Argentina’s economic collapse has sparked a colossal movement. Presidents count their terms in days, sometimes hours, as worker and middle-class pressure forces them out.

Eight general strikes in 18 months. Mass protests by hundreds of thousands of workers and middle-class people. The stock markets closed for all but a few days since December because dealers have no funds. Debt default and five presidents in fewer weeks. These are the symptoms of the revolutionary crisis which has erupted in Argentina, following total economic collapse in the wake of four years of recession.

Today, the crisis in Argentina has many elements of what Marxists would call a pre-revolutionary situation. The main elements of which can seen in the following factors.

There are open splits amongst the ruling class which for a while in December was in a state of near paralysis as president succeeded president in a matter of days. All three of the main capitalist candidates who contested the last elections in 1999 have now been in power, tested and rejected by the masses. The middle class is bordering on being destroyed, plunged into mass pauperisation. It has consequently entered the struggle, employing many of the methods of the working class.

Workers have been fighting the neo-liberal policies of successive governments in a series of strikes and general strikes, the most recent of which took place on 13 December. This was followed by mass protests in central Buenos Aires largely composed of the ruined middle classes.

The crisis has also undoubtedly affected the state machine – the army and police. The government has used vicious repression by the riot police. But the social conditions and undermining of the armed forces following the military regimes of the 1976-83, alongside the defeat in the Malivinas/Falklands conflict in 1983, have prevented the ruling class from using the military to repress the movement at this stage. The declaration of a state of siege by the government on 19 December was a decisive factor that brought the masses onto the streets to topple president Adolfo Rodríguez Saá after a few days in office.

Years of economic decline, corruption and the accumulated hatred of all the capitalist political parties and coalitions have resulted in deep mistrust and even opposition to the parties and institutions of capitalism. The masses have developed a universal hatred against what they regard as ‘the political class’. In Argentina the emergence of a caste of corrupt political bureaucrats divorced from the mass of the population has acquired an extreme form. It is, however, part of an international trend. The collapse in the support of these instruments of capitalist rule and the scale of the pauperisation of the middle class have many features that resemble the crisis which developed in Germany during the 1920s.

At the same time, however, the explosion of anger and opposition to neo-liberal policies and the parties of capitalism have not been channeled into the overthrow of capitalism and the taking of power by a workers’ government because of the weakness of crucial ‘subjective factors’.

The most important of these is the lack of independent organisation by the working class and other strata exploited by capitalism. The absence of a revolutionary socialist party with mass support and influence amongst the working class is holding back the mass movement. Although the working class is fighting neo-liberalism and capitalism, its political consciousness has not embraced the alternative of socialism. In part, this is a legacy of the collapse of the Stalinist regimes of the Soviet Union and Eastern Europe around 1990. The Argentinean workers’ political outlook is also influenced by the experience of Peronism in the past. It will need a series of upheavals for a mass socialist consciousness to develop. This means that the crisis will unfold over a protracted period of time. It could, therefore, be characterised as a ‘pre-pre-revolutionary’ situation.

The dramatic events in Argentina have many lessons for the international workers’ movement. The scale of the economic collapse and the mass pauperisation of the population are a warning to the working class in Europe and the imperialist countries of what the future holds if the capitalist system is not replaced by socialism.

Collapse in living standards

Argentina is not a ‘typical’ Latin American country. Historically, it was a relatively developed economy. By 1933 it was the tenth-richest economy in the world. A decade later it was ninth. At one point it was richer than France and, in 1945, boasted a higher standard of living than Canada. Until recently it enjoyed the highest standard of living in Latin America.

The economic growth that took place in the 1930s meant that Argentina became an escape route for tens of thousands of European workers and middle-class people who fled the effects of the economic recession that gripped Europe. Economic migrants who arrived in Buenos Aires marveled at the wealth of what was dubbed the Paris of Latin America. The economic migration of the 1930s is reflected in the make-up of the country. At least ten million of the 38-million population are half-Italian.

Today, the wheel of history has turned full circle as tens of thousands try to flee Argentina in despair at the scale of the collapse. Applications to claim Italian citizenship and passports have tripled in two weeks. The queues outside the Spanish consular office in Buenos Aires have increased from 800 to 3,000 people every day! During the second week of January the Jewish Agency for Israel processed 1,400 applications for migration to Israel – ten times the usual number.

Even these dramatic figures do not fully reveal the speed and scale of the economic collapse which has triggered this migration. With 40% of the population now living below the official poverty line, being joined by four more every hour, it is now the middle class that is being devastated. The Financial Times reported that 100 children die every hour from starvation and disease. This follows years of attacks on wages and conditions that have been imposed on the working class. Architects, technicians and accountants now find themselves jobless, homeless and hungry. Shanty towns on the outskirts of Buenos Aires have banners over the entrance proclaiming, "Bienvenido a la clase media" – welcome to the middle class.

