Argentina: The Debt Tango

17 August 2016 by Eric Toussaint

Photo by Prayitno (CC)

We put out here a study about Argentina from Éric Toussaint, which is unpublished online yet. It covers the 1976-2003 period. It has been published in the book Your Money or Your Life.

The people of Argentina rose up against the neo-liberal policies conducted by the centre left government of Fernando De la Rua and his minister Domingo Cavallo. The crisis that erupted in December 2001 has shown that citizens’ action can change the course of history. In the few weeks from the end of 2001 to early 2002, three presidents of the Republic succeeded one another, and the suspension of external debt repayments was decreed. Hundreds of factories, abandoned by their owners, were occupied by the workers, and their activities resumed. For months, hundreds of thousands of people regularly took part in local assemblies. The unemployed were able to improve their organisation and became more active within the framework of the piqueteros movements, which, by 2002-2003 had several tens of thousands of members.

The national currency underwent drastic devaluation Devaluation A lowering of the exchange rate of one currency as regards others. from one Argentine peso to the dollar, to three pesos to a dollar. The government created local currencies.

One cry was heard repeatedly in the demonstrations: « Que se vayan todos » (« Down with all politicians! »), expressing the demand for a different approach to politics, by putting it into the hands of the citizens.

The string of concrete decisions that led up to the riots in the night of 19 - 20
December 2001 began with the refusal by the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
to grant a loan to the Argentine government on the agreed date, despite the fact that the latter had readily applied the unpopular measures recommended by the Bretton Woods institutions. The De la Rua government responded by blocking all savings accounts. That was the last straw. The population spontaneously acted in unison, when the middle class (in fact, the large majority of salaried workers) went down into the streets and were joined by the “have-nots” (the unemployed, the slum-dwellers, the day-labourers…).

The Argentine crisis marks a quantum leap in the rejection of policies dictated by the Bretton Woods institutions. It occurred after over a quarter of a century of understanding between the IMF and the Argentine authorities, from the sinister dictatorship of Videla in 1976 until the centre left government of De la Rua. The failure is obvious, and the decision of the president who succeeded De la Rua to give in to the pressure from the street marks a dramatic about-turn in the relationship with the IMF. Rodriguez Saa announced at the end of December 2001 that Argentina was suspending debt repayments until there was full employment. Argentina’s default on debt repayment was the biggest in the history of debt crises.

Below is a piece the author wrote a few months before the debt crisis erupted in December 2001. No changes have been made to this text written in August 2001 and entitled, “Is Argentina the weak link in the global chain of indebtedness?”. The title was a question. The concrete actions of the Argentinians have transformed the question into an affirmation. The original text will be supplemented by an extra passage covering the period up to 2002-2003.

Is Argentina the weak link in the global chain of indebtedness?

In 2001, the situation in Argentina had become dramatic after three years of recession due to the application of particularly aggressive neo-liberal policies.

For nearly twenty years, successive governments have been pursuing the transformation of the country initiated by the dictators in1976 – 1983. Contrary to popular belief, no real changes were made when the dictatorship ended. None of the of the subsequent governments have made any fundamental difference to the downhill course that Argentina was set on by the ruling class over the last decades.

The Argentina of today is fundamentally different from the Argentina of the 1940s, ’50s and ’60s. Its relative importance as an industrial power of the Periphery has diminished and the standard of living is, for the majority of the population, lower now than it was thirty years ago.

Between the start of the dictatorship in March 1976 and the year 2001, the debt was multiplied by nearly 20, from less than 8,000 million dollars to almost 160,000 million dollars. Over the same period Argentine repaid about 200,000 millions dollars, or about 25 times what it owed in March 1976.

