people.The 1983 elections saw the victory of the largely middle-class Radi-

cal Party over the trade union-based Peronists. This represented anethical choice for democracy over the authoritarianism and corruptionof the past. Much of the left went over to the Alfonsn government asit sought a revalorization of democracy and a rational economic strat-

egy. Ral Alfonsn put the military leaders on trial and dealt effec-tively with some further military revolts. However, his economic policy,following some early successes, led eventually to a hyperinflationaryoutburst. By 1985 a war economy was in place as prices and wageswere frozen and a new currency (the austral) was issued. Politics was,from then on, primarily about the economy. The so-called patria

financiera (financial fatherland, that had benefited from a speculativeboom under the military regime, had never been brought under con-trol. The Austral Plan failed, tax revenues were collapsing, the CentralBank was practically bankrupt, and, most disturbing to the politicaleconomy of Argentina, inflation rates began to accelerate, reachinghyperinflationary levels by 1989.


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Stability

President Carlos Menem was a Peronist of a very special type. Menemwas the governor of the poor province of La Rioja, and he cultivated allthe mannerisms of the provincial caudillo (party boss). He appealed to

the poor with vague, populist promises but also made alliances withpowerful economic interests. The traditional Peronist banners of socialjustice (hence the nameJusticialismo given to Peronism) were unfurled,but so also was the banner of modernization. Once in office, it becameclear what this meant, as Menem carried out a full-scale conversion fromeconomic nationalism to a total endorsement of neoliberalism. Menems

election marked a consolidation of democracy in Argentina in terms ofan orderly succession of freely elected governments. However, it led toa marked deterioration of democratic norms as authoritarian practiceswere used to impose market-friendly stability on the country and to fore-close any alternative political economy paths of development.

Menems rise to power can only be understood in the context of the

Alfonsn governments failure to achieve economic stabilization. On thequestion of foreign debt generated by the military regimes, some slackwas granted to the new democratic government, but its constraints weresoon felt. U.S. policy on the debt issue assumed political and economiccapabilities that were simply not there, and the result, as Canitrot puts it,was that the Latin American economies were destroyed and the gov-

ernments which emerged from democracy were completely weakened(and the debt was not paid) (Canitrot 1991, 129). The Austral Plan wasformulated to cut the inflationary spiral through a price and wage freezeand to launch a new currency. Canitrot, involved in implementing theplan, admitted, however, that it had the negative of weakening[governments] political capabilities and of deteriorating public confi-

dence in the efficiency of the institutions of representative democracy(Canitrot 1991, 130). The gap between the reformist rhetoric and thereality of a free-for-all grew, and by 1989 the inflation rate had reacheda staggering 3,000 percent per year.

In political terms, Menems term in office marked a distinct deterio-ration of democracy compared to Alfonsns period. Bypassing Con-

gress in many cases, Menem began to pass controversial measuresthrough executive decree. Although corruption had existed before inArgentina, it reached new levels of openness and persistence underMenem. Close relatives of his were involved in various scandals, in-


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cluding one involving narco-dollars; in others, the U.S. Ambassadorcomplained of bribe demands from senior officials (Swiftgate), and therewas a scandal in the milk industry (Milkgate) involving the presidents

private secretary. Due to the overwhelming desire for economic stabil-ity after the hyperinflation of 198889, there was little reaction from thepopulation over what was openly known as Menems kleptocracy.While Menem created a feeble basis for democratic consolidation, thesimple fact is that for a whole decade there was simply no alternativebeing offered to his authoritarian neoliberal turn.

In terms of Argentinas role in the global system, the Menem periodwas also marked by change. Under Menem, Argentina moved swiftly to

break all links with the Non-Aligned Movement, and Foreign MinisterGuido Di Tella rather crudely called for carnal relations with the UnitedStates. There was no pretense that Argentina was anything other thantotally subordinate to the dictates of U.S. foreign policyno more inde-

pendent forays into the world such as that of Malvinas in 1981. Now itwas to be task forces sent to the Gulf War, to Central America, orwherever Argentinas subordination to the United States could best bedemonstrated. The Menem regime even cancelled the Cndor missileprogram, much to the annoyance of nationalists in the military whomuttered darkly about banana republics. As what we now know as

globalization was taking shape in the early 1990s, Menem was poisedto shake off his earlier Tercermundista (third worldist) image and be-

come a propagandist for the Free Worlds new order, which he aspiredto join.

