Argentina in turmoil

24 October by Jérôme Duval

March against Macri’s neoliberal measures, on 5 September in Buenos Aires. Credit Juan Ignacio Irigaray