- Created: Wednesday, 06 May 2009 14:19
- Written by Alvaro Michaels
FRFI 165 February / March 2002
A spontaneous mass revolt by the Argentinean poor against the government on 20 December brought it down within days. On 28 December, continuing huge demonstrations and other direct action forced the choice of the fifth President – Eduardo Duhalde – in two weeks. Almost daily riots have continued throughout Argentina involving both the poor, demanding work and justice, and the middle classes, demanding security and access to their savings. On 10 January anti-government rallies led to still more attacks on banks, stores, government buildings and the police. The $280 billion Argentinean economy will shrink over 7% this year; inflation will jump towards 50% and the peso is bound to sink from parity to over 2.5 per dollar. The continuing question for the Argentinean masses is how to replace the existing state machinery with one of their own design, working in their interests. The Argentinean bourgeoisie and its imperialist paymasters are now having to rethink how they can exploit the economy. As President Duhalde said on television, ‘If we don’t deactivate this time bomb well, it will explode...every night I’m consulting God and the Virgin Mary’. Alvaro Michaels reports.
Why is there a crisis?
In 1991 the Argentinean peso was linked to the dollar. This established stable conditions for pesos to be taken abroad as dollars, and stimulated the systematic looting of state property by the Argentinean ruling class through a privatisation campaign. The sale of assets to international corporations or local companies using foreign debt allowed wealthy Argentineans to take $130bn out of the country over a ten- year period. State expenditure rose as the private sector crumbled. Workers’ conditions deteriorated throughout this time so that 40% of the people now live in poverty. Argentina has borrowed money from the IMF for 34 out of the last 45 years; this mounting foreign debt has financed the plunder of the country by the rich. Now the Argentinean bourgeoisie wants to keep its cake and eat it – to continue its plunder of the working class whilst holding off the demands of international capital that it repay the debt and interest. Hence it has tried to freeze the situation.
The international debt forced the government of President de la Rua to severely restrict economic activity. This provoked a slow motion collapse of the fixed peso/dollar exchange rate. Money fled the scene. Bank deposits fell $20bn during 2001. On 2 December, after $1.3bn billion of savings were withdrawn in a single day, the now-deposed Finance Minister Cavallo declared there would be no devaluation and that bank deposits would be ‘totally respected as property’. He imposed sweeping controls for 90 days to prevent a further exodus of deposits. No-one could withdraw more than $250 a week, a maximum of $1,000 a month. The cash economy was crushed and since only 6% of all transactions are by card, the effect on workers was devastating. This did not however prevent hundreds of armoured vehicles transporting huge quantities of dollars to the capital’s airport. Politically unpopular proposed privatisation contracts were scrapped to deflect the growing workers’ campaigns against the plunder of state assets. Token food distribution was hurriedly arranged to feed a few of the hungry.
On 20 December, mounting popular rage at the government’s year-long austerity drive saw supermarkets looted and, banks and other retail markets attacked. After three days of national unrest which left 27 dead and over 150 wounded, de la Rua resigned. Within 48 hours, the caretaker president Ramon Puerta gave way to the Peronist opposition candidate Adolfo Rodriguez Saa. After a short lull, a demonstration on 28 December in Buenos Aires against the institutional corruption of the state developed into further attacks on its institutions. Eight more deaths and many injuries were suffered by the workers. Finally Duhalde, the ‘new’ ‘centre right’ Peronist, was pushed into office on 5 January.
The alliance with the middle class
The next day Duhalde devalued the peso by 29% to 1.40 to the US dollar. For the next six months imports, exports and capital transfers are supposed to be made at this rate after which the peso will be allowed to float freely. To limit bankruptcies in small companies, and to protect the middle classes, all debts below US$100,000 are converted to 100,000 pesos rather than 140,000. A borrower below this level of dollar debt therefore does not suffer an outright peso loss. Other transactions, such as the exchange of tourist dollars, are conducted on a freely floating rate. So there is a dual rate whose purpose is to hold the support of the middle classes.
The demands of the banks
With the free float to come in six months, the middle classes have a short reprieve in their sentence of impoverishment. However, with assets in pesos but liabilities in dollars, the banks claim they will lose $10-20bn at a time when they have only $17bn capital. As a result, some foreign banks are threatening to abandon the country. Half the banks are foreign-owned; they also face a jump in bad debts. Hence the banks, international capital, and the IMF are all opposed to the dual rate. Yet the stability of the Argentinean parliamentary system depends on the middle classes and the state is first trying to maintain their support. But imperialism will have to attack the middle class if it is to secure its money. Whilst the police set out to intimidate the workers directly, the press have warned the middle classes that if they reject government solutions then they face the return of the military.