The cornerstone of the political economy of Menemism was, how-ever, the Convertibility Law of 1991, led by controversial Finance Min-

ister Domingo Cavallo. The struggle against hyperinflation was used asa pretext to tie the peso to the U.S. dollar legally on a one-to-one basis.From then on, domestic money creation would have to match the avail-able amount of U.S. dollars, in order to avoid the money-printing syn-drome of the inflationary past. However, as Halevi notes, the fixed paritybetween the dollar and the peso reduced the attractiveness of the coun-

try as an export platform, so that the implementation of the stabilizationprogram based on dollar-peso parity depended on privatization and fur-ther borrowing (Helevi 2002, 5). Indeed, the privatization of the state-owned companies was a major component of Menems strategy andprovided him with considerable leverage in terms of dealing with thelarge corporations, especially foreign ones that were just waiting for the


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bargain basement sale to begin. As for the foreign debt, it continuallyincreased, as did the burden it imposed on society.

From the 1991 Convertibility Law to 2001, the private debt increased

eleven-fold. The state had taken over the burden of the private externaldebt while the private sector carried on contracting more debts. At thesame time, as Halevi explains: the state sells out its public activitiesthrough privatization policies thus generating financial profits (rents)for the private corporation. . . . The state then unloads the burden of debtonto the whole economy, especially the working population (Halevi

2002, 5) through cutbacks of social services and the whole panoply ofIMF austerity measures. In this way, privatization and the foreign debt

can be seen as linked to the opening of the economy to the world marketthat has allowed transnational corporations to take over the command-ing heights of the economy. Also, not surprisingly, during the 1990sArgentina was favored by financial and hot money players eager to

make a quick profit.Despite its obvious and glaring drawbacks, the Convertibility Plan

did signify stability for a population that had gone through the terrifyingexperience of hyperinflation with its lose-lose effects on nearly every-one. For Ana Mara Dinerstein:

Stability emerged as a new paradigm which organized capitalist anarchy

and the relationship between politics and economics in a particular way.

It also emerged as a means of achieving certainty and economic growth,i.e., the control of the future, which was in fact a new form of expression

of capitalist violence. (Dinerstein 2003, 188)

Indeed, while under Alfonsn politics had been revalorized, under

Menem politics were completely subsumed under the economic ques-tion. The achievement of this stability of a special type allowed Menemto secure a second period in office in 1995, with an ample majority. Itwas not until 1999 that the electorate thought stability had been achievedand they could get rid of the erratic and authoritarian figure of Menemto be replaced by the sober (boring in his own words) figure of de la

Ra from the Radical Party in coalition with leftist front FREPASO(Frente del Pas Solidario: National Solidarity).

To understand this negative regime of stability, we need to spotlightthe particular nature of Argentinas capitalist class. Under Menem, thelong-standing short-termism of the countrys capitalism was restruc-tured and modernized. As Tedesco shows, on the basis of interviews,


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Argentine businessmen tried to transfer the transitional costs of thereforms to other companies. Rather than sharing the costs and the ben-efits of the 1990s reforms, businessmen exercised a logic of individual

actiona rapacious and predatory dynamic (Tedesco 2001, 9). Theinevitable zero-sum game that ensued was not conducive to long-termstrategic thinking in the general capitalist interest. Rather, capitaliststook a personalized view of their relations with the Menem reformsand disengaged themselves from the broader picture of Argentinaspolitical economy. One can contrast this with the entrepreneurial, na-

tionalist, and cooperative (within competition) nature of Brazilian orChilean capitalism.

The contradictions of Menems political economy led inevitably toanother burst of inflation in 199899, as local industry began to losecompetitiveness and the foreign debt noose began to tighten. His ambi-tion to run for a third term of office was thwarted by his own internal

opposition, and these divisions allowed the rather lackluster Radical Partycandidate to win in the 1999 elections. Corruption was now a majorissue, and de la Ra was at least able to project a clean image; the leftalso made significant advances. However, de la Ras government suf-fered from serious weaknesses, not least of which was the Peronist par-liamentary and provincial superiority, which meant that all economic

measures had to be negotiated. The coalition which took de la Ra topower was also totally divided, leading to the resignation of the FREPASO

vice-president Chacho Alvarez in 2000. As the economic recessionthat had begun in 1999 deepened, de la Ra felt compelled to call backMenems finance minister, Domingo Cavallo to implement yet anotherorthodox austerity policy.