Year Debt Service paid (capital + interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. )
1975 7 875
1976 8 280 1 616
1977 9 679 1 849
1978 12 496 3 310
1979 19 034 2 255
1980 27 072 4 182
1981 35 671 5 390
1982 43 634 4 875
1983 45 087 6 804
1984 46 903 6 281
1985 48 312 6 208
1986 52 449 7 323
1987 58 428 6 244
1988 58 834 5 023
1989 65 256 4 357
1990 62 730 6 158
1991 65 405 5 419
1992 68 937 4 882
1993 65 325 5 860
1994 75 760 5 771
1995 99 364 8 889
1996 111 934 13 054
1997 130 828 18 308
1998 144 050 21 573
1999 147 881 25 723

Source : World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, GDF 2000

Argentina exemplifies the worst extremes of the pernicious debt spiral in which the Third World, and indeed the Periphery in general, are trapped. It is because of debt payments, not in spite of them, that in 2001 Argentina found itself owing nearly 20 times what it had owed at the beginning of the dictatorship - a large proportion of fresh loans was used to re-finance old debts as they fell due, or torepay them. For Argentina, repaying the debt was and is a formidable mechanism for transferring the wealth produced by wage-earners to capital holders - whether Argentines or residents of the highly industrialised countries, with the USA and Western Europe in the fore. The mechanism is simple. The Argentine State devotes an ever-increasing part of its tax revenues (most of which come from the population) to repaying the external debt and for various sorts of handouts to the capitalist sector. Who gets the money repaid by the Argentine State? The big private international financial institutions which hold more than 80% of Argentina’s external debt. But the ultimate irony is that it is on the very North-American and European financial markets where the loans are issued that the Argentine capitalists buy Argentine debt bonds with money taken out of the country and thus collect part of the debt payments.

The rest of this section will show how the Argentine capitalists blithely indebted the country during the dictatorship, while at the same time depositing a large part of the money abroad (capital flight). The total amount of capital invested by Argentine capitalists in the highly industrialised countries and tax havens during the dictatorship exceeded the amount borrowed. The technical explanation for this phenomenon can be found in various works by the following authors: A. and E. Calcagno; A. Ferrer; M. Rappoport, 2001, pp. 813 - 814 and in the Ballestero ruling in Poder Judicial de la Nacion, 2000. In 1980-1982 alone, the World Bank estimated capital flight at over 21,000 million dollars (Rappoport, p. 825). As a supreme gift to Argentine (and foreign) capitalists, their debts were assumed by the State when the dictatorship ended. From then on, the State has been burdened with the debts of private companies, as it honoured obligations towards the creditors.

Since then, Argentine capitalists have kept up their capital flight tactics as though it were a national sport… so much so, that if there were to be Latin American capital flight championships, the Argentine capitalist class would win hands down, despite some very experienced competitors: Brazilian, Mexican and Venezuelan capitalists all excelling in this event.

On the other hand, the debts of publicly-owned companies, which had also greatly increased during the dictatorship, were not cancelled, except when they were to be privatised. Those in power after the fall of the dictatorship used the indebtedness of public companies as a pretext for privatising them, while taking care Care Le concept de « care work » (travail de soin) fait référence à un ensemble de pratiques matérielles et psychologiques destinées à apporter une réponse concrète aux besoins des autres et d’une communauté (dont des écosystèmes). On préfère le concept de care à celui de travail « domestique » ou de « reproduction » car il intègre les dimensions émotionnelles et psychologiques (charge mentale, affection, soutien), et il ne se limite pas aux aspects « privés » et gratuit en englobant également les activités rémunérées nécessaires à la reproduction de la vie humaine. to shift their debts onto the State before selling them. (See below, the case of the Argentine airline company, Aerolineas Argentinas.) This is just one more disgraceful example of a gift being handed out to Argentine or foreign capitalists.

A quarter of a century of this has bled the country dry. Wages and social revenues have plummeted, unemployment is at its highest ever, the public services have been decimated, poverty is spreading to more and more sectors of the population - including sectors that used to enjoy a relatively comfortable standard of living. The State’s coffers are empty, a lot of the industrial infrastructure has fallen into utter neglect, and the rest into foreign hands. There is not much left to privatise. Undercurrents of revolt are becoming more and more apparent - there were several general strikes in 2000, roads were blocked by “piqueteros”, whole neighbourhoods and towns, reduced to poverty, have risen up in rebellion.