The hated former Minister of the Economy, Domingo Cavallo, cut the wages of civil servants and pensions by 13% in an emergency package introduced in July 2001. Wages as a percentage of national income fell from 30% in 1989 to only 18% in 1994 and are now even lower. Yet this is not enough for capitalism. According to the Financial Times, economists are demanding that real wages be cut by a further 30% (2 January). The historic perspective on this decline in living standards is clearly illustrated if it is compared with the percentage of national income going to wages at the peak of Argentina’s economic growth. In 1943 it was 44% and under Juan Perón rose to 60% in 1950!

The brutal driving down of living standards of the working class rapidly accelerated during the 1990s. It is the middle class that is being devastated and almost driven out of existence economically. The Financial Times brutally explained when commentating on the prospects for un-pegging the Argentinean peso from the US dollar: "Argentina can no longer afford its middle class".

Return of the conquistadores

The onslaught on living standards in the 1990s was linked to the long-term, historic decline of Argentina and the introduction of free market neo-liberal polices which were implemented at lightning speed. When Carlos Menem was president in the early 1990s, Argentina was regarded as a ‘worthy child’ by international capital and speculators. Menem’s programme was dominated by wholesale privatisation and linking the peso to the US dollar at a one-to-one exchange rate in 1991.

These measures represented a historical about turn of Peronist policies, which had previously championed state intervention. They were an Argentinean version of what Tony Blair was to impose on New Labour and the British workers. They resulted in a financial bonanza for international capital. Multinational companies, particularly from Western Europe – mainly Spain and Italy – moved in. They bought up local services and industry at giveaway prices and plundered the economy. Throughout Latin America it was joked that the modern "conquistadores" had returned. This time they came in business suits with first-class plane tickets, armed with cheque books to buy up whatever was up for auction.

The national airline, Aerolineas Argentinas, was sold-off to Spain’s Iberia airline company and some private Argentinean investors. The state telephone company, ENTEL was split in two and sold-off to Spain’s Telefónica and its Italian counterpart, STET. When Aerolineas Argentinas was privatised in 1991, congressmen calculated that the three Boeing 747s owned by the airline had been sold for $590,000 each, less than 10% of their value. An old Boeing 707 was sold for $1.50 – less than the price of a toy model of the same plane in a Buenos Aires toyshop! Billions of dollars flowed into the country in a bout of speculation unprecedented for Latin America.

Menem invested his political prestige in the peso-dollar convertibility plan just as his European counterparts are doing today with the euro. This policy was initially popular as it was deemed responsible for ending the hyper-inflation that rocked Argentina during the 1980s, when it reached 3,000% per annum in 1989. The long-term consequences, however, were disastrous.

It effectively handed control of the government debt burden to foreign creditor banks. As a result, the foreign debt rose from $65 billion in 1991 to $160 billion in 2000. Moreover, as the value of the dollar rose, Argentinean exports became increasingly uncompetitive and were delivered a knock-out blow when Brazil – Argentina’s biggest trading partner – devalued its currency, the Real, in 1999/2000. The convertibility policy was economic nonsense and endured as long as it did because to abandon it would have provoked massive bankruptcies (as loans were taken out in US dollars un-pegging the peso would force a devaluation and increase the total debt) and for reasons of political prestige.

By 1998 these policies and the effects of the South-East Asian currency crisis on the world economy combined to plunge the economy into one of its deepest ever recessions. Foreign investment dried up and the government ran out of state assets to sell off: the family silver had been sold or given away to the foreign speculators. The high dollar priced Argentinean goods out of the world market.

A string of austerity packages demanded by the International Monetary Fund (IMF) only compounded the crisis. The nine ‘stabilisation’ programmes demanded by the IMF since 1983 have ended up with Argentina carrying out one of the largest national debt default’s since 1945!

The crisis in Argentina is already having serious repercussions in the international economy. Among the recent ‘victims’ are the speculators who plundered the economy during the 1990s. Spanish companies estimate they have invested up to €44 billion ($50bn) in Argentina and will lose at least €3 billion ($3.4bn). However, it is likely that far more will be lost. Five of Spain’s largest companies have substantial investments in Argentina, including the banking monopoly BBVA. Merrill Lynch & Co estimates the crisis could cost BBVA $940 million. The front-page headline of the Spanish daily newspaper, El Mundo, summed up the pessimism: "Spanish companies fear that Argentina will make them pay for the crisis". The international repercussions will not only be felt in Spain but are certain to spill over into Brazil, the rest of Latin America and the world financial markets. Moreover, the debt default now threatens to be repeated in other countries of the neo-colonial world.

