Situation in Argentina

In December in Buenos Aires, the Paris of Latin America, police gunned down 27 Argentines after they chose to face bullets rather than starvation. The nation's currency had crumbled and unemployment had shot up from a grim 16 percent to millions more than the collapsed government could measure. The economy had been murdered in cold blood.

Who done it? The killers left fingerprints all over the warm corpse. A "Technical Memorandum of Understanding," dated September 5, 2000, was signed by Pedro Pou, president of Argentina's Central Bank for transmission to Horst Köhler, managing director of the International Monetary Fund. I received a complete copy of the inside report from . . . let's just say the envelope lacked a return address.

The "Understanding" required Argentina to cut the government budget deficit from $5.3 billion in 2000 to $4.1 billion in 2001. Think about that. Eighteen months ago, when the "Understanding" was drafted, Argentina was already on the cliff-edge of a deep recession. One in six workers were unemployed. Even the half-baked economists at the IMF should have known that holding back government spending in a contracting economy would be like turning off the engines of an airplane in stall. Cut the deficit? As my
4-year-old daughter would say, "Stooopid."

The IMF is never wrong without being cruel as well. Under the boldface heading, "Improving the Conditions of the Poor," the agency directed Argentina to lop $40 a month from salaries paid under the government emergency employment program; the order cut the salaries 20 percent to $160. The "Understanding" also promised a 12-15 percent cut in civil-servant salaries and a pension "rationalization" (IMF-speak for cutting 13 percent from payments to the aged under both public and private plans).

Cut, cut, cut amid a recession. Stooopid.

Salted in the IMF's mean-spirited plans for pensioners and the poor were economic forecasts bordering on the delusional. In the "Understanding," the globalization geniuses projected that, once Argentina carried out the IMF plan to snuff consumer spending, somehow the nation's economic production would leap by 3.7 percent and unemployment would fall.

It didn't. The IMF plan kneecapped industrial production, which fell 25 percent in the first quarter of last year before keeling over completely to interest rates that, by the summer, were running up to 90 percent on dollar-denominated earnings.

Another envelope that walked onto my desk contained the memorandum for Argentina's "Country Assistance Plan" for the next four years. The document, signed by World Bank President James Wolfensohn and dated June 25, included a warning that recipients must use it "only in the performance of their official duties"

My duty as a reporter is to tell you that the plan amounts to a breathtaking mix of cruelty and Titanic-sized self-deception.

Written only months ago, when the economy was already plunging into its death spiral, Wolfensohn wrote, "Despite the setbacks, the goals set out in the last [year's] report remain valid and the strategy appropriate." The IMF plan, cooked up with the World Bank, would, "greatly improve the outlook for the remainder of 2001 and for 2002, with growth expected to recover in the
later half of 2001."

In this strange, eyes-only document, the World Bank president expressed particular pride that Argentina's government had made "a $3 billion cut in primary expenditures accommodating the increase in interest obligations." In other words, the government gouged spending on domestic needs to pay interest to creditors, mostly foreign banks.

Crisis, indeed, has its bright side, as Wolfensohn crowed to his banker readers: "A major advance was made to eliminate outdated labor contracts." And "labor costs" had fallen due to "labor market flexibility induced by the de facto liberalization of the market via increased informality." Translation: Workers lost unionized industrial jobs and turned to selling
trinkets in the street.

What on Earth would lure Argentina into embracing this goofy program? The bait was a $20 billion emergency loan package and "stand-by" credit from the IMF, the World Bank and their commercial bankpartners. But there is less to this generosity than meets the eye.

The "Understanding" assumed Argentina would continue its "Convertibility Plan," instituted in 1991, which pegged the peso, the nation's currency, to the Yankee dollar at an exchange rate of one-to-one. The currency peg hadn't come cheap. Foreign banks working with the IMF had demanded that Argentina pay a whopping 16 percent risk premium above U.S. Treasury lending rates for
the dollars needed to back the scheme.

Now do the arithmetic. When Wolfensohn wrote his memo, Argentina owed $128 billion in debt. Normal interest plus the premium amounted to $27 billion a year. In other words, Argentina's people didn't net one penny from the $20 billion in "bailout" loans. The debt grew, but none of the money escaped New York, where it lingered to pay interest to U.S. creditors holding the bonds.
The creditors range from big fish, led by Citibank, to little biters such as Steve Hanke.

I spoke with Hanke, president of Toronto Trust Argentina, an "emerging market" fund that loaded up 100 percent on Argentine bonds during a 1995 currency panic. Cry not for Steve, Argentina. His 79.25 percent profit that year put his outfit at the top of the speculators' league.

Hanke profits by betting on the failure of the IMF policies. This junk-bond speculation--the players call it "vulture investing"--is merely his lucrative avocation. In his day job as a Johns Hopkins University economics professor, Hanke freely offers a cure for Argentina's woes. The advice would put him out of business: "Abolish the IMF."

And, Hanke advised, abolish the peg. But the importance of this one-for-one dollar exchange rate has been far overstated. When the Argentine government finally devalued the peso in January, it wiped out the value of local savings accounts. The currency peg is best understood as the meat hook on which the IMF hung Argentina's finances. It forced Argentina to beg and borrow a steady supply of dollars to back each peso, and this became the rationale for the IMF and World Bank to let loose in the pampas their Four Horsemen of neoliberal policy: liberalized financial markets, reduced
government, mass privatization and free trade.