Clearly, Argentina is one of the weak links in the chain of international indebtedness and it might well be thanks to Argentina that the chain is broken. But there is no saying, the crisis could go on for years. The damage done to workers’ organisations and the social movement in general by the dictatorship between 1973 and 1983 has had lasting effects. Although the people of Argentina have a hundred reasons to shout “Ya basta !”, they seem to hesitate, not certain of the outcome. The trade union leaders are not fully engaged in this crucial battle. Yet from an international point of view, if Argentina were to change its attitude regarding the debt, the repercussions would be enormous. The amounts it has to pay back to the financial markets of the highly industrialised countries are so huge that if it defaulted, the shock would be so great as to force them into a dialogue. In order for, not only the Argentineans, but also the other indebted countries to benefit, it would be necessary for the pressure of citizens’ movements to oblige the Argentine government, unlike Alan Garcia in Peru in 1985 or the Brazilian regime of 1987, to adopt a long-term unwavering stance. This would have to be combined with economic reforms that would enable a fairer distribution of distribution of national revenue through a re-distributive fiscal policy; organise the return to public ownership of privatised companies; favour regional South-South agreements over trade relations with the USA as regimented by the FTAA (Free Trade in the Americas Agreement).

If external debt payments were to be stopped and a different economic policy to be implemented, it would mean breaking the agreements between the Argentine government and the IMF. But far from damaging Argentina, the rupture would open up new vistas and there is no doubt that,for the Argentine population and its social movements, it would be an opportunity. The question is, will they seize it?

There follows a historical overview of the events that led to the present situation of indebtedness, starting with the dictatorship.

Debt and dictatorship

Argentina’s foreign debt skyrocketed under the military dictatorship of general Videla, which lasted from 1976 to 1981 (see table below). From 2 April 1976 onwards, the Minister of the Economy, Martinez de Hoz, pursued an economic policy that marked the beginning of a process that devastated the country’s productive apparatus - and paved the way for a speculative economy that has bled the country dry. Most of the loan money granted to the Argentine dictatorship came from private banks from the North. It is important to note that the US authorities (both the Federal Reserve FED
Federal Reserve
Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank :
and the administration) fully supported Argentina’s policy of debt accumulation. The architects of Argentina’s policy of debt accumulation were de Hoz and the secretary of state for Economic Co-ordination and Planning, Guillermo Walter Klein. In order to secure credit from private banks, the government forced state-owned companies to borrow from international private banks. State-owned companies became the cornerstone of a strategy aimed at denationalising the state, through an accumulation of debt that has forced the country to sacrifice much of its national sovereignty.

Evolution of Argentina’s external public debt 1975 - 1985 (in millions of dollars)

Year Total debt Increase
1975 7 875
1976 8 280 5.14%
1977 9 679 16.9%
1978 12 496 29.1%
1979 19 034 52.32%
1980 27 072 42.23%
1981 35 671 31.76%
1982 43 634 22.32%
1983 45 087 3.33%
1984 46 903 4.02%
1985 48 312 3%

Source: Argentine Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

quoted in the Ballestero judgement, p.172

Forcing debt on state-owned companies

This is how the main Argentinean state-owned company - the Yacimientos Petroliferos Fiscales (YPF) oil firm - was forced to take on foreign debt even though it had sufficient funds for its own development. At the time of the 24 March 1976 military coup, YPF’s foreign debt was 372 million dollars. Seven years later - when the dictatorship fell - it owed six billion dollars. Its debt had been multiplied by 16 in seven years.

Hardly a cent of the borrowed foreign funds actually went into company coffers; the money lined the regime’s pockets. Under the dictatorship, productivity per worker at YPF jumped by 80 per cent; the total number of workers at YPF fell from 47,000 to 34,000. In order to boost its own earnings, the dictatorship reduced by 50 per cent the subsidy it gave YPF for petrol sales to the population. Moreover, YPF was obliged to have the oil it extracted refined by private multinationals (Shell and Esso). Given its sound financial health before the dictatorship, it could have had its own refinery. By June 1982, not a penny of company assets was debt-free.