On 3 January, an end of year shortfall of more than $7.8bn in the state budget – greater than the IMF’s $6.5bn limit – resulted in the biggest default in history on a total public sector debt of $155bn, as the IMF refused to tide the state over. On 10 January, the government announced a freeze on Certificates of Deposit accounts (except to pay bank debts and taxes!), or more than a third of the national $67bn of savings. In the biggest rallies since Duhalde took office, demonstrators again attacked banks, completely destroying some branches in Jujuy in the north, looting stores, and clashing with police. Unable to get rid of their pesos, the banks were refusing to sell dollars under the dual exchange rate. Only tear gas and police attacks could clear the Plaza de Mayo next to the Presidential Palace. In response, the government raised the monthly limit on bank withdrawals in pesos for workers with accounts (the salaried classes) from 1,000 to 1,500 pesos and also raised the limit for bank withdrawals of pesos converted from US dollars from $3,000 to $5,000. Nothing can be given to the mass of workers.
On Tuesday 15 January, the banks reacted furiously to an announcement allowing bigger debtors to repay loans in dollars at the cheaper exchange rate. The next day, the floating rate fell to $2.05. Large farmers are hoarding wheat, awaiting the devaluation and associated price rises before selling. The government secured a deal extending by a year the repayment terms on a $933m loan that fell due on 17 January. The Central bank chief Roque Maccarone was sacked, to be replaced by the IMF-friendly Mario Blejer.
The demands of international business
Lloyds has 40 branches in Argentina. UK Barclays bank has £500 million exposure. HSBC, with 60 branches, has £3.5bn exposure and potential losses of up to $1bn. Along with Spanish banks Santander Central Hispano and Banco Bilbao Vizcaya Argentaria, which own the second and third largest Argentinean banks (Banco Rio and Banco Frances), they face $3.4bn losses. Overall, foreign banks stand to lose $6.2bn. On 18 January police raided the premises of more than 10 foreign and local banks – including the British HSBC and Spanish BBVA Banco Frances – as part of an inquiry into billions of dollars of capital flight before and after the 1 December controls.
State operations cannot continue unless funds are found. But international trade (8% of GDP) is in current account deficit, there are no capital imports, and the fiscal deficit is rising rapidly as tax revenues fell dramatically in December. The state needs $6bn just to keep going. To address this, the government announced new oil export taxes. Spains’s Repsol-YPF, the USA’s Pan American Energy and Argentina’s Perez Company account for 80% of production. Spain’s Repsol threatened to scale back operations if a tax is imposed: it gets 70% of its oil and 45% of its operating income from Argentina and has a huge $20bn debt equal to 100% of its equity, three times the sectoral average. On 10 January the government offered a cheaper alternative, asking oil companies to contribute $1.2bn. to its empty coffers: Repsol would have to pay $500m in 2002 alone if the tax were introduced, more than the one-off payment it would be liable for under the new proposal. Negotiations are continuing.
The pressure of the banks, the oil companies, the IMF and direct phone calls from President Bush have now forced Duhalde to return to preparing a ‘very orthodox’ budget for next year, the IMF insisting on a coherent economic plan and a quick end to the dual exchange rate. Further economic contraction is expected.
The demands of the revolutionary working class
As Duhalde sought the support of the Catholic Church, he outlined a $250 million emergency food plan for the provinces. This speaks volumes for the conditions of the working class. With the wave of privatisations in the 1990’s the workers suffered attack after attack, ghost towns were created, unemployment rose, wages fell, conditions worsened. From 1996, the unemployed organised demonstrations and road-blocks, demanding work and raising issues such as rising electricity prices and cuts in supply. The unemployed workers movement (MTD) grew as the recession deepened from 1997 onwards. In reality, unemployment is well above the official 18% since three million workers struggle to work part time, so that between 30% and 80% of workers are unemployed or under-employed depending on the area.
As FRFI 163 reported, last August a national mobilisation blocked highways around the country. Thousands were arrested and five workers killed. Unencumbered by the official trade unions two national meetings were organised in September in Matanza and La Plata. At La Plata workers made six immediate demands: freedom for arrested comrades; extension of employment and food schemes to everyone over 16 with a register of unemployed under the control of the unemployed; an end to the zero deficit policy of the then government; payment of 100 pesos per hectare to small farmers for seed; the prohibition of sackings, and, lastly, the immediate withdrawal of police from the town of General Mosconi.
They also decided on five strategic demands on the state: the non-payment of illegitimate and fraudulent foreign debt; public control of the pension funds (raided by the state); renationalisation of privatised banks and strategic enterprises; abolition of small farmers’ debts and sustainable prices for their products; the removal of hunger-causing governments and an end to the reshuffling of politicians.
They called for cooperation with the dissident trade union confederation the Central de Trabajadores Argentinos, and have forged tactical alliances with the public employee unions (ATE) and local teachers’ unions. Attempts by the establishment’s Peronist and Radical Parties to influence the MTD by food distribution and allocation of jobs has been frustrated by careful organisation and job rotation. Over half of the activists are women. This movement demonstrates the democracy and strength of the working class and provides workers everywhere with important lessons.