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Argentina in Turmoil

Seventeen years after the 2001 crisis in Argentina, the Macri government, which came to power in December 2015, is reinforcing a fierce structural adjustment plan for its population following the loan requested from the IMF. The country, which in 2018 holds the presidency of the G20, is one of the most affected by the rise in interest rates in the United States, the leakage of capital, the soaring dollar and speculation on the stock market, as with the crisis that is emerging in Turkey.

In the context of President Trump’s trade war to favour US exports over others, the rise in interest rates in the United States has led to a rush on the dollar, which is now seen as safer than ever. Dollars are being repatriated to the United States to take advantage of the interest rate hike, cash flows suddenly dry up, the currencies of so-called “emerging” countries fall sharply.

Turbulence in Argentina

The peso is in free fall, prices are exploding, consumption is reduced to a minimum, the middle classes are being squeezed, many firms and businesses are closing, hunger is spreading in outlying areas and speculators are panicking without knowing what to invent to avoid the shipwreck that has been announced. However, we could have learned from past crises not to reproduce them: Argentina has already seen this situation before… the people remember it, 2001; there was hunger, the clatter of empty pots hit by hammering spoons in front of closed banks. This was the “corralito” [1]. On the other side, capital flitters away discreetly to await better times. The scenario orchestrated by the IMF all over the globe infinitely repeats itself, which does not prevent it from distilling its same nauseating recommendations whatever the latitude of the country concerned.

“Zero poverty” Macri repeated during his election campaign. Today his popularity is plunging, and this slogan lies among his many election promises that will never be fulfilled, once again the people’s trust has been trampled on, betrayed by the power of money. At fault, the austerity cure that only aggravates the social situation already rolled out by more than two years of a hard right government.

The first 15 billion dollars of the IMF’s 50 billion dollar mega-loan in June does not seem to be enough to stabilise the economy, which has been buffeted by inflation of around 30%, itself stimulated by a depreciation of its currency. The Argentine peso lost nearly 20% of its value against the dollar in two days, 29th and 30th of August, and 98% over the last 12 months (more than 50% since the beginning of the year) reaching an historic all-time low at over 40 pesos for a dollar.

In a frenzy, the Argentine Central Bank raised its key rate from 45% to 60% on 30 August, one of the highest in the world after having increased it from 40% to 45% on 13 August, to encourage investment in local currency [2]. However, this action, like the efforts of the Central Bank of Argentina, which has sold more than 12 billion dollars of its foreign exchange reserves since the beginning of the year to stabilise the peso [3], failed to contain investors’ fear of default, or to mitigate falling prices. As if provocatively, on 31 August, the day after the spectacular rise in central bank rates, the US rating agency, Standard & Poor’s, placed the note of the Argentine debt “under negative watch”.

IMF austerity

Argentine President Mauricio Macri announced, on 3rd September, a brutal austerity plan under IMF supervision. This included the introduction of a tax on agricultural exports of 4 pesos per dollar exported [4], which Macri himself acknowledged were “very bad taxes”, but the level of the budget deficit required emergency action. After so much austerity applied to the poor, this measure may not appeal to the producers of soybeans and maize, the largest purveyors of foreign exchange of the state, hard hit by a record drought early this year. In addition, Macri announced the removal of 12 out of 22 ministries! Mr Macri is claiming to eliminate the ministries of Culture, Labour, Science and Technology, Energy, Agribusiness, Health, Tourism and the Environment to convert them into State secretariats under the dome of other ministries: Culture and Science and Technology pass for example under the mandate of the Ministry of Education, Work under the orbit of the Ministry of Production, Health is absorbed by that of Social Development and Agro-industry moves to the Treasury Department while dismissing 600 workers. So far, only the dictators Pedro Eugenio Aramburu and Juan Carlos Onganía had ventured to eliminate the Ministry of Health.

On 4 September, Argentine Economy Minister Nicolas Dujovne and Central Bank Vice President Gustavo Cañonero went to the IMF in Washington to negotiate a revision of the agreement signed in June and speed up payments. Argentina is sorely lacking in cash. At the same time, the prosecutor Jorge Di Lello indicted President Mauricio Macri for abuse of authority and violation of the duties of a public official for signing the agreement with the IMF on 7 June, without submitting it to Parliament, thus violating the Constitution. For his part, President Macri is unable to calm the growing discontent. He has said on TV and keeps repeating, “This crisis is not just another crisis, it must be the last (…) the worst is behind us. [5] However, the same mistakes produce the same effects and history repeats itself…

In the street, soaring prices are resurging popular discontent. In Buenos Aires, La Plata, Rosario, Mar del Plata, or in other cities of the country, the people express their anger at the rise in prices or the budget cuts imposed on the public administration in exchange for the IMF loan, like those applied to public universities. On strike for more than a month, the professors of the fifty-seven public universities are demanding pay rises. Awakening the tragic memories of the financial collapse of 2001, soup kitchens are again overwhelmed, not only with children but entire families… Galloping inflation is reducing margins on falling consumption and the US supermarket giant, Walmart, has sold a dozen hypermarkets. The price of bread has increased by more than 20% in a few days [6]. As in 2001, the people are hungry, for social justice and bread.

This article was originally published on the French blog Un monde sans dette from the journal Politis.
English translation by Jenny Bright.

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