Shortsighted IMF Jumps onto Floundering
Argentine Ship
· Throwing money at
deeply troubled Argentine economy ill-fated prescription to mend a
very sick society
· De la Rúa sacrifices
meaningful reform and provokes social and economic meltdown for the
sake of IMF-driven policies
· IMF demonstrates willingness
to ignore habitual corruption and politics that hardly distinguishes
the present government from its deeply troubled predecessor
· State Department’s
support of IMF loans indicates that the two institutions have learned
little from the anti-IMF demonstrations in Washington and Prague
· Social backlash in
Argentina could prove costly for IMF’s already sullen reputation
With its pending mega-loan
of some $15 billion to Argentina, the International Monetary Fund
is offering a short-term fix with potentially disastrous long term
consequences, while largely ignoring Buenos Aires’ growing incapacity
to deal with mounting political and social unrest and its unwillingness
to implement meaningful institutional reform. What is driving the
IMF is its pledge to rescue Argentina’s creditors, despite the
gamble that orthodox fiscal adjustments and an increasing debt burden
will hurl the country into even deeper political and economic instability.
For his part, Argentine President Fernando de la Rúa has been
a most tractable supplicant, willing to expose himself to grave political
risks in order to methodically follow the IMF’s austere deflationary
financial recipes.
A government both corrupt
and incapable
The IMF will be allocating
the largest financial package in its history to a country not already
in the throes of an economic crisis. In addition, an estimated matching
amount of up to $15 billion more will be sent by a combination including
the World Bank, the Inter-American Development Bank, various private
lending institutions as well as the governments of Italy, Spain and
France. The IMF is intent to put to the test its new strategy for
combating the kind of infectious capital flight witnessed in Asia
and Latin America that sparked the spate of currency crises during
the late 1990s. It is also dutifully responding to international investors’
nervous cries that Argentina could default on its foreign debt payments
without receiving additional liquidity.
But Fund officials seem blithely
unaware that instead of fulfilling his promise of restoring integrity
to an office crudely tarnished by the outgoing Menem administration’s
corrupt practices, De la Rúa has only propagated the sordid
legacy of his predecessor, maintaining a cozy relationship with “el
establishment”—multinational corporations and Argentina’s
financial and corporate elite—while the gulf between rich and
poor deepens, the middle class sustains its downhill slide and the
country’s politicians continue to rob with impunity. The Argentine
president has done surprisingly little in the way of institutional
reform, instead centering his administration’s efforts on slashing
the budget through a rigorous commitment to the IMF’s standardized
draught of fiscal castor oil: privatizing social services, cutting
the salaries of public employees and raising taxes on the middle class,
in hopes of reducing high interest rates.
Yet, the calls for a change
in policy grow louder, De la Rúa has only increased his commitment
to his purely fiscal program, and is now negotiating the $15 billion
IMF arrangement. The package is the logical step in an economic model
to which he is slavishly devoted, that confuses an absolute dependence
and submissiveness to the IMF in the face of imaginary irreversible
economic forces, with incapacity to negotiate with independence and
a sense of dignity. Unlike Brazil, which rejected initial IMF recommendations
against devaluation during its 1999 economic crisis, while still managing
to receive a record multi-billion dollar aid package, De la Rúa
has passively accepted any and all conditions the lending agency has
requested of the government. This has prompted endless characterizations
of the Argentine president as a mere puppet of Fund officials. But
De la Rúa has proven equally incapable of negotiating within
his country. On the heels of a November 10 announcement that the social
security system would be dismantled (a condition of the loan purportedly
imposed by the IMF), the largest union confederation headed a nationwide
36-hour strike that cut off public transportation and effectively
shut down the country’s major cities. While Menem was at least
able to deftly placate union leaders with concessions¾either
real or mirage-like¾De la Rúa has made an enemy of the
syndicates and professional guilds, which have organized numerous
work stoppages and highly publicized protests since he assumed office.
It is becoming increasingly
evident that the neo-liberal strategy that was imported by Menem,
has incurred only more poverty (the unemployment rate is expected
to top 15.8% this December) and a greater concentration of wealth
in the hands of a few. But while Menem was able to assuage worried
Argentines with a wholehearted conviction in his policies and beguile
his opponents with his negotiating skill, De la Rúa has proven
to be an unconvincing proponent of his own economic program as well
as an inept politician. Even the clean image that was the heart of
his election campaign has been tarnished due largely to a bribery
scandal that led to the October resignation of Carlos “Chacho”
Alvarez, the country’s well-respected vice-president. Alvarez,
moved out of the Casa Rosada after the president refused to fire his
closest advisor and intelligence agency chief—a scenario reminiscent
of Peru’s scandal involving Vladimiro Montesinos that brought
down the Fujimori government—suspected of bribing 11 senators
to vote for a controversial, IMF-sponsored and De la Rúa-backed
labor reform measure.
