Advocates of globalization can hardly celebrate the political, economic and social debacle that Argentina is suffering. Yet they are making all and any attempts to point the finger away from the IMF to cronyism and corruption.
However, it is a fact that the International Monetary Fund triggered sovereign default on the part of its poster-child, Argentina, over a mere billion dollars and change. Argentina demonstrates very clearly what so-called â€œanti-globalization protestorsâ€ have against the IMF, World Bank and globalization in general. Argentina also demonstrates why protests against globalization are doomed to failure until American citizens, and the citizenry of allied nations, demand changes in American policy.
The truth is that the IMF is a creature controlled by the United States Department of the Treasury. In fact, the Treasury Website â€“ www.ustreas.gov â€“ lists the IMF on its sitemap in an Alphabetical Index of its departments and agencies.
For this reason, Argentina also demonstrates why protests against globalization are doomed to failure unless American citizens learn what their government is doing to other nations in the name of unfettered free trade according to â€˜the Washington Consensusâ€™ (is that not oxymoronic?) of â€˜Neo-Liberal policiesâ€™. Briefly, the history of Argentinaâ€™s debacle is as follows.
Argentinaâ€™s then-president Carlos Menem appointed Domingo Cavallo, a Harvard-trained economist, as finance minister in 1991. Cavallo worked hand-in-hand with the IMF to draft and enforce an IMF structural adjustment program in order to be eligible for structural adjustment loans from the World Bank, which â€“ in turn â€“ mobilized loans from commercial banks and other institutional investors.
With IMF tutoring on Neo-Liberal principles, Cavallo and the Menem regime privatized Argentinaâ€™s state-owned enterprises down to electricity and water (among many others); threw open Argentinaâ€™s manufacturing and commodities markets to unrestricted trade; and opened their countryâ€™s capital markets to unrestricted inflows of foreign currencies.
Also, Cavallo pegged the peso to the dollar at a rate of one-to-one â€“ with the tacit approval of the IMF, which did not protest or reject the establishment of the currency board that oversaw the foreign currency exchange rate. Foreign firms and massive amounts of foreign direct investment (at least $156 billion) flowed into Argentina, resulting in positive economic growth rates from 1991 through 1994.
In December of 1994, however, the Mexican peso crisis caused jitters, the so-called â€œtequila effect,â€ among investors in Latin America. Foreign capital flowed out of the region. Also, the government had sold off large state assets under the IMF privatization conditions, often to foreign firms that sent profits out of the country. Further, as the value of the dollar rose against other currencies, so too did the peso.
This made Argentinaâ€™s exports much more expensive even as the Latin American region experienced a slowdown. Export earnings sank like a stone. The result: a spiraling downturn that ended in a four-year recession. The recession was made worse in the late 1990â€™s by the Asian financial crises, as well as by financial crises in Brazil, Mexico, Russia and Turkey (all of which were and are keen students of the IMF and World Bank).
Classic â€œcapital flightâ€ ensued as Argentinaâ€™s foreign investors and wealthy elites sent their funds out of the country, sequestering their money in U.S. and European banks and investment houses.
Sadly, the government of Argentina went right on borrowing in order to prop up the currency board, maintain the pesoâ€™s peg to the dollar, and service previously incurred debt. From 1998 through mid-2001, the IMF and European creditors, gravely worried about their own portfolios, arranged $22 billion in further loans and lines of credit, with the IMF again insisting, counter to economic theory, on austerity measures to balance the budget by slashing domestic spending.
On 21 August 2001 the IMF recommended an $8 billion increase to an earlier $14 billion stand-by loan for Argentina. The BBCâ€™s Lourdes Heredia reported from Buenos Aires on November 25 (1) that the government would post a $7.8 billion dollar deficit in 2001, $1.3 billion higher than the limit agreed in August; (2) that an IMF mission had arrived to examine the governmentâ€™s accounts; and (3) that a $1.264 billion loan disbursement â€œArgentina desperately needsâ€ to balance its budget was in jeopardy.
Despite previous 2001 loans and loan agreements, and with total sovereign debt at $132 billion, on the 5th of December 2001 the IMF pulled the trigger by withholding the $1.264 billion disbursement. This step was taken because austerity measures imposed by the government â€“ measures originally insisted on by the IMF â€“ were not austere enough. (Nor were IMF oversight and supervision severe enough.)
The government had, in fact, overspent. Yet the hard truth is that the IMF denied Argentina a mere $1.264 billion â€“ which would have all but balanced the budget â€“ and thereby brought down the economy and the government.
As the late Everett Dirksen famously said: â€œA billion here, a billion there. Soon youâ€™re talking real money.â€ Real money, indeed. One can only hope that yet another â€œIMF coupâ€ is not in the offing; we shall see.
Yet the true lesson of Argentina is this: The IMF is a creature controlled by the United States, which is that institutionâ€™s primary backer in terms of percentage of funding by member nations, and thus in voting rights. Ergo, the United States holds the reins on the runaway stage that is the IMF, and by extension the World Bank. And the reason the U.S. carries on with policies and practices that prove disastrous for other countries is very clear: Those policies and practices are very, very profitable. Many banks and other investors mobilized by IMF and World Bank loans charged Argentina interest premiums of 7% to 16% above the commercial rate.
Protestors can, will and do rail against globalization. And so they should: There is not one country that has experienced long-term economic stability by following IMF guidelines. (Just ask Joe Stiglitz or Jeffrey Sachs.) Rather, they grow debts like weeds and very often, as in Argentina, they suffer social, political and economic chaos. But anti-globalization protestors must remember, or learn, that the IMF is controlled by the United States of America. And, as numerous recent unilateral and domestic actions on the part of the U.S. prove, the government will place commercial interests of the United States over those of any other nation or issue.
Perhaps Shakespeare put it best in Titus Andronicus (4.4.83-86): The eagle suffers little birds to sing,//And is not careful what they mean thereby,//Knowing that with the shadow of his wings//He can at pleasure stint their melody.
As moneymen (and women) are so fond of saying, â€œThe numbers donâ€™t lie.â€ Perhaps not. But the melody they are sung to is the tune of weapons being locked and loaded â€“ IMF strictures, conditions. Sadly, all too often, the melody ends in the pizzicato of gunfire and the scent of powder. When it flies about the world, the econometric eagle is armed and dangerous.