State intervention

The scale of the economic collapse and the degree of the social explosion has left the Argentinean ruling class floundering as one government after another has fallen in the face of a mass revolt of the working and middle classes. These historic developments have forced the now Peronist-led government of Eduardo Duhalde to halt the neo-liberal policies and revert to some measures of state intervention and protectionism, and to un-peg the peso from the dollar. This is despite the fact that Duhalde served as vice President for two years under Carlos Menem’s neo-liberal government in the early 1990’s.

This dramatic turnabout will not resolve the crisis. However, it represents an important new phase in the international situation. The change in policy in Argentina illustrates how the policies of neo-liberalism – which have been universally applied during the 1990s – and the process known as globalisation, can be checked and even go into reverse under the impact of economic and social crises. Recoiling from the effects of neo-liberal policies, Duhalde declared when he had taken office: "For many years in Argentina they have made us believe that amid this new world order there is only one possible economic model. That is a complete falsehood".

This change has many important lessons for future developments internationally, including in Europe. For example, these events question the prospects for maintaining the euro during a major economic recession or slump. As in Argentina, the onset of economic and social crises can, at a certain stage, compel the ruling class to pull out of the economic straitjacket of the euro, which will lead to its unraveling.

Gripped in the jaws of economic and social crisis, Duhalde’s shaky government has been compelled to abandon the neo-liberal policies implemented during the 1990s. This change of policy has provoked the wrath of some international commentators. Martin Wolf blames Duhalde for "turning a disaster that at least offered some glimmer of hope into a disaster". (Financial Times, 16 January 2002)

Duhalde’s policy shift has not been implemented out of concern for the plight of the working class or even the interests of the middle class. His new administration has been forced to change policy by the pressure of the massive social explosion that is taking place and in a desperate attempt to try and defend the interests of an extremely battered Argentine capitalist class which has been increasingly weakened by the intervention of foreign capital during the last two decades.

The measures that Duhalde has begun to apply amount to a balancing act between the different classes. Remaining within the capitalist system, however, he will be unable to resolve the devastation that faces all of the exploited classes. They are an attempt to return to elements of a more classic Peronist policy of state intervention and support for ‘national Argentinean companies’, rather than the neo-liberalism practiced by Menem, ‘Menemismo’ as it became known.

Juan Perón

However the re-embracing of classic Peronism is being done under entirely different conditions to those which confronted Juan Perón in the 1940s and 1950s. Then it was possible for Perón, a military general, to win the support of the workers. The post-1945 economic growth, in particular, allowed his governments to dramatically increase living standards and implement social reforms which lasted for a relatively long time. This growth was possible because starving Europe imported huge amounts of Argentinean beef under favourable economic terms. This allowed reforms and concessions to be made to the working class in this period.

Peronism developed as a nationalist-populist movement which was supported by the mass of workers and militants on the ‘left’, as well as by extreme right-wing nationalists. The Peronists were able to develop and maintain their basis amongst the working class because of the mistaken policies and orientation of the Communist Party. In 1950 the main trade union federation, the CGT, dropped its support for ‘socialism’ and declared its backing for Perón.

Resting on the support of the workers, but defending the interests of the bosses, Perón balanced between the opposing interests of the working class and the ruling capitalist class. For a time, living standards rose and Perón introduced measures which helped strengthen the trade unions, striking some blows against certain specific capitalist interests. When Perón came to power in 1946 trade union membership stood at 877,000. By 1950 it had reached nearly two million and eventually included 42% of the workforce.

At the same time, he defended capitalism and was capable of striking bloody blows against the working class. For example, in 1951 his regime placed the whole of the striking workforce on the railways under military rule.

Perón wanted a ‘corporate capitalism’ and fought attempts by the working class to independently organise itself either politically or industrially. Trade union leaders who had formed a ‘Labour Party’ – following the Labour victory in Britain in 1945 – supported Perón in the presidential elections which he won in 1946. They then found their party ‘dissolved’ as he launched his own Peronist party.

Perón’s ‘corporate capitalism’, as one union leader pointed out at the time, "allowed the unions to build workers’ homes, clinics, holiday camps and sports facilities". These reforms were not intended to break capitalism but to maintain it.

Perón urged the employers, "Not to be afraid of my trade unionism… I want to organise workers through the state… to neutralise ideological and revolutionary currents in its midst which might place our capitalist society in danger. We have to give the workers some improvements and they will be an easily managed force". Having won the 1950 election with 60% of the vote, Perón was overthrown by a military coup in 1955 following which he was to spend nearly 18 years in exile until his return in 1972. The contradictory character of the Peronist movement was graphically shown when Peron returned to Buenos Aires. He was greeted by more than one million people and a gun battle broke out between left-wing and right-wing Peronists.