Government debt Government debt The total outstanding debt of the State, local authorities, publicly owned companies and organs of social security.

The IMF and those in charge of the dictatorship’s economic policy argued that massive government debt was justified, since the country needed to boost its hard-currency reserves if it wanted to open up the economy from a position of force. A sound economic policy would have sought increased foreign reserves in the country’s international trading Market activities
Buying and selling of financial instruments such as shares, futures, derivatives, options, and warrants conducted in the hope of making a short-term profit.
activity. Instead, the dictatorship obtained its foreign currency by going into debt.

These foreign reserves were neither managed nor supervised by the Central Bank. In fact, the huge sums borrowed from the North’s banks were usually deposited right back into the same banks; or at least into competing institutions. In 1979, 83 per cent of these reserves were deposited in foreign banking institutions. The reserves were worth 10.1 billion dollars; deposits in foreign accounts totalled 8.4 billion dollars. That same year, foreign debt rose from 12.5 billion dollars to 19 billion dollars (Olmos, 1990). Of course, interest earned on these foreign deposits was lower than interest owing on the borrowed amounts.

The Argentine authorities pursued this line of action for the following reasons: firstly, individuals in the regime grew rich off the commissions offered by the North’s banks; secondly, increased foreign reserves meant a significantly increased capacity to import - in particular, to import arms; thirdly, the policy of economic liberalisation and debt accumulation recommended by the IMF, improved the dictatorship’s credibility with the main industrialised countries, especially with the USA. The dictatorship would not have been able to sustain the initial years of domestic terror (1976-1980) without the blessing of the US administration.

For its part, the US Federal Reserve was all the more favourably inclined to the dictatorship’s policies since most of the borrowed money was deposited in US banks. From the point of view of the US administration and the IMF, Argentina’s growing debt load was bringing the country back into the US fold - after decades during which Argentina had been something of a nationalist rebel and achieved real economic progress within the framework of the Peronist system.

Private-sector debt

Private Argentine companies and Argentine subsidiaries of foreign MNCs were also encouraged to amass debt. Private debt rose to more than 14 billion dollars.

Conflicts of interest

Walter Klein was secretary of state for Economic Co-ordination and Planning from 1976 until March 1981. At the same time, he headed a private research firm that represented the interests of foreign creditors in Buenos Aires. When he joined the military regime, his firm represented the interests of one bank, the Scandinavian Enskilda Bank. A few years later, it represented the interests of 22 foreign banks. In March 1981, he left his government job as general Viola was replacing general Videla at the head of the dictatorship. A few weeks later - 7 April 1982, five days after the Argentinian armed forces had occupied the Malvinas (Falkland Islands) and Britain had declared war - Klein was made the authorised representative in Buenos Aires of the British-based Barclays Bank Limited, one of the main private holders of Argentinian public and private debt. When the dictatorship fell and Raul Alfonsin rose to power in 1984, his research firm continued in its role as defender of the interests of foreign creditors.

After the military dictatorship: Alfonsin and impunity

The Central Bank announced that it had no record of public foreign debt. Indeed, post-dictatorship government officials have had to rely on the claims of foreign creditors and on contracts signed by officials in the military dictatorship, even though such contracts had never been approved by the Central Bank.

Nevertheless, the first post-dictatorship government of president Alfonsin decided to honour the dictatorship-era debt in its entirety, public and private. Just as the military’s torturers were amnestied under the 1986 ’full stop’ and ’required obedience’ laws, so too were those in charge of the dictatorship’s economic policy treated with clemency. Most of the dictatorship’s top economic and financial officials retained their jobs in the state apparatus; some were even promoted. Military officials responsible for the repression that claimed at least 30,000 lives also kept their jobs, or were granted early retirements. A scandal erupted when one of them, captain Astiz, finally broke the rule of silence observed by the dictatorship’s military officials: ’In 1982, a friend asked me is there had indeed been disappearances. I replied, “of course, there were 6,500, even more; but no more than 10,000. All of them were eliminated”’ (Le Soir, 16 January 1998).

