Argentina: No light at the end of the tunnel

Argentina’s financial crisis is threatening an economic meltdown which could also sink the economies of South and Central America and have a catastrophic impact on the world economy. US imperialism and Argentina’s rulers are attempting to make the working class pay for this crisis. But these attacks have unleashed a massive movement of strikes and demonstrations including seven general strikes in the last 18 months.

THE ANNOUNCEMENT of a new International Monetary Fund (IMF) loan of more than $8 billion will not solve the most serious crisis in Argentina’s history.

The first $5 billion will do no more than shore up Argentina’s dollar reserves after a $13 billion drain over the last few months. The other $3 billion will be freed next year if the government and the provinces move ahead with more far-reaching spending cuts to end the deficit.

On the eve of the new agreement, Argentina’s finances were on the brink of collapse. Immediate bankruptcy has been avoided but the country is like a dying man getting a fresh oxygen tank. The real problem remains unchanged. At most, some time has been gained – perhaps until the elections expected in October.

The government of President De La Rua looks exhausted before its second year is up. It was elected in October 1999 as an opposition Alliance between the Radicals (UCR) and La Rua’s FREPASO after capitalising on enormous dissatisfaction with the failure of Peronist president Carlos Menem’s neo-liberal (free-market capitalism) policies.

But disillusion with the new government was quick to set in. Under La Rua, Argentina deteriorated economically with a series of unsuccessful plans, crises, corruption scandals, the resignation of vice-president Chacho Alvarez (FREPASO), the fall of two economy ministers, and finally, an unprecedented political and economic crisis!

La Rua fails

Argentina has suffered more than three years of recession with terrible economic and social consequences. It has devastated working-class living conditions and financially crippled the middle classes, thousands of whom are queuing at foreign embassies trying to emigrate.

Poverty affects 37% of the population, unemployment and underemployment about 30%. Half of all wage earners get less than 500 pesos a month (around £345).

Public debt has shot up to $132 billion. There are no more external credits so debts are unpayable as the direct consequence of basing the economy on a peso/dollar parity in 1991 under ex-president Menem and economy minister Cavallo.

Illusions in the ‘bullet-proofing’ of the Argentinian economy through $39.7 billion IMF aid in December 2000 crumbled as the economy minister Machinea resigned in March. The threat of insolvency remained .

Then came savage public spending cuts of about $2 billion, caps on transfers to the provinces, a 13% cut in civil servants’ wages and pensions, etc, that caused an uprising nationwide. Faced with this, Machinea’s replacement, Lópes Murphy, became probably the shortest-lived minister in the history of the country.

In March this year, in a desperate attempt to win confidence from international speculators, De La Rua brought back Domingo Cavallo and gave him special powers. Cavallo was a minister in Menem’s government and had been defeated by De La Rua himself in the 1999 presidential elections.

Cavallo once again played for time by attempting to reschedule much of the foreign debt from short-term to long-term repayment. That mega-swap was costly (with interest rates at 12%-14%) and will mean future pain. Even so, it failed to reactivate the economy.

More ‘aid’ from the IMF was delayed by differences between the US and the IMF over the crisis in Argentina. The US government demanded compulsory restructuring of Argentinian debt with an "orderly moratorium".

The IMF was concerned over possible losses for international speculators, as well as the repercussions of an Argentinian debt repayment moratorium on the world financial system. In the end, it was decided to use some of the new funds from the IMF to voluntarily restructure and reschedule the debt.

If this attempt fails, a moratorium is likely as well as devaluation or total dollarisation of the economy.

Cavallo tried to boost exports by introducing a ‘flexible’ peso/dollar parity. He re-introduced an exchange market divided into a financial sector (maintaining peso/dollar parity) and commercial sector (with a devalued peso). This may well lead to a future massive devaluation with major consequences.

Peso/dollar parity was established in 1991 as the central pillar of Cavallo’s anti-inflation programme in the Menem government but is now unsustainable.

But devaluation will be a devastating blow to the prestige of the ruling class and a pointer to the difficulties that will confront the Euro countries.

Devaluation would also have dire consequences since most companies and much of the population have debts in dollars. Argentina has no way out as long as the logic of keeping capitalist markets happy is followed.