Balancing act

Today Duhalde’s government confronts a bankrupt economy and mass opposition and hatred of all capitalist politicians - including the Peronist leaders. The popular view that they are all corrupt gangsters is fully justified. Menem, who was planning his return to government in elections scheduled for 2003, is currently being investigated on two counts of illegal arms smuggling to Croatia and Ecuador!

Duhalde’s economic measures represent a balancing act. With the left hand, he is reverting to state intervention and giving some minor concessions to the mass of the population only to take them back with further attacks on living standards, with the right hand. Price controls on the utilities have been introduced along with taxes on the petrol industry. And protectionist measures to help some Argentinean sections of the economy have been applied.

Un-pegging the peso from the dollar has resulted in a 40% devaluation of the currency which, potentially, could have triggered more bankruptcies and plunged even bigger sections of the middle class into ruin. At least 80% of mortgages and other loans were taken out in dollars when the exchange rate was one-to-one. A straight devaluation would immediately increase the debt by the equivalent devaluation. This has been partly offset by a decree that loans of $100,000 and less will be exchanged at the earlier one-to-one rate. This has enraged the banks which lost out. Duhalde accompanied the un-pegging of the peso from the dollar with strong denunciations of foreign banks.

The crisis has been further compounded by a flight of capital. Rich Argentineans have moved billions of dollars off-shore to foreign bank accounts. $130 billion has been taken out of Argentina and used to secure loans with local banks. Between March and December 2001 an estimated $18 billion left the country.

Duhalde still has to defuse the problematic issue of banking controls. These were introduced to restrict the amount of money which can be withdrawn from accounts in an attempt to stave off a run on the banks which would trigger their collapse. He said: "These damned bank curbs are a time bomb that has to be deactivated. If the bomb explodes nobody gets any of their money back". The question is, how? Dulhade admits, "This is a depression. We don’t know with great precision how to solve this problem because there are no experiences like this". At the same time, the minister of the economy, Jorge Remes Lenicov, insisted that "the government was committed to slashing public spending and eliminating waste to balance the budget".

The new-found ‘Peronist’ policies of Duhalde will not be able to resolve Argentina’s problems. The mass protests against some of his government’s measures have continued and clearly point to the fact that the crisis is not over. It will deepen in the coming weeks and months. In recent opinion polls, 90% of the population supported the demonstrations against Dulhalde’s government. The bleak future of a capitalist Argentina is illustrated by commentators who argue that a further five to ten years of recession are necessary before the economy can return to competitiveness.

The need for socialism

Duhalde has been appointed until 2003 although it is not certain he will last until then. It is essential that the working class builds its own independent alternative. A struggle to force new elections to a constituent assembly needs to be organised alongside the building of an independent socialist alternative of the working class and all other exploited classes. A new mass workers’ party with a socialist programme is essential to begin the task of overthrowing capitalism.

No trust or confidence can be given to Duhalde’s government. The struggle against poverty and hunger needs to be taken forward. There has to be an investigation by committees of working people into the corruption of the capitalist politicians and speculators. It is urgent that local committees of struggle are formed, made up of delegates from the workplaces, the unemployed, students and small businesses. Such committees of struggle should undertake the distribution of food from the big supermarkets and retailers to the hungry on an organised basis.

The committees of struggle need to link up on a citywide, regional and national basis to establish an alternative government of the workers and other people exploited by capitalism. Such a government must immediately implement an emergency programme of public works to provide jobs for the unemployed and begin the task of building the houses, schools, hospitals and transport system needed by all working-class people.

Interest charges and the debts to the banks of small and medium debtors should be cancelled. A minimum wage and the reduction in the working week to 35 hours need to be implemented. Capitalism must be broken through the introduction of a democratic socialist plan of production based on the nationalisation of the banks and major companies under democratic workers’ control and management.

Such policies need to be spread to the rest of Latin America, the US and on to other continents. The establishment of a voluntary, democratic, socialist federation of Latin America will be the only way to defeat capitalism and imperialism. This would be able to begin the task of building an alternative to capitalism and the horrors it means for the vast majority of the population in 2002.

If such a mass socialist alternative is not built, then other forces can emerge to fill the vacuum that exists because of the embittered hatred of all the main capitalist political parties. Initially, other radical left popular forces, such as ARI, may win support. If capitalism remains then, at a certain stage, new forces of a populist-nationalist character could emerge from the military. The threat of a collapse of Argentinean society could also threaten the return of a right-wing military regime at a certain stage although this is not an immediate perspective for the reasons explained earlier. Such forces could win support to ‘restore order’ and ‘end the crisis’ and would alternate between radical populist policies and repression of the mass movement and nationalism.

The crisis in Argentina is likely to unfold over a period of months and even years. The task of building a socialist alternative is now more urgent than ever.

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