The role of the IMF impoverishing countries – the case of Argentina

The International Monetary Fund (IMF) was founded at the Bretton Woods conference in July 1944.  This financial agency presents an image of itself as a democratic organisation that works “to achieve sustainable growth and prosperity for all of its 190 member countries… by supporting economic policies that promote financial stability and monetary cooperation”. Nothing could be further from reality; not only is the IMF not a democratic organisation but, as this article will show, the policies that it supports favour only those countries that manage the institution. 

The decisions of the IMF are related to the ownership of SDRs (Special Drawing Rights) which, by reflecting the relative position of the country in the world economy, determines the country’s voting power. The United States alone leads the voting power holding 16.50% of the votes and the G7 countries (Canada, France, Germany, Italy, Japan, United Kingdom, United States) have 41.25%.

In a nutshell, this small number of countries decide IMF policies, and the remaining 171 countries, that together hold only 32.15% of the votes , have to obey them.

The mantra of IMF’s policies has been always “austerity”. In the bourgeoise economic lingo, this is called “fiscal consolidation”, a process aimed at closing the gap between public revenues and public expenditure. In real terms it means, reducing social expenditure by cuts in pensions, health, education and salaries of doctors and teachers; privatising publicly owned companies for the benefit of international investors; cutting taxes to benefit corporations and banks; and implementing macro-economic policies that benefit financial capital.

To implement these policies, the IMF relies on the so-called “surveillance process”, defined as “monitoring the economic and financial policies of member countries and providing them with policy advice…by recommending appropriate policy adjustments”  and on the servility of the local comprador bourgeoisie, who, benefiting from  imperialists’ crumbs, help to impose impoverishment and destitute the people of the country.

In 1971, at the time of writing his powerful The open veins of Latin America, Eduardo Galeano pointed out that: “with the magical incantation of ‘monetary stabilisation’, the IMF – which not disinterestedly confuses the fever with the disease, inflation with the crisis of existing structures – has imposed on Latin America a policy that accentuates imbalances instead of easing them … liberalises trade by banning direct exchanges… forces the contraction of internal credits … freezes wages, discourages state activity. To this programme it adds sharp monetary devaluations” .

The people of Latin America, Africa and Asia have been suffering the IMF for decades and Argentina has not been alone in this. But for the country, the story of being defrauded via the external debt started early in the 19th century when Buenos Aires negotiated a loan with the British company Baring Brothers & Co in 1824. From the £1,000,000 agreed, the country received only £570,000, and not in gold as stipulated but in paper for British merchants to sell commodities at a price of their convenience. The interest took most of the revenues of Buenos Aires for several decades, and, after successive refinancing that inflated the original loan to £4,000,000, the loan was paid by the Peron government in 1947 (1945-1955), 124 years later.

At the time of writing these lines, a new debt crisis is creating the conditions for a complete collapse of Argentina’s economy. As happened before when neo-liberal policies were implemented under the supervision of the IMF (1976-1983, 1989-1999 and 2015-2019), it could end in bankruptcy.

The military junta and the first neo-liberal experiment in the country

The military coup of March 1976 provided the opportunity to implement neo-liberal policies for the first time in Argentina. During the military junta rule (1976-83) the industrial base of the country was destroyed, twenty thousand manufacturing businesses were closed, and the value added by industry, including construction, as a percentage of GDP was reduced from 50.89% in 1976 to 41.55% in 1983 . In consequence, the once strong and organised proletariat that fought fiercely dictatorships across the century disappeared and many workers’ rights were eliminated. As the country moved from production to financial profiteering, the model impoverished the people of the country and benefited only big corporations and international financial institutions.

Before being kidnapped and murdered, the Argentine writer Rodolfo Walsh wrote to the military junta: “The economic policies of this Junta—which follow the formula of the International Monetary Fund that has been applied indiscriminately to Zaire and Chile, to Uruguay and Indonesia—recognise only the following as beneficiaries: the old ranchers’ oligarchy; the new speculating oligarchy; and a select group of international monopolies headed by ITT, Esso, the automobile industry, US Steel, and Siemens, which Minister Martinez de Hoz and his entire cabinet have personal ties to”.