Are there any Crooks
Anywhere?
The investigation of the alleged
pay-offs is under way, but few believe that anyone will actually be
prosecuted. Every senator under accusation has flatly denied accepting
money and the federal judge carrying out the case is himself under
investigation by a congressional committee for possessing large sums
of illicitly obtained money (there is some question as to how the
judge could have afforded his $1.5 million house on his $60,000 per
annum salary). With Alvarez out of the picture, there is little hope
that De la Rúa will take any action to get to the bottom of
things, and certainly none, if, as some suspect, he has been there
from the beginning.
While many had hoped that
Menem’s departure signaled the end of an age of venality in
Argentine politics, De la Rúa has taken few actions to extinguish
the cronyism that blossomed during the epoch of Menemismo. Instead,
the President has taken a cue from Clinton’s mantra, “It’s
the economy, stupid” since taking office, centering his administration’s
policies around implementing IMF-promoted fiscal adjustments. But
his stringent economic plan has yet to bear fruit, and as the recession
becomes more severe, De la Rúa's mandate to govern becomes
increasingly precarious. His continued stubborn disregard for the
ABC’s of practical politics has clearly backfired, only further
alienating potential investors already dissuaded by the lack of clear
prospects for economic growth.
IMF and U.S. unconcerned
over flawed democracy
As his list of domestic critics
lengthens and the ferocity of the protests against his political ineptitude
intensifies, De la Rúa's relationship with the IMF seems to
be growing closer, warmed perhaps by the agency’s serene indifference
to the country’s rock-bottom lack of civic rectitude and its
profoundly fouled judiciary. The U.S. Congress’ unanswered denouncements
of the disturbing anti-Semitic nature of the courts’ relentless
seven-year hounding of the respected educational institute, the Buenos
Aires Yoga School, is but one chilling manifestation of how De la
Rúa has continued Menem’s policy of ignoring the grievous
failings of one of the most venal judiciaries in Latin America. But
Fund officials, who seemingly have forgotten the angry public demonstrations
in Washington and Prague, have hardly twitched a muscle at the routine
corruption highlighted by Alvarez’s departure¾so much
for their recent talk about the IMF becoming more people-oriented
by building in factor of conditionality on future loans, based on
transparency and good governance¾instead, praising De la Rúa
for continuing to implement sound economic policies.
Similarly, the White House’s
strong backing of De la Rúa's game plan consigns to the trashcan
Washington’s professed interest in democratization and judicial
and administrative reform. Meanwhile, the Clinton administration’s
technocratic vision sees the pending multi-billion dollar package
as De la Rúa's only opportunity to halt a full blown economic
crisis, while displaying no comprehension of the heavy political price
he may have to pay. In any event, it is clear that when it comes to
Argentina, the IMF and the U.S. still insists on doing business the
old way.
IMF tests its luck
Making only token efforts
at reform, the Fund has faced an escalating surge of well-merited
assaults on its reputation in recent years, but perhaps nowhere is
it more vilified than in Argentina. While the De la Rúa administration
consistently has heeded every recommendation offered by the Fund,
the country’s economy has continued to plummet without any prospect
for a rapid turnaround. Unemployment is expected to top 15.8 percent
by this December and social tensions are reaching an unbearable pitch.
Meanwhile, the IMF’s credibility is being assailed by Third
world leaders and First world street activism for the corporate mentality
of its management and the disproportional power exercised by a few
rich nations: of 182 member countries, the U.S. controls almost 20
percent of the organization’s voting bloc.
Fund officials are now well
aware of the alarming increase in intensity of anti-IMF sentiment
in creditor nations pales in comparison with the vitriol with which
it is greeted throughout the Third World. While the much-publicized
protests against the IMF were contemptuously dismissed at the time
by its brass as the work of a handful of disaffected middle-class
radicals, the same cavalier tone can hardly be taken with regard to
a May 31 demonstration in Buenos Aires, in which some 40,000 Argentines
of all political points of view gathered to denounce its stranglehold
over government policymaking.
Regardless of whether the
mammoth loan to Argentina ends up staving off a crisis, or instead,
is destined to “pick up the pieces after an accident,”
as characterized recently by the IMF’s second-in-command Stanley
Fischer, barring a fundamental change in IMF policy in the direction
of greater social justice, the present Argentine firestorm could be
opening the gates to even fiercer attacks on the organization around
the world.
By Reed Lindsay,
Senior COHA research fellow