Argentina: turning the screw

FRFI 163 October / November 2001

Capital valued at $8 billion fled Argentina between July and August. The country cannot sustain payments on its $128bn external debts which amounted to 52.8% of the GDP in 2000. Export earnings have fallen, whilst interest payments on foreign debt have tripled since 1992. Treasury bills offer 14% and the state is virtually without credit. Speculators are hoping for devaluation so they can later buy pesos at a cheaper rate, so making a fast buck. International capital fears not only that it will not get its interest and dividends, but for its own safety. The UK has $4bn invested in Argentina. Small wonder British prime minister Tony Blair was keen, during his July visit, to support President de la Rua’s new plans for austerity, not least to prevent a subsequent collapse in the Brazilian economy. Not to be outdone by the Europeans, the deputy secretary of the US Treasury flew in the next day to promise $1.2bn from the IMF for September if the Argentinian government did ‘what was necessary’.

One in three people in Argentina live in acute poverty. After the peso was tied by law to parity with the dollar in April 1991, foreign capital poured into Argentina, attracted by privatisation and trade liberalisation. State spending grew. When President de la Rua came into government at the start of 2000 he had to cut the fiscal deficit dramatically. He capped provincial expenditures and increased taxation. ‘Labour reform’ was carried out and the IMF expressed confidence in him. Last year over $2bn was cut from the state budget.

For foreign capital stuck with ‘emerging market’ bonds or with fixed investments and unable to flee, further imperialist help is required. So the rich states of the world have ordered Argentina to increase yet further the extent and level of poverty amongst the masses. Cuts in state expenditure are demanded by the IMF for it to provide just enough to keep the financial system from default. $8bn is to be loaned for reserves for foreign payments in exchange for $1.5bn domestic budget cuts this year, rising to $4.3bn in 2002. The ‘Zero (State) Deficit Law’ pushed through Congress on 29 July means that part of state salaries above 740 pesos a month will be paid in bonds (patacones). These bonds are not accepted by most consumer good producers. All salaries are to be paid through the banks – yet few workers have accounts at all! Furthermore, state employees’ wages and pensions over 575 pesos a month are being cut for three months by 13% until the State feels it need not suspend (mostly foreign) debt payments. Taxes are up. The regressive VAT is now 21%.

Half the population have seen salaries or pensions fall, or had to work longer hours this year. The resulting surpluses are to be handed to the country’s creditors. Public sector workers are hit especially hard. The 200,000 employees who work for central government and two million in provincial administration will bear the first brunt of this new attack. Horrified sections of the lower middle classes are being reduced to the conditions of the ordinary workers. Salaries are to be reduced by 39% for directors and managers in government, banks, the armed forces and the police. Cynically, maximum pay is set at 5,900 pesos a month for cabinet ministers to appear part of the game.

Unemployment is officially 16.5%, 2.5 million workers, but another three million others work only part-time and are excluded from these statistics. In response, a National Front Against Poverty has been established to defend all those without work and those threatened with expulsion from work, eg education, health and all other civic workers. Meanwhile, the homeless and the poor are organising around the ‘pickets movement’ (piqueteros), led by Luis d’Elia, using road blocking tactics to fight the new law. From July massive popular protests spread across Argentina. 100,000 workers were on the streets on 7 August, 150,000 two days later, with a 24-hour strike in Buenos Aires. On 11 September, 60 cities saw major demonstrations.

Sooner or later the $-peso link will break because the level of productivity in Argentina is too low to keep up with the USA. This forces Argentinian capitalists to sell their products below their individual values, so handing over more and more surplus value to foreign buyers. Thus undercapitalised, they seek new funds through the banks which claim interest and dividends as further deductions from the companies’ poor operating profits. The cycle cannot be broken without a continuous attack on the workers’ standard of life but for the bourgeoisie to try immediately to adjust the existing cycle by devaluation would bring an enormous crisis for the weak Argentinian bourgeoisie. Argentina’s debts are 420% of its annual exports and devaluation would bring an immediate 40% reduction in workers’ real wages, which the rich and their allies abroad fear too much to do as yet. The only answer for the workers is to break the whole process completely and replace it with one designed to meet their needs and not the owners.

Alvaro Michaels