In the process, thousands were detained, tortured and killed, and people across the globe learned a new word: desaparecidos. Thanks to the goodwill of the IMF, the external debt rose from $7.9 billion in 1976 to $46 billion  in 1983. Finally, the military junta in one of its last acts in government nationalised all private debt, making the people of the country liable to pay the loans made to  benefit bankers and landowners.

Unable to pay this huge debt, Argentina never returned to being a normal country; the ‘external debt’ became the ‘eternal debt’.

Democracy returns the External Debt Remains

In 1983, the democratically-elected government, rather than reject the external debt inherited from the military dictatorship, tried to honour it. In that way, the government that incarcerated the powerful military junta for human rights abuses, surrendered to the IMF control and its monitoring missions. 

As Fidel Castro correctly pointed out in 1985: “How can a government and a country that has to go every month to discuss with the International Monetary Fund what it is able to do at home be called independent? It is a fiction of independence, and we see this as a national liberation struggle, which can truly bring together, and for the first time in the history of our hemisphere, all social strata in a struggle to achieve true independence.

Between 1984-1988, the IMF supported policies that favoured foreign corporations and capital movements and, despite some success with inflation between 1985-86, the economy never recovered.  In 1989, the last year of this government, and because the country was defaulting on payment of interest, the IMF stopped its financial help, pushing the country into a crisis. Inflation became rampant reaching the stage of hyperinflation (above 3000% annually) and elections were called six months earlier than they were due. In the end, thanks to the recommended policies of the IMF, the debt continued to grow – from the inherited $46 billion in 1983 to $65 billion on 1989. Everything was ready for the second neo-liberal experiment.

When a popular leader become neo-liberal

After the failure of the previous government, the new president, who had took power on the basis of a social justice discourse, promising to defend jobs and salaries, the publicly-owned companies, and to improve the life of millions in the tradition of Peronism, changed sides and become the president of the landowners, big corporations and banks.

With the support of the IMF, Carlos Menem (1989-1999) implemented the recommendations of the ‘Washington Consensus’ and applied the mantra of neo-liberalism: privatisations, cutting social expenditure, opening the economy. The first step was selling of all the publicly-owned companies created through the efforts of several generations of Argentinians. Gas, oil, electricity, telephone, water, airlines and railroads  disappeared from public assets and made foreign corporations and corrupt politicians richer.  This was followed by a cut in public social expenditure through reducing investment in education, health and social security, and the privatisation of pensions assets. Finally, the cutting of import duties to benefit overseas corporations, allowing foreign goods to flood the internal market and destroy of industrial jobs, as initiated by the military junta, was now completed.

To sustain its policies, the government set a one-to-one exchange rate between the US dollar and the local currency (known as the convertibility law), allowing foreign investors to exchange dollars for pesos, invest the pesos at an interest rate higher than the world’s IRR (Internal Rate of Return) and then, months later, convert the pesos again to dollars. The operation known as carry-trade favoured big investors across the globe to the detriment of the country’s finances and was supported by the IMF which continued lending money to the country.

In the last years of the Menem’s government, the country’s economy deteriorated, poverty and inflation increased, the country fell into a deep recession in 1998, corruption was rampant, and anti-government resistance through the first organised cacerolazos (people making noise by banging pots or pans to protest) was on the rise.

The IMF had done its job, in this period the external debt grew to 133%, from $65 billion in 1989 to $152 billion ten years later . The second neo-liberal experiment was reaching its end.

Elections and the 2001 collapse

The new government arrived with the promise of resolving the economic crises and fighting corruption, but under the direction of the IMF, it applied the same policies that had failed before. In August 2001, as foreign deposits were leaving the country, Argentina was failing to pay the interest on its debt and requested an extension of the arrangement. The Managing Director of the IMF, Horst Köhler, demanded the substitution of the local currency by the US dollar, the government hesitated, and the IMF stopped its support. As the economy plummeted, money withdrawals increased, and the government decided to freeze people’s deposits (a measure known as the corralito).