When mid-term elections were held in October 2001, the Peronistsmade significant gains, but, even more disturbing in terms of the regimescredibility, the number of blank votes rose to an unprecedenteda legaloffenselevel of 25 percent. Disenchantment with actually existingdemocracy was becoming a major social phenomenon. Economic man-agement seemed to be singularly ineffective as the country slipped deeper

into recession. Stability seemed to now become paralysis as the crisisahead loomed ever closer with no decisive action being taken. For mostof 2001, a devaluation of the peso was understood to be in the cards, butconvertibility remained inviolate. Adjustments demanded by the IMFfocused on reducing public sector wages and employment along withalready meager pension entitlements. Lack of international confidence


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had a debilitating effect, as much financial investment fled the countryand interest rates on the foreign debt rose to 12 percent. Emergency eco-nomic measures in November 2001 could not halt the slide. Capital fled

the country with devaluation of the peso now an almost total certainty.

Crisis

When the crisis finally erupted towards the end of 2001 and the historicdefault and devaluation occurred, this was an event long in the making.Since mid-2000, the world economy had moved into a generally reces-sive phase. After 1998, the Argentine economy was in recession. Capital

fled the country as investors withdrew $1 billion per day by early De-cember 2001. Default on foreign loans had also been inevitable for sometime. Trying to meet IMF conditions for further loans during this periodonly deepened the recession. So, when Finance Minister Cavallo insti-tuted the corralito (corral) in November 2001, severely curtailing ac-cess to savings, the social revolt that ensued was entirely predictable.

Since 1983, nine IMF stabilization programs had come and gone. Inaddition, the economic collapse at the end of 2001 represented a closingof the political cycle that had started with the democratic elections of1983. The political economy of democracy in Argentina was now atstake.

As people lined up outside cash points or inside banks, desperately

trying to withdraw their savings, the social depth of the crisis becameclear. The corralito was, effectively, a state-imposed freeze on bank ac-counts, and the devaluation that would inevitably follow represented anunloading onto the population of the failure of an economic model. Presi-dent Eduardo Duhalde, the Peronist caretaker president who took officein January 2002, was at first adamant that the people would not bail out

the foreign banks. Eventually, the financial sector was able to lobbystrongly and as the gap between the peso and the dollar opened up, itbecame clear that ordinary citizens would probably lose three-quartersof their savings. Even a cursory acquaintance with events in Germany inthe 1930s indicates the social explosiveness of a situation where themiddle classes see their savings evaporate. The working class and un-

employed protestors now had a new ally in the struggle againstneoliberalism. This popular revolt thought of itself as apolitical: Weare not Peronists, nor Radicals, nor socialists. We are just the peoplewho for the first time have organized themselves and know their own


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strength, as one resident put it or, as another said, We want a fairgovernment of the people.

While the people protested and organized, the main story was the rise

of the dollar against the peso after the end of convertibility. The dollar,once freed, rapidly went up to 1.70 pesos, and by 2002 the dollar wasbeing valued at 3.5 pesos and more. Remarkable in terms of the politicaleconomy of collapse is that in 2001 the foreign-owned banks remitted arecord level of profits: $284 million between January and September2001, up 62 percent from the same period in 2000 (Pgina 12, February

18, 2002). That is to say, the big foreign banks were probably fore-warned of the restrictions to be imposed by the corralito and were able

to remit much of their funds abroad. Then, at the height of the crisisDecember 2001 to January 2002the large national and foreign-ownedexport companies retained some $200 million (about 95 percent of totalearnings) abroad in the expectation that the dollar would rise in price in

Argentina. Central to this speculative maneuver were the oil companies( one time state monopoly YPF now owned by Repsol, and the subsid-iaries of Amoco, Occidental, Exxon and Shell) and the grain merchants(Dreyfus, Bunge, Cargill etc.), along with the big steel companies (Sidercaand Siderar). The notorious U.S. company Enron also played a rolethrough its role in the gas sector.