When the state honours private debt

Private Argentine businesses were also encouraged to borrow money under the dictatorship. Total private debt came to more than 14 billion dollars.

The long list of indebted private companies included the Argentine subsidiaries of MNCs: for example, Renault Argentina, Mercedes-Benz Argentina, Ford Motor Argentina, IBM Argentina, Citibank, First National Bank of Boston, Chase Manhattan Bank, Bank of America and Deutsche Bank.

The Argentine government paid off these private companies’ creditors: Renault France, Mercedes Benz, Citibank, Chase Manhattan Bank, Bank of America, First National Bank of Boston, Credit Lyonnais, Deutsche Bank and Societe Generale.

In other words, Argentine taxpayers repaid debt contracted by the subsidiaries of MNCs with their head offices, or with international banks. It is reasonable to suspect that the MNCs in question actually created the debt of their Argentine subsidiaries with some creative accounting. Argentine government officials have no way of verifying this information.

A wave of privatisation

In 1990-1992, the government of Alfonsin’s successor, Carlos Saul Menem, undertook a vast programme of privatisation, selling off most of the nation’s wealth at rock-bottom prices. It is estimated that the country lost 60 billion dollars in the process. Menem argued that Argentina’s state-owned companies were deeply in debt in order to justify the sell-off. Yet their poor financial position resulted from the debt load they had been forced to take on by the dictatorship; most of the borrowed funds never made it into company coffers.

Menem asked the US investment bank and brokerage firm Merrill Lynch to determine the value of YPF. Merrill Lynch deliberately underestimated company oil reserves by 30 per cent in order to lower YPF’s paper value before privatisation. Once the privatisation had been carried out, the hidden reserves were factored back into the company’s assets; financial operators who had bought company stock at a low price made huge profits when YPF share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. values subsequently rose. The windfall also led many to vaunt the superiority of private companies over state-owned ones.

It is interesting to note that in 1997 Brazilian president Fernando Henrique Cardoso asked the same US firm, Merrill Lynch, to determine the value of the country’s main state-owned concern, the mining company Vale do Rio Doce. A number of Brazilian members of parliament have accused Merrill Lynch of undervaluing the company’s mineral reserves by 75 per cent (O Globo, 8 April 1997).

Apart from YPF (sold to the Spanish multinational oil company, Repsol, in 1999), another Argentine gem was sold for a song: Aerolineas Argentinas. The airline’s Boeing 707s were sold for a token sum - one dollar and 54 cents, to be exact! A few years on, these planes continue to work the routes of the now privatised company. The value of the company’s rights over certain routes - 800 million dollars - was estimated to be only 60 million dollars before privatisation. The company was sold to Iberia for 130 million dollars in cash; the rest was made up of debt write-offs. Iberia borrowed to buy the firm and placed the entire burden of the loan on the new company, Aerolineas Argentinas which thus found itself indebted from the very start. In 2001, Aerolineas Argentinas, owned by Iberia, was on the verge of bankruptcy through the fault of its owners. The case of Aerolineas Argentinas is exceptional. State-owned companies were normally privatised free of debt, which was instead absorbed by the public purse.

The dictatorship on trial

After the fall of the dictatorship, the debt scandal did not fail to attract public attention. The first civilian government established a parliamentary commission, which was dissolved after a year and a half of deliberations. Its findings were considered to be too threatening to Alfonsin’s economic policy, given that in the meantime he had decided to nationalise the debt. Menem, the current president, had at one time also railed against the debt; once in power, though, he abandoned all talk of revisiting this eminently taboo subject.

