FRFI 164 December 2001 / January 2002
Argentina cannot finance its foreign debts of $132bn, of which government debts amount to $95bn. With recession, the GDP is 6% below its peak three years ago and falling fast; it is clear that this year’s government spending deficit will now run to over $20bn, much higher than the IMF target of $6bn, which was attached to supporting loans. This is despite the harsh anti-working class measures it has undertaken (see FRFI 163). The ‘balanced budget’ plan of the summer has been abandoned. The growing public sector debt is likely to be some 57% of the GDP by the end of the year. The government will thus need to borrow another $12bn to $15bn. This is going to have to come from reductions or deferrals of international debt. The IMF’s decision to give limited backing to Argentina last summer cannot stop the economic rot.
The result of a simple devaluation would be an intense reaction from the workers and from an increasingly proleterianised middle class. Thus the state seems keen to hold onto the link to the dollar and is asking creditors to accept a debt restructuring, a write-down of the debts, which will severely damage Argentina’s relations with the international financial markets. Naturally the foreign lenders (ganged together in the new ‘Emerging Markets Creditors Association’) are pressing Argentina to adopt a different route. Private inward capital flows have ceased already and the imperialist banks’ ‘rating agencies’ are already threatening to declare Argentina in default. Its debts are already rated ‘CC’, below those of Pakistan and Nigeria, much like junk bonds. Some arrangement must be forthcoming or a complete default will occur. Since Argentina’s bonds account for some 23% of all emerging market debts, this money market would be paralysed if Argentina fails. Already in 2000 net private capital fled all emerging markets to the sum of $150bn and this is accelerating. Stock market prices have fallen 46% over the last 12 months.
The money lenders of the imperialist states know that unless they can extort more money to pay the state’s debt interest and capital payments, the Argentine currency will have to abandon its parity with the current dollar/euro mix, introduced this year from the original all-dollar link (the ‘currency board’). They also see that if they do extort much more they will bring political turmoil in Argentina. Thus a stop-gap compromise is being discussed in the financial capitals of the world, which would mean nearly all dollar-denominated assets being converted to the peso, with inflation indexing to ensure that a chain of dollar defaults across the country does not occur. In anticipation of this, private dollars are still fleeing the country. This return to the peso will mean a further dramatic fall in the standard of living of the masses, but without an increase of the debt to GDP ratio which would paralyse future capitalist developments.
As the question is discussed, the Argentine President, as agreed with the IMF, has made a deal with the Peronist opposition which runs 14 of the 23 provinces. On 14 November they agreed a 13% cut in their revenues from the centre in return for the state arranging a swap of new lower interest debt for existing bonds, saving them payments of $1bn a year to the banks. President de la Rua wants a similar restructuring with foreign creditors. The saved revenues are to be handed out to business in tax breaks and employee national insurance contributions. Yet a new ‘funny money’ is being printed by the state – Lecops – to pay debts to the same provinces. Alongside the already existing patacones paid by the Buenos Aires authority to its workers and suppliers, here is a trend to evading tight money controls. It is an attempt to put off the inevitable major reduction in the living standards of the workers which is needed eventually to pay the imperialist financiers.
The present crisis will only be resolved at the expense of the majority of workers whose ranks are now being joined by the impoverished middle classes. Any route, including complete dollarisation of the economy, will mean more attacks on the poor to fatten the rich. The destructive effects of capitalism could not be plainer to see than in Argentina.
Alvaro Michaels