The collapse of the Argentine economy in 2002 inevitably led to anaggravation of a social crisis that had already begun to sharpen in the

mid-1990s. Over half the population of 37 million fell below the officialpoverty line, and the proportion of indigent poor (who cannot buy basicfood) rose to 18 percent of the population. Among the new poor emerg-ing in 2002 were many households previously classified as middle class.

Unemployment soon rose to 25 percent with a further 20 percent (atleast) classified as underemployed. Clearly, this sharpening of inequal-ity and exclusion levels resulted from the new economic model launchedin 199091. A remarkable World Bank study, Poor People in a RichCountry. A Poverty Report for Argentina found that: While growthresumed in the 1990s, the poor benefited relatively little in terms of

income gains from this resumption of growth. . . . In other words, as percapita average income rose, the distribution of income worsened andthe incomes of the poorest 20 per cent actually declined (World Bank2001, 5). While the 10 percent richest group saw their income rise from34 percent to 38 percent in the 1990s, the lowest 20 percent saw theirincome decline 4.5 percent to only 3.8 percent.


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One response to the collapse of the peso in early 2002 and the subse-quent social dislocation was the emergence of a number of local curren-cies, or parallel monetary systems. There was also remarkable growth

of a barter economy where local residents traded goods and services asa way of making ends meet when the financial crisis hit the middleclasses in particular. Here, a community currency system emerged whichtended to promote an alternativist community consciousness amongresidents in relation to the regime. Arguably, the barter economy and thesocial currency scheme represented more than a means of survival, as

one Buenos Aires resident explained: We are gathered in this place inorder to find a new way out, for survival, because of the political crisis

we have to seek each other out, to overcome the situation which ourfamilies are facing. Necessity forces us to do things, to invent new situ-ations (cited in Pearson 2003, 224). Beyond the collapse of the greatneoliberal experiment in Argentina, there had to be something.

From the social protests in the streets in December 2001 and early in2002 and the experiments with a barter economy sprung a more durableform of social organization, in the shape of neighborhood assemblies(asambleas barriales). In the asambleas, people from a neighborhoodwould gather in a form of direct democracy to organize mass buying,distribute food, and discuss the way forward. They would usually meet

on a weekly basis, and gradually they became more organized. In thecourse of 2002, many of the asambleas began to publish journals, many

set up Web sites, and others organized workshops and cultural activities.The asambleas were heavily concentrated in Greater Buenos Aires; ofthe 272 asambleas registered in May 2002, 112 were in Buenos Airescity and 105 in Buenos Aires province, reflecting to some extent the

greater involvement of the middle classes in this form of organization.In the poorer provinces, other forms of organization evolved, but theywere perhaps less structured and certainly less visible than the BuenosAires asambleas.

Are the asambleas the germs of an alternative power or weak defen-sive organizations bound to fade away if the economic crisis is over-

come? Most observers agree that they are not Argentinas soviets,although various leftist groups are acting as though they might be. How-ever, they are widely seen as marking the emergence of a new radicalgeneration. One of the most remarkable facets of the December 1920mobilization was the youth of the participants. The Duhalde govern-ment began in 2002 with praise for the asambleas, but by the middle of


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the year, the interim president was heavily criticising them, and repres-sion was even felt in many cases. Perhaps the best way to capture theasambleas is in the words of Stella Calloni, for whom: The asambleas

are memory, discussion, debate, transparency and future. . . . Each daythe imagination bears new fruit there and in the asambleas lies the bestrevindication of the thousands and thousands ofdesaparecidos [disap-peared] of another epoch (Calloni 2002, 21).

In the front line, dealing with the consequences of the collapse of theArgentine economy, was, inevitably, the IMF. What is perhaps most in-

teresting is the way the IMF strategy in relation to Argentina has beenquestioned by once-stalwart supporters of that organization. As many

pointed out early in 2002, Argentinas crisis was obvious to everyone,it appeared, except to the IMF (Guardian, January 19, 2002, leader).The call to radically reform the IMF spread rapidly and even affectedthe incoming managing director of the IMF in 2002, Horst Khler. For

Khler, Argentina was clearly a test-bed for a new approach where lend-ing decisions would be based on a more general and ultimately politicalassessment than in the past. Khler called for prevention rather thancure after the crisis in Argentina. As a Brookings Institution briefingpaper put it, Argentina poses a major problem for the IMFs economicadvice because it exposes the fragility of the IMFs economic advice,

and the absence of a technocratic solution to what is essentially . . . apolitical problem (Graham and Masson 2002, 2).