"Liberalizing" financial markets means allowing capital to flow freely across a nation's borders. Capital has indeed flowed freely. Last year Argentina's rich dumped their pesos for dollars and sent the hard loot to investment haven't abroad, bleeding as much as three-quarters of a billion dollars a day from Argentina.

Once upon a time, government-owned national and provincial banks supported their nation's debts. But in the mid-1990s, President Carlos Saúl Menem's government sold these off to foreign operators such as Citibank of New York and Fleet Bank of Boston. Former World Bank advisor Charles Calomiris told me these bank privatizations were a "really wonderful story." Wonderful for
whom? With the foreign-owned banks unwilling to repay Argentine depositors, the government has frozen savings accounts, effectively seizing money from regular Argentines to pay off the foreign creditors.

To keep the foreign creditors smiling, the "Understanding" also required "reform of the revenue sharing system." This is the IMF's kinder, gentler way of stating that the U.S. banks would be paid by siphoning off tax receipts that the provinces had earmarked for education and other public services. The "Understanding" also found cash in "reforming" the nation's health insurance system (cut, cut, cut).

And when cuts aren't enough to pay creditors, one can always sell "las joyas de mi abuela" (grandma's jewels), as journalist Mario del Carril describes his nation's privatization scheme to me. Notoriously, Vivendi Universal corporation, the French infrastructure and entertainment giant, picked up a big hunk of the water system in 1995--and promptly cut staff and raised prices (by 400 percent in Tucumán Province). In his confidential memo, the World Bank's Wolfensohn sighs, "Almost all major utilities have been privatized," so now there's really nothing left to sell.

The coup de grâce, spelled out in the "Understanding," was imposition of "an open trade policy." This required Argentina's exporters (with their products priced via the peg in U.S. dollars) into a pathetic, losing competition against Brazilian goods priced in that nation's devalued currency. Stooopid.

Have the World Bank and IMF learned from their horrific errors? They learn the way a pig learns to sing: They can't, they won't and, if they try, the resulting noise is unbearable. On January 9, with the capital in flames, IMF Deputy Managing Director Anne Krueger ordered Argentina's latest in temporary presidents, Eduardo Duhalde, to cut still deeper into government expenditures. (President George W. Bush backed the IMF budget-cutting advice -- the same week he demanded that the U.S. Congress adopt a $50 billion scheme to spend the United States out of recession.)

Wolfensohn's memo insisted that the World Bank-IMF scheme could still work: All Argentina needed to do was "reduce the cost of production," a step that required only a "flexible workforce." Translation: even lower pensions and wages, or no wages at all. To the dismay of Argentina's elite, however, the worker bees proved inflexibly obstinate in agreeing to their impoverishment.

One inflexible worker, Anibal Verón, a 37-year-old father of five, lost his job as a bus driver from a company that owed him nine months' pay.

Verón's joined angry unemployed Argentines, known as "piqueteros," who block roads. In November 2000, in clearing a blockade, the nation's military police killed him with a bullet to the head.

Globalization boosters portray resistance to the New World Order as a lark of pampered, naïve western youths curing their ennui by, as British Prime Minister Tony Blair puts it, "indulging in protest." The U.S. and European media play to this theme, focusing on demonstrations in Seattle and Genoa, while burying news of a June 2000 general strike honored by 7 million Argentine workers.

While the July 20 death in Genoa of demonstrator Carlo Guiliani was front-page news in the United States and Europe, Verón's death went unreported. Nor did U.S. media record the June 17 deaths of protesters Carlos Santillán, 27, and Oscar Barrios, 17, gunned down by police in a churchyard in Salta Province, north of Buenos Aires. Only in December, when Argentina failed to make an interest payment on foreign-held debt, did the Euro-American press suddenly report a "crisis," feeding us the images we expect from Latin America: tear gas, burning cars and a parade of new presidentes taking oaths of office.

The "Understanding" and the Wolfensohn memo are irrefutable evidence of IMF and World Bank guilt in the nation's financial assassination. But did they have accomplices?

Adolfo Pérez Esquivel, leader of Buenos Aires-based Peace and Justice Service, (SERPAJ), a Church-based human rights organization, is documenting cases of police torture of protesters in Salta Province where Santillán and Barrios died. Pérez Esquivel, who won the Nobel Peace Prize in 1980, told me
repression and economic "liberalization" are handmaidens.

SERPAJ has filed a formal complaint charging police with recruiting children as young as 5 years old as informers for paramilitary squads, an operation he compares to the Hitler Youth.

Pérez Esquivel, who last year led protests against the proposed Free Trade Agreement of the Americas, doesn't agree with my verdict against the IMF in Argentina's death. He notes that the IMF's fatal "reforms" were embraced with enthusiasm by Finance Minister Domingo Cavallo, a World Bank favorite. Cavallo, fired in December after mass protests, is best known by Argentines
for heading the nation's Central Bank during the nation's 1976-1983 military dictatorship. For Pérez Esquivel, Cavallo's enthusiastic collaboration with the IMF and World Bank suggests that the untimely demise of the nation's economy wasn't murder, but suicide.