In spite of all the delays and compromises, a trial is now underway. It is the result of a complaint raised by an Argentine citizen in October 1982, while the country was still ruled by a dictatorship. Thanks to this courageous and tireless journalist, the question of who is responsible for the country’s debt burden is now being examined by judicial authorities. Many of the dictatorship’s economic officials and heads of state-owned companies have had to testify at trial hearings. Walter Klein’s research firm has been searched; most of the documents from the period in question have been seized and placed in safekeeping at the Central Bank.

The judgement pronounced on 13 July 2000 did not give rise to any conviction (mainly because there was prescription) but revealed the full extent of the Argentine debt scandal. Judge Ballestero’s 195-page judgement confirmed a series of very grave accusations.

One of the ways in which the IMF actively supported the Argentine dictatorship was by providing it with one of its top civil servants, named Dante Simone (Poder Judicial de la Nacion, 13/07/2000, p. 31-32; p. 106; p. 109; p. 127 ).

The Federal Reserve of New York, having directly served as go-between for a series of operations of the Argentine Central Bank, had previously done the same to get private US banks to lend money to the dictatorship (p. 127). At the same time, as it was increasing the indebtedness of the Public Treasury and national companies, the dictatorship was allowing Argentine capitalists to deposit huge quantities of capital abroad. Between 1978 and 1981, over 38,000 million dollars are thought to have left the country in an “excessive or unjustified” manner. This was facilitated by the fact that each Argentine resident was entitled to buy 20,000 dollars a day, which could then be deposited abroad (p. 56 - 58).

In other words, the State took on more and more debts while the capitalists cheerfully de-capitalised.

Approximately 90% of resources coming from outside via indebtedness of companies (private and public) and the government were transferred abroad in speculative financial operations" (p. 102).

Large sums borrowed from private banks in the USA and Western Europe were then deposited in those very same banks. Public companies like YPF were systematically put into difficulty (p. 130).

The regime of “democratic” transition which followed the dictatorship transformed the debts of private companies into public debt through totally illegal means (p. 152). This means that it should be possible to modify the decision. Among the private companies whose debt was absorbed by the State, 26 were financial firms. Among those were numerous foreign banks established in Argentina: City Bank, First National Bank of Boston, Deutsche Bank, Chase Manhattan Bank, Bank of America (p. 155 - 157). That means that the Argentine State, with debts towards these banks, decided to take over the banks’ debts. No comment.

To give a specific example of collusion between a private bank of the North and the Argentine dictatorship, between July 1976 and November 1976, the Chase Manhattan Bank received monthly deposits of 22 million dollars (the amounts subsequently increased) and remunerated them at a rate of 5.5%. At the same time, and at the same rhythm, the Argentine Central Bank borrowed 30 million dollars from the same US bank, the Chase Manhattan Bank, at a rate of 8.75% (p. 165).

The judgement and its conclusions are damning for the dictatorship, for the regime that followed it, for the IMF, for the private creditors… The sentence handed down by the Court clearly states that "the nation’s external debt (...) was greatly increased from 1976 on, because of a nefarious economic policy which brought the country to its knees. This calamitous policy used methods, already analysed in the present text, which tended to benefit and support private companies to the detriment of public companies. The latter got daily poorer, resulting in very low value at the time of their privatisation.» (p. 195).
The judgement should give grounds for a resolute action of non-payment of Argentina’s external public debt and for its cancellation. The debt is both odious and unlawful and the creditors have no legal right to continue receiving service on it. Their credits are null and void. And as new debts contracted since 1982-1983 have mainly served to repay the old ones, they are also largely illegitimate. Argentina can very well turn to international law to justify a decision not to repay the external debt. Several legal arguments can be invoked here. For example, the notion of odious debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts.
- the Argentine debt was contracted by a despotic regime guilty of crimes against humanity, as the creditors were bound to have known; the case of force majeure - like other indebted countries, Argentina underwent a dramatic change of circumstances due to the unilateral US decision to raise interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
in 1979; and the state of necessity - Argentina’s financial situation prohibits it from repaying the debt, as to do so would prevent the State from fulfilling its obligations towards its citizens in respect of their social and economic rights, in line with international pacts it has signed.