If international capitalism had to deal with a major credibility crisis,capitalists in Argentina itself found themselves in deep difficulties in2002. In the first two months of 2002, the textile sector lost over 50percent of its sales and domestic demand plummeted (Pgina 12, March

19, 2002). There was a similar collapse of the auto industry and themetal-mechanical sector. With internal demand collapsing, the creditsystem decimated, and imported goods rising rapidly in price, there waslittle expectation that the production sector would recover easily. Someexport sectors did benefit from devaluation of the peso, but this onlyaccentuated uneven development. As one analyst put it, There is a need

to reconstruct the web of inter-industry relations and thus necessarily adegree of predictability (Pgina 12, March 19, 2002). With the chainof payments broken by the crisis, there was very little of the predictabil-ity and trust that capitalism needs if it is to be successfully embedded insociety. Therefore, no dynamic bourgeois leadership is likely to emergefrom this crisis.


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A socioeconomic crisis usually requires a political solution and heretoo the prospects of a fundamental restructuring to deal with what iseffectively the collapse of an apolitical economic model seems not to be

materializing. The middle-class Radical Party is in total disarray fol-lowing the collapse of the de la Ra government. The parliamentary leftis also tarnished by that collapse and is not cohering as an alternativepole of attraction. Outside of parliament, the usual array of small partiesvie for popular support, but no real connection with the populist move-ments is in sight. The Peronists are still the largest political force, but

they are divided and riddled with corruption. The most promising andpopular political figure around is Elisa Carri, an independent Radical

who has pushed the issue of corruption and the need for a moral re-newal into the foreground. The military are, for the time being, quiet,and a return to a 1976-style dictatorship seems unlikely. At present, theturn towards a leftist populism, as in many other parts of Latin America,

seems the most likely outcome.

Prospects

After any crisis come the recriminations. First in the firing line, predict-ably, was the International Monetary Fund. The left blamed the policiesof the IMF for the crisis, as one would expect, given the long-runningcritique of its austerity programs. This time, however, the critique was

much broader from within establishment circles. Thus, Paul Krugmanviewed Argentinas crisis as a U.S. failure and referred angrily to howIMF officialslike medieval doctors who insisted on bleeding theirpatients, and repeated the procedure when the bleeding made themsickerprescribed austerity and still more austerity, right to the end(Krugman 2002). Likewise, Jeffrey Sachs declared in despair that The

IMF lacks a clear idea about what to do in Argentina, and, instead ofaddressing the real causes of the crisis, recommends antiquated andphony solutions (Sachs 2002). From the perspective of capitals or-ganic intellectuals, the crisis in Argentina compromised the credibilityand viability of the IMF as key international capitalist institution.

The IMF itself has mounted a fairly weak and inconsistent defense of

its record in Argentina. Thus, Anne Krueger, first deputy managing di-rector of the IMF, seeks the reasons for Argentinas sad decline asthough the IMF had never been involved in the countrys decade-longreligious observation of its rules. Krueger finds that the external envi-


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ronment and shocks were unfavorable and that unsustainable debtdynamics were left unaddressed (Krueger 2002). Both are true state-ments but are not unconnected with IMF policies. Furthermore, Krueger

argues in terms of the central convertibility strategy that with hind-sight, an earlier exit to a more flexible exchange rate would clearly havebeen preferable (Krueger 2002). Again true, but hardly IMF policy atthe time. While Krueger notes sadly that [t]ime is not on Argentinasside, IMF officials in Argentina continue to practice what they call toughlove and insist on a colonial governor style which has angered even

conservative politicians; they also insist that more austerity must be prac-ticed by the people, especially in the provinces which are already on the

brink of economic and social collapse.Perhaps one of the most important lessons to be derived in relation to

the role of the IMF is the need to go beyond denunciation to articulate aviable alternative strategy. One element would necessarily focus around