Popular protest increased and, incapable of resolving the crisis, the government announced a state of siege, and 36 people were killed by police forces during the December riots. President Fernando de la Rua (1989-2001) resigned on the 20th of December and Argentina had five different Presidents during the two weeks that followed.

Under the slogan “all of them must go!” (que se vayan todos) millions of people participated in neighbourhood assemblies, occupied unused land and implemented workers’ self-management across hundreds of factories.

In the end, Argentina defaulted on its public debt (at that time $152 billion), abandoned the fixed exchange rate by devaluing the local currency (40% in January to around 300% at the end of the first semester of 2002), with the result that production collapsed, and high levels of unemployment and poverty become the norm.

IMF out of Argentina

After the 2001 default, the new government of Nestor Kirchner (2003-2007) developed a strategy for undermining the neo-liberal discourse responsible for the economic collapse of the country and worked to eliminate the permanent interference, recommendations and pressure from the IMF.

In 2005, to the dismay of the financial centres, the President of Venezuela Hugo Chavez strengthened the relationship with the government of Argentina, and the Bolivarian government of Venezuela bought $2.4 billion of Argentinian debt providing a boost to the Central Bank reserves, helping the country to stop the policy of refinancing its debt with the IMF.

By repaying in full $9.81 billion to the IMF, Argentina gained financial independence from the endless negotiations and recommendations, unfavourable in social and economic terms, of that institution. The move followed President of Brazil Lula da Silva’s who had also paid off the IMF debt in full two days earlier, and for the first time, both countries were able to develop social policies to improve the life of their people. As President Kirchner pointed out: “with this payment, we bury an ignominious past of eternal, infinite indebtedness.”

The volume of the external debt inherited didn’t change with the payment to the IMF but allowed the government to pursue more independent policies.

During the 12-year ‘Kirchner period’ – the Nestor Kirchner presidency (2003-2007) was followed by Cristina Fernandez de Kirchner during two consecutives periods (2007-2011 and 2011-2015) – the country implemented economic plans outside the neo-liberal box and built a political consensus through a discourse of social justice, economic independence and national autonomy. The economy improved, GDP increased 62% and the value of exports rose 81%; unemployment and poverty were reduced significantly, and the government re-nationalised some of the companies privatised during the neo-liberal years (1989-2001), the most relevant being the oil company (YPF).

Argentina also restructured 93% of the foreign debt on which it had defaulted in 2001 but a small group of ‘vulture funds’, that acquired credit default swaps (CDS) against Argentina bonds and $1.3 billion of the bonds’ total value for cents, continued to argue in courts for full payment. The Kirchner governments never gave in to the vulture funds’ rapacity.

The IMF is back

In 2015, the Peronist movement went to the elections divided into different factions, and the election was won by Mauricio Macri (2015-2019) supported by a right-wing neo-liberal coalition. The third neo-liberal experiment started in Argentina.

In the first 60 days of government, Macri paid the vulture funds at once, reversed most of the social policies implemented before, and, for the benefit of financial capital, brought back the carry-trade policies that had failed in the past. To finance this transference of resources the government increased the external debt, from $153 billion at the end of 2014 to $280 billion in 2019, an increase of 83% in only four years!

In June 2018, the Macri government asked for the help of the IMF, reaching an agreement on a 36-month Stand-By Arrangement (SBA) amounting to US$50 billion (equivalent to about 1,110 percent of Argentina’s quota in the IMF), what is known now as “the biggest loan ever in the history of the IMF”.

Ms. Christine Lagarde, IMF Managing Director at that time, congratulated the Argentine authorities on reaching this agreement stating that “the plan owned and designed by the Argentine government, was aimed at strengthening the economy for the benefit of all Argentines”. The speediness of the agreement made many think that the intervention of Donald Trump supporting the loan was to help Macri win the coming elections in 2019, through investments in social infrastructure. Nothing further from reality, as the promised schools, hospitals or roads were never built. The money was used to finance capital flight, to pay dividends to overseas corporations, and to benefit financial institutions.

As even the IMF Ex-Post Facto Evaluation report admitted “the program did not deliver on its objectives… mounting redemptions, along with capital flight by residents, put considerable pressure on the exchange rate”. The result was that “the exchange rate continued to depreciate, increasing inflation and the peso value of public debt, weakening real incomes, especially of the poor”.