Cessation of debt repayment needs to be accompanied by other essential measures. There follow a certain number of proposals to fuel the necessary debate.

Firstly, there has to be an international enquiry into the assets illegitimately accumulated and deposited abroad by Argentine residents.

The deposits of Argentine capitalists in the banks of the highly industrialised countries total roughly 40,000 million dollars - see BIS Bank for International Settlements
The BIS is an international organization founded in 1930 charged with fostering international monetary and financial cooperation. It also acts as a bank for central banks. At present, 60 national central banks and the ECB are members.
, Quarterly Review : International Banking and Financial Market Financial market The market for long-term capital. It comprises a primary market, where new issues are sold, and a secondary market, where existing securities are traded. Aside from the regulated markets, there are over-the-counter markets which are not required to meet minimum conditions. Developments, June 2001, The aim is to recover a maximum of funds stolen from the Nation. Secondly, measures to control capital movements and exchange operations need to be set up as a protection against capital flight and speculative attacks. Thirdly, a re-distributive tax policy needs to be established, including an exceptional tax on the assets of the richest tenth of the population; taxation of capital revenues; reduction of VAT on basic commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. and services , etc.
Fourthly, the abrogation of decrees and laws imposing salary and pension cuts (and other welfare benefits) is required. The social security system needs to be defended and reinforced. There should be a guaranteed revenue for the unemployed and increases in salaries and pensions to improve purchasing power. These are just the minimal conditions for a real alternative. Fifthly, companies that were wrongly privatised should be returned to the public domain, starting with the strategic sectors (energy, oil, communications, etc.).

On the international level, indebted countries should form a common front, and South-South trading and complementarities should be developed. The FTAA has to be resolutely opposed, as does the US military offensive (US military bases, Bush’s anti-missile shield, and the strategic base he intends to create in the Southern cone; Plan Colombia). Initiatives in favour of a Tobin-type tax on international financial transactions should be encouraged.

All these proposals are avenues for an alternative to the neo-liberal model. It is not a programme to accept or reject en bloc. The idea is to show that solutions exist, if we want to turn our backs on the infernal logic of indebtedness and excessive dependency.

2002-2003: the Argentinians resist

At the end of 2002, Argentina’s external public debt came to 137 billion dollars, distributed as follows: about 87 billion owed in the form of public debt paper; about 37 billion in the form of loans and about 13 billion in payment arrears.
Concerning the 87 billion in debt paper, roughly half is held by Argentine banks and pension funds Pension Fund
Pension Funds
Pension funds: investment funds that manage capitalized retirement schemes, they are funded by the employees of one or several companies paying-into the scheme which, often, is also partially funded by the employers. The objective is to pay the pensions of the employees that take part in the scheme. They manage very big amounts of money that are usually invested on the stock markets or financial markets.
(AFJP - Administradoras de Fondos de Jubilaciones y Pensiones) created in the 1990s as part of the neo-liberal reform of the pensions system. The other half of the bonds is held by foreigners, individual investors and banks. In September 2003, these bonds were selling on the secondary debt market at about 30% of their value.

Of the 37 billion owed in the form of loans, 30 billion are owed to the IMF, the World Bank and the Inter-American Development Bank (IDB). The rest is owed to the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

, other bilateral creditors and private banks of the North.
The crisis at the end of 2001 followed three years of recession and antisocial policies that brought about radical deterioration of living conditions for the majority of the population. In 2002-2003, more than 50 % of Argentinians were living below the poverty line. After devaluation of the Argentine currency in early 2002, salaries and pensions fell 30% in real terms. Unemployment levels exceeded 20%. The Argentinians were stupefied to discover that a significant percentage of the population was suffering from severe malnutrition. In 2002 - 2003, children even died of malnutrition in the Northern provinces - something Argentinians would never have believed possible. Meanwhile, their country had continued to export enough food to feed six times their total population. This situation is both absurd and intolerable.