the growing international campaign to see an orderly and transparentrestructuring of Argentinas debt that could be overseen by global civil-society bodies (see Jubilee Plus 2002). To make the market sociallyaccountable is probably necessary just to resolve the current crisis inArgentina. An alternative strategy would also strive for macroeconomicstability but base it on the expansion of government revenues (through a

proper taxation system, signally absent in Argentina) to provide fiscalbalance (see McEwan 2002). It is widely accepted in Argentina that the

privatization program of the 1990s will have to be reviewed. Exchangecontrols will probably have to be introduced and the state will undoubt-edly regain a more active role in production. The social economywhich has developed as a response to the crisismay well expand and

consolidate its role in the years to come.While clearly the international financial agenciesand the very re-

gime of free global financial marketscan be seen as the main agentsof Argentinas collapse, this should not distract us from a class analysisof what is happening in Argentina today. For a start, corruption becameendemic during the Menem decade to such an extent that internal Peronist

politics are now almost entirely based on patronage and accessing thespoils of office. Short-term thinking is also characteristic of the politicaland business worlds to such an extent that any long-term strategizing isalmost impossible. There is a local expression to characterize this nega-tive Weltanschauung that refers to the ethics ofviveza (translated roughlyas smart aleck rather than clever). The free-rider ethic has prevailed and


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to some extent fed into the causes of the current crisis. Ironically, thereis now a much more reflexive and self-critical tone in debates withinArgentina where it is dramatically recognized that things cannot con-

tinue as in the past.Alain Touraine, critical international sociologist who is very know-

ledgeable about Argentina, was self-admittedly brutal in his analysisof the 20012002 collapse of the country. For Touraine, the biggest prob-lem today is the decomposition of the political class and the decompo-sition of the will to be (Touraine 2002, 1). In fact, for Touraine, Argentina

was sheltered by the IMF from a full recognition of the decompositionthat was occurring. The easy money of the 1990s, the failure to pay

taxes, corruption rather than competitiveness, all led inexorably to acollapse. The IMF loans only staved off the inevitable. For cultural criticBeatriz Sarlo, the sweet money (plata dulce) of the 1990s was basedon a denial of the dictatorships horrors, a moral defeat that has had a

huge and lasting impact on the countrys psyche (Sarlo 2001). Alfonsnssymbolic trials of military leaders (later pardoned by Menem) were seenas sufficient acts of contrition for the past, and the country then launcheditself into the moral vacuum of the neoliberal era.

If a solution from above is not visible on the horizon, what about asolution from belowthat is, from the growing, if amorphous, social

movement organizing against the impact of the crisis and those it holdspolitically responsible for it? Through the 1990s, popular protest against

neoliberalism built up across the country. Particularly during the hyper-inflationary periods of 1989 and 1990, there were widespread lootingsof supermarkets in working class areas. The typical ollas populares (com-munal kitchens) reappeared in these areas, as the level of unemploy-

ment began to rise dramatically once again. There were genuine popularuprisings in the poorer provinces, such as the Santiagazo (in Santiagoand Estero, a poor northern province), that showed, in retrospect, howthe national revolt of December 2001 would manifest itself. The mostwidespread working-class (unemployed on the whole) forms of protestwere the roadblocks across major highways up and down the country

from the mid-1990s onwards (see Dinerstein 2001). These roadblocks,and thepiqueteros (picketers) who organized them, represented an em-bryonic popular power that was contesting the legitimacy of the domi-nant political economy. Until the end of the decade, though, they appearedto be rather isolated.

With the deepening of the social and economic crisis at the end of


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2001, a very different social actor came onto the scene, namely thecountrys once sizeable and prosperous middle class. Small-scale sav-ers had been hit hardest by the collapse of the currency and the freezing

of bank accounts (the famous corralito). Pots and pans demonstra-tions became the protest mode of the Chilean right against SalvatoreAllende in 197273, but they had also been used across the southerncone of Latin America during protests against the military dictatorships.The middle class was now clearly at the center of the protest, but it alsowillingly united with an already mobilized working class. This led to

the spontaneous insurrection against the government on December 19,2001. Characteristically, this mobilization totally obscured a general

strike called that day by a fairly tame trade-union movement (except forone radical sector allied with thepiqueteros), which represented a smallsection of the working class, one that had been somewhat sheltered fromthe worst effects of the recession to date.