In 2019, the Peronist ‘Frente de Todos’ (Alberto Fernandez- Cristina Fernandez de Kirchner) coalition won the elections for the period 2019-2023 and millions hoped for the reversal of Macri’s policies. Sadly, the outcome was different.

The failure of the Fernandez government

From the very beginning, the new government committed its first sin. Rather than question Macri’s agreement with the IMF it accepted the inherited debt. The ideological limitations of Peronism played against the future of the country and millions of its people.

Accepting the IMF agreement, without any investigation on the use of the money loaned, it introduced not only the IMF monitoring missions, but had to limit  progressive macro-economic policies, an independent foreign policy and social expenditure. With the recognition of the IMF debt the government was trapped, as had happened in the past, and the country became glued to impossible payments. The clock for the next economic crisis was ticking again.

According to the government, the main causes of the economic debacle were the three consecutive years of drought that affected agricultural production and hence income, the mandatory lockdown and social distancing measures for the Covid pandemic, and to a lesser extent the war in Europe. But the government and bourgeois politicians failed to acknowledge the core of the problem: the IMF and the external debt acquired by the previous government.

Neo-liberal policies back again in Argentina

With the victory of Javier Milei (2023), Argentina goes back to the past and the fourth neo-liberal experiment begins. In the first days in government, the local currency was devaluated by 100%, public investment in infrastructure was suspended, the import of goods and services without considering the impact on jobs was opened up, energy prices were raised, subsidies for the poorest were reduced and thousands of public employees were made redundant. At the same time, a complete alliance was declared with the US, and now Israel, the rejection of Brics membership was announced, and a vociferous discourse was mounted against any progressive governments in the region.

The IMF was delighted. As Julie Kozack, Director of Communications at the International Monetary Fund (IMF), stated in December 2023: “IMF staff welcome the measures announced earlier today by Argentina’s new Economy Minister, Luis Caputo. These bold initial actions aim to significantly improve public finances in a manner that protects the most vulnerable in society and strengthen the foreign exchange regime. Their decisive implementation will help stabilize the economy and set the basis for more sustainable and private sector led growth” .

But these measures are resulting in more poverty, as reported by the Social Debt Observatory of the UCA (Catholic University of Argentina) who stated that poverty is at 20-year high (57.4%), equivalent to 27 million people now considered poor in Argentina, and extreme poverty affecting 15% of the population.

Through a bill that contains 664 clauses, Milei is pushing for reforms that will destroy the existing social and economic structure of the country in favour of landowners, international corporations and finance capital. The bill will erase worker’s rights that have taken decades to conquer, and it will curtail the right to demonstrate, promising penalties of up to six years in prison for participants and organisers.

Through the declaration of the state of emergency, Milei demands absolute power to govern without involvement of Congress, following in the steps of Adolf Hitler, who 91 years ago through the Enabling Act of 1933 obtained the power to make and enforce laws without the involvement of the Reichstag.

Right-wing backbenchers support the bill, while sections of the bourgeois political parties are testing the waters, sometimes mildly confronting the bill or requesting minor changes. Although the majority of backbenchers for UxP (Union por la Patria) are against the bill, changing sides is not an unknown feature for bourgeois politicians. Unable to trust backbenchers, Argentina’s main trade union CGT (General Confederation of Workers) has appealed successfully to the National Labour Court, to challenge the constitutionality of the labour legislation of the proposed law. As President Milei does not accept any change to the proposed bill, even supporters are rethinking their position in each of the bill’s clauses. In the latest developments, after some defeats the bill was sent back for further study, which constitutes a temporary defeat for the government.

But this is a war against the people and there is no place or time for complacency. Without a clear political direction, the people of Argentina are marching again, as in the economic crisis of 2001, to defend their basic rights.

After only two months in government, cacerolazos and demonstrations have become the new normality. While progressive forces are discussing if the time is ripe or not to confront the government, it would be good if they remembered Peron’s claim: “People will march with their leaders at the head or with the heads of the leaders”.