The dramatic degradation of living conditions had been coming for some time. It was due to more than 25 years of submission to external creditors and of favours to big Argentine capital. The powerful social mobilisation that led to the overthrow of President De la Rua in December 2001 gained in size throughout 2002. This led the successive governments that followed the night of 19-20 December 2001 (of the presidents Rodriguez Saa, Eduardo Duhalde and finally Nestor Kirchner after the elections of April 2003) to make certain concessions to the people’s movement. It was the fear of being overthrown by another popular uprising, combined with the desire to regain their lost legitimacy in the eyes of the population, that led those in power to depart from neo-liberal policies and thus to resist the demands of the IMF and the private creditors.

Here are some examples of measures taken to appease the population.

  • The instigation of a minimum subsistence revenue for the unemployed: 2 million people now receive 150 pesos (or about 50 dollars) a month. This benefit, called “work plan” is partly distributed by the piqueteros movements, who run 120,000 to 150,000 « work plans ».
  • The abrogation of the 12% cuts in civil servants’ salaries and pensions that had been decreed by De la Rua in the middle of 2001.
  • A payment freeze was applied to basic services (water, gas, electricity…), to the dismay of the MNCs which have controlled these companies since they were privatised.
  • The abrogation of the « punto final » law adopted under Raul Alfonsin in the middle of the 1980s, guaranteeing almost total impunity to the military; the beginning of legal actions against torturers (particularly Astiz, mentioned above).
  • A partial, more “democratic” change in the composition of the Supreme Court of Justice.

These concessions to the Argentine people made by their rulers are by no means negligible. They show what massive social mobilisation can achieve.

In December 2001, when Argentina suspended debt payments to private creditors and expressed doubts about payments due to the IMF and the World Bank, many commentators announced that the reprisals would be harsh. It was not so. In September 2003, when important negotiations were taking place between the Argentine authorities and the IMF, there was a clear demonstration that a firm attitude on the part of an indebted country could enhance its position. The IMF agreed to tone down its demands on Argentina although it had been inflexible towards Brazil a year earlier. The IMF had insisted that the Brazilian government should produce a budget surplus of 4.25% compared to the GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
, and use this surplus to repay its debt. Argentina refused such a high rate and reached an agreement with the IMF on the basis of a 2.5% budget surplus. It then proposed to private holders of debt bonds that they should renounce 75% of their (face) value. It pays to be firm.

Having said that, it would be illusory to think that President Nestor Kirchner has any intention of veering to the left. He is manoeuvring between the demands of the IMF, the MNCs and the capitalists of Argentina, on the one hand, and the expectations of the people’s movement on the other. He is counting on the demobilisation of the movement, which would enable him to return to harsher neo-liberal policies than those applied since the overthrow of Fernando De la Rua.

An alternative is needed to Nestor Kirchner’s commitments to the IMF.

  1. The debt that Argentina owes the IMF, the World Bank and the IDB must be considered null as it was contracted to carry out policies that were harmful and against the interests of the citizens. Furthermore, the agencies concerned aided and abetted the military dictatorship that prevailed from 1976 to 1983.
  2. Finding a satisfactory way of dealing with the Argentinian pension funds (AFJP) is somewhat more complex. The following course of action might be applied. The debts could be cancelled, the AFJP abolished and the distributive pension system restored. Then, after a thorough discussion of terms and conditions and after making reasonable deductions, the Argentine State could transfer the equivalent of the debt owed to the AFJP to the State Pension Fund. This would ensure the viability of the distributive pension scheme.
  3. The debt in the form of bonds held by foreigners must be scrupulously audited. The odious part must be completely cancelled. For the rest, it would be possible to devise a procedure adapted to each type of holder in order to avoid penalising small foreign savers unfairly. As for the bonds held by rentiers, banks and other private financial bodies, they must be cancelled or be subject to a general abatement of at least 90%.
  4. Payment arrears should be cancelled.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.




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