As the crisis came to a head, the struggles of the workers and themiddle sectors came together under the slogan piquete y cacerola: lalucha es una sola (picket and saucepans, the struggle as one). Whetherthis was or is an organic and durable class alliance is hard to tell, but itdid reinvent the popular in Argentina in a way not seen since the hey-day of Peronism. What it led to in the months following the collapse of

the de la Ra government at the end of 2001 was a remarkable, sponta-neous emergence of neighborhood assemblies. The asambleas barriales

were often organized around practical issues like the distribution of food,but they also represent an open public space for deliberation in a mo-ment of crisis. They are recovering part of the traditional sense of com-munity lost during the rampant individualism of Menems naked

neoliberalism. The asambleas are part of the restructuring of a civil so-ciety faced with a weak and illegitimate, but still threatening, state, asthe people move from communication to action on a whole range offronts.

The most far-reaching demand to emerge in 2002 was a simple, prac-tically nihilistic Que se vayan todos (they should all go), referring to

the countrys politicians. This is a radical slogan expressing a total re-jection of the partisan opportunist and self-serving political parties (andthat includes most of the left) that have led Argentina into the currentcul de sac. It is also clearly a protest and not a proposal for change, anegative rejectionist stance that is not designed to produce viable strat-egies to overcome the crisis. It has, however, served well to capture the


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genuinely cataclysmic moment Argentina is living through. The futurecan only be uncertain, as Horacio Gonzlez writes:

It is very difficult to imagine the Argentina to come. I see it as stormy and

tumultuous. . . . I see a disintegrated country with local currencies. A

country with no associative relations, no state form . . . a political class

questioned absolutely but no conditions for replacing it by something we

could be more enthusiastic about. (Gonzlez 2002, 336)

It is possible that this article will be dated by the time it appears, but Isomehow doubt that the crisis in Argentina will find a rapid solution.There is one radical solution being advocated by Rudi Dornbusch (with

Chilean economist R. Caballero) that is reminiscent of nineteenth-cen-tury imperial customs receiverships, namely that, Because Argentinepolity has become overburdened, it must temporarily surrender its sov-ereignty on all financial issues (Caballero and Dornbusch 2002, 2).Given that the country is bankrupt and has a dysfunctional society,Dornbusch is calmly advocating that Argentina now must give up muchof its monetary, fiscal, regulatory and asset management sovereignty for

an extended period, say five years (Caballero and Dornbusch 2002, 2).That this suggestion was not immediately and universally seen as bi-zarre gives some indication of the depth of collapse in Argentina. Ev-erything has changed since December 2001: the political economy ofcollapse is now a prime example. The future of neoliberal globalizationis at stake here as well as the social and economic well-being of the

people of Argentina.

Postscript

The influential London weekly The Economist, in a recent bleak survey

of capitalism and its troubles, declared that Argentinas problemshave already dealt a serious blow to the idea that the global triumph ofcapitalism is inevitable (The Economist2002b). Argentinas crisis isbracketed along with the Enron scandal and international terrorism assymptoms of a broader crisis of capitalism and the end of what might becalled the easy phase of globalization. The Economiststill declares it-

self optimistic, labeling Argentinas collapse as an indictment not ofeconomic liberalization, but of specific macroeconomic failures (TheEconomist2002a), but the global implications of Argentinas implosionare evident enough. Early in 2003, after a years negotiations with


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Argentinas interim government, the IMF finally announced that a US$6.6billion debt rollover had been agreed upon. There was little sign withinthe IMF, however, that an end to the financial crisis and a resumption of

growth in Latin America was foreseeable (see IMF Survey 2003). Infact, many sober analysts were using the case of Argentina to arguepersuasively for more sustainable and dynamic economic prospects forLatin America outside the parameters of the IMF and the dominant formof neoliberal globalization (see Ciblis, Weisbrot and Kar 2002). Thecrisis in Argentina will probably be see in retrospect as significant for

the future of capitalism and the collapse of the Berlin Wall was for thefuture of socialism.

