Argentina: kicking out the IMF was key to recovery.
Argentina is finally ending a decade of isolation. Last month President Cristina Kirchner announced that the Paris Club had accepted Argentina’s proposal to negotiate repayment of the country’s outstanding debt. It agreed to do this, without the intervention of the IMF, thus upholding the Kirchner government’s decision to protect economic sovereignty and to keep its distance from the unpopular Washington-based international financial Institutions.
In an interview with Susie Grady for Latin America Bureau, Alan Cibils (pictured), Chair of the Department for Political Economy at the General Sarmiento University in Buenos Aires, says that getting rid of the IMF and recovering monetary sovereignty were key to Argentina´s recovery. The IMF, he says, “profoundly mismanaged” the Argentine crisis and its behaviour in Greece, Spain, Portugal, Italy and Ireland shows that the Fund has learned “absolutely nothing”.
Susie: Argentina was vehemently criticised by the international financial community when it defaulted on US$95bn in bonds in late 2001. It was reduced to a virtual pariah and suffered a terribly year in 2002 when GDP fell by over 14%. Yet since then, the economy has bounced back well. On balance, do you think that default was a better option than giving in to all of the IMF’s demands? Are there lessons for countries like Ireland, Greece and perhaps Spain, as they face their own crises?
Alan: There were internal and external reasons for Argentina´s recovery. External reasons had mostly to do with unprecedented commodity prices, which hugely boosted Argentina’s primary production and government revenues through export taxes. The main internal reasons for our recovery were because we did the exact opposite of what the IMF recommended. After the crisis, the IMF strongly pressed for a freely floating exchange rate and a monetary policy known as “inflation targeting”.
Argentina did neither, instead implementing a “dirty” or managed float exchange rate regime and a monetary policy known as “monetary targeting”. Additionally, Argentina implemented capital controls (also frowned upon by the IMF at the time, although they have come around to accepting them now) to reduce speculative and highly de-stabilising short-term capital inflows. This combination of exchange rate and monetary policies allowed Argentina to promote exports, to reduce imports and to compensate for the fall in for local production, thus boosting production, employment and economic recovery.
The IMF´s recommendations to Greece, Spain, Portugal, Italy and Ireland show that the Fund has learned absolutely nothing from its profound mismanagement of the Argentine and prior crises (most notably the Asian crisis). It is still promoting the same old policies of fiscal austerity, which failed miserably in Argentina, leading to the worst crisis in its history. Furthermore, any first-year macroeconomics student knows that you do not cut spending in a recession, as that will only deepen the contraction. This is what every Republican administration has done in the US: spend wildly to shorten the recession.
Key to Argentina´s recovery was getting rid of the IMF, and recovering monetary sovereignty by exiting the fixed exchange rate regime. If the ECB (European Central Bank) does not ease up on its monetary policy, then Ireland and other European countries in crisis will have no option but to exit the euro area and to recover full control over their monetary and fiscal policies – something which is absolutely necessary to be able to recover from a recession.
Susie: Argentina is now recommencing talks to renegotiate its debt with the Paris Club, without the oversight of the IMF. Judging from the press coverage, there seems to be significant approval for the government’s decision. However there has been some criticism that the debt is actually illegitimate because it was acquired during the dictatorship – thereby suggesting Cristina Kirchner’s triumph may not be as impressive as it first appears. Do you think this is a valid criticism? Is it feasible that Argentina could legitimately refuse to pay the remaining debt with the Paris Club?
Alan: Yes, I think this is criticism is absolutely valid, and a serious one. Argentina´s debt problems began with the military dictatorship (1976-1983) and the neoliberal policies that were implemented in the country from 1976 onwards. Growing and unsustainable public debt is a hallmark of the neoliberal years. However, there have been many fraudulent operations that bulked up Argentina´s debt:
§ The military dictatorship´s debt is all illegitimate as they were a de-facto government. Furthermore, there are very substantial and well documented irregularities with that debt, such as no documentation for substantial amounts of it, etc.
§ During the 1990s, many of the debt restructuring swaps were challenged in court as having been fraudulent and highly detrimental to Argentine taxpayers.
§ Following the crisis and the devaluation, approximately U$S35 billion was added to the public debt as bail-outs to banks and big business, again punishing tax-payers for business and government wrong-doing.
All of the above were de facto legitimised by the 2005 debt restructuring process and explicitly deemed legitimate by Cristina Kirchner earlier this year. It is unfortunate that Argentina did not exploit the opportunities provided by the historic default, to do an in-depth audit of the debt (as Ecuador did).
Susie: Another story which has pervaded the Argentine press is the government’s announcement that the IMF will provide “technical assistance” in creating a new statistical index (to replace the controversial current INDEC thought to be manipulated so that inflation figures are kept artificially low). Could this represent a threat to Argentina’s ability to control public policy? If it is intended as a compromise measure with the IMF? Is there not a danger – as Pino Solanas has argued – that Argentina is bowing to pressure from international capital interests that ultimately want Argentina to return to the vicious cycle of development with debt?
Alan: This question requires an answer of several parts:
1) The INDEC situation: This is a scandalous situation that has been taking place since late 2006. Basically, when inflation began to pick up in late 2006 and the government proved unable or unwilling to effectively deal with it, the then President Néstor Kirchner decided to alter the way inflation was presented to society. To do this, they intervened in the official statistics institute, transfering or firing career economists, sociologists and statisticians and replacing them with goons (literally), producing every month since then fake inflation (and other) data using an undisclosed methodology. As a result, since 2007 Argentina has had no reliable statistics on inflation, employment growth (national accounts) and economic activity; they are all fiction. This was confirmed by a government-commissioned study by public university experts made public earlier this month (http://www.uba.ar/download/informe.pdf).
2) The invitation to the IMF: This is highly suspicious. The IMF is not known as an international advisor on statistical issues; there are many other far more prestigious international institutions that do this. There are also very highly qualified professionals in Argentina, including the ones displaced from the INDEC or the ones who produced the UBA report. So why did the government “invite” the IMF? One can only speculate here, but there are several possibilities:
i. To negotiate the settlement with the Paris Club. This, according to the Club´s bylaws, needs to be done [with IMF approval].
ii. To get back on good terms with the IMF to be able to settle with the Paris Club and to be able to issue new debt. The latter has often been attempted by the government since the crisis erupted, but international market conditions have not allowed it to happen. The government has been looking for new opportunities to issue debt, and this may the first step towards that, proving that not much has changed since the raging neoliberalism of the 1990s…