People’s uprising

The draconian conditions imposed by the IMF will deepen social and political instability. The governors of the 23 Argentinian provinces – both pro-government and the opposition – reject cuts in transfers from federal budgets. There is already social chaos in the provinces with mass unemployment and destruction of public services. Public sector workers often go unpaid for months!

De La Rua and Cavallo will try to abolish the deficit with more attacks on public services, wages, pensions and people’s living standards. All this to guarantee profits for international investors and the economic groups that dominate the Argentine economy.

Buenos Aires province’s employees receives wages in the form of a bond, because there is no money. Local ‘currencies’ are used in other provinces as a form of bartering has developed.

The weight of the crisis falls on the backs of the poor, the unemployed and workers. But this has caused explosive reaction with the country experiencing some of the biggest popular struggles of recent years.

This fightback is the most decisive factor for the country’s future. In the words of a politician linked to De La Rua: "The main problem is that the economic policies we need clash with current political conditions".

Public sector strikes and general strikes called by the unions have resulted in mass mobilisations, pickets and blockades of streets throughout the country.

Rebellion is no longer limited to the poorest provinces. The struggle in the capital, Buenos Aires, is also intensifying.

Down with De La Rua, Cavallo and the IMF!

This Government may fall due to the intensity of the crisis and the pressure of the mass movement. De La Rua is set to be defeated in the October elections and the future of government is hanging by a thread. Such is the discontent that any government of ‘national unity’ with Peronists (PJ), radicals (UCR) and FREPASO around De La Rua and Cavallo, would also be difficult to maintain.

Today, around 50% of the population want early elections although the scheduled year is 2003. Polls also show 70% of the electorate are against privatisations and 90% believe the government’s policies will not solve the current economic crisis.

The union leaders, however, are taking a purely defensive approach. They have been compelled by the rank and file members to put up some resistance to the government attacks but without putting a clear alternative. This means the movement cannot go forward and challenge the capitalist regime. The trade union leaders end up allowing room to manoeuvre for the government and the capitalist politicians.

The powerful Argentinian workers’ movement with all sections of the working class under attack after years of neo-liberalism must be armed with a clear socialist alternative.

For a socialist and workers alternative in Latin America

The Argentinian crisis is not just the result of bad management of the economy. Or even of the limitations of neo-liberal politics adopted by Menem/Cavallo/De La Rua. It is the reflection of a crisis in the capitalist system.

The failure of De La Rua in implementing an alternative to Menem’s economic policy is a clear sign of the fragility of the so-called ‘centre-left’ alternatives to neo-liberalism in Latin America.

In Brazil, the Workers’ Party and its leader Lula will have to draw this lesson before the 2002 presidential elections.

The events in Argentina are part of a general process of collapse in dependent countries and capitalist globalisation. Starting in Mexico in 1995, South East Asia in 1997, Russia in 1998, Brazil in 1998-99 and Ecuador in 2000, we have seen the terrible effects of heightened imperialist oppression of the dependent countries.

The perspective of global recession will further undermine any way out under capitalism.

The powerful workers’ movement in Argentina together with the urban poor needs to arm itself with a clear socialist programme for fundamental change. And it needs to build its own independent political party to fight for such a programme, to include:

Refusal to pay the foreign debt; nationalisation of the banks and the financial system together with the major monopolies that control the economy and the immediate implementation of a socialist economic plan, democratically drawn up and managed by the working class.

This anti-capitalist and socialist programme, if implemented by a government of the Argentinian workers’ organisations, would inspire all of Latin America to combat the FTAA (Free Trade Area of the Americas) and the increasing intervention by American imperialism in Latin America.

Special financial appeal to all readers of

Support building alternative socialist media provides a unique analysis and perspective of world events. also plays a crucial role in building the struggle for socialism across all continents. Capitalism has failed! Assist us to build the fight-back and prepare for the stormy period of class struggles ahead.
Please make a donation to help us reach more readers and to widen our socialist campaigning work across the world.

Donate via Paypal

Liked this article? We need your support to improve our work. Please become a Patron! and support our work
Become a patron at Patreon!

Be the first to comment

Leave a Reply

Your email address will not be published.


July 2001