In Argentina itself the impact of the crisis could not be underesti-mated as the country moved into national elections in May 2003. Quitesimply Argentina was not the same country that began the move to-wards democracy in 1983 amidst widespread optimism that a Euro-

pean style political economy could be constructed. While there was arelative economic upturn with the unfreezing of bank deposits and theend of the corralito,there was considerable political apathy and an un-precedented degree of political fragmentation. There were three Peronistcandidates: Nstor Kirchner (a relatively progressive provincial gover-nor supported by outgoing interim President Duhalde), Adolfo Sa (one

of the interim presidents in December 2001) and, incredible though itseemed, ex-President Menem. From the discredited and demoralized

Radial Party came Ricardo Lpez Murphy with an openly reactionaryagenda to deal with the severity of the crisis. As an outsider but growingin popularity there was Elisa Carri who focused on the corruption ofthe mafiosos state and most politicians. The two front runners, Kirchner

and Menem were due to go to a second round but Menem dramaticallyand decisively refused to go forward and faded from the political scene.So, unfortunately, did Carri and Lpez Murphy was left to carry theconservative Menemista flag. Kirchner has surprised many observers withthe firm way he has dealt with the IMF and the reactionaries at home, thusreviving the progressive national-popular Peronist tradition of Peronism.

While Menem had gone into the elections committed to a fulldollarization of the economy, Kirchner put forward a neostructuraliststrategy based on a more industrializing and developmentalist perspec-tive. The left held on to the City of Buenos Aires in a critical electoralstruggle for Kirchner later in the year. The mood was one of politicalrealism and Kirchner reflected the general disenchantment with tradi-


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tional politics in Argentina. But quite what sort of country was being(re) built was not quite clear. There were no alternative models nor pastones to call on. Political realism had become a rather deep pessimism

despite the relative economic upturn and political restabilization. Whatwas missing was even a minimal vision equivalent to Lulas hope that atthe end of his mandate every Brazilian would have a meal a day.

The elections in Argentina in 2003 were of course followed closely inneighboring Brazil where President Inacio Lula da Silva was com-pleting his first 100 days in office with a strengthened economy and

record approval rates. While facing considerable criticism from the leftwithin his own Workers Party, Lula has managed to calm the mar-

kets that were deemed jittery in the lead-up to the elections in 2002.The IMF, fearful of the international repercussions of debt default inBrazil following the one in Argentina, had already agreed on a recordloan of US$30 million in 2002. However, the IMF conditions, including

a demand for a strong budget surplus, make it unlikely that Brazils newgovernment will be able to meet its commitments to reactivate theeconomy and deal with the countrys massive levels of socioeconomicinequality. While this is undoubtedly a competent, and in many ways pro-gressive, government (especially in its independent foreign policy at acritical world juncture), its freedom of action is seriously constrained.

None other than Domingo Cavallo, Menems and later de la Ras eco-nomic czar in Argentina, has warned that Lula will end up like de la Ra

(Nudler 2003), given the unsustainable dynamic of the foreign debt andhigh interest rates. Cavallo warns, from experience, that political capitalcan be exhausted in a vain attempt at continuous fiscal adjustment.

Bibliography

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Crisis in Argentina. www.jubileeplus.org/argentina.Krueger, A. 2002. A Crisis Prevention and Resolution: Lessons from Argentina.

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Tedesco, C. 2001. Between Democracy and Neoliberalism: Conceptualising theState in Argentina. Paper presented at Latin American Studies Associationconference, Washington, DC.

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Newspapers

Clarn (www.clarin.com)Financial Times (www.news.ft.com/home/uk)Guardian (www.guardian.co.uk)Pgina 12 (www.pagina12.net.ar)Sindicato Mercosul (www.sindicatomercosul.com.br)

The following Statement of Ownership, Management, and Circulation is provided in ac-cordance with the requirements contained in 39 USC 3685. International Journal of Politi-cal Economy(Publication no. 08911916) appears quarterly and the annual subscriptionprice is $785.00. It is owned, managed, and published by M.E. Sharpe, Inc., which islocated at 80 Business Park Drive, Armonk, Westchester County, NY 105041715. ThePublisher is M.E. Sharpe, at the same address. The Editor is Paul Mattick and ManagingEditor is Patricia Kolb, M.E. Sharpe, Inc. 80 Business Park Drive, Armonk, NY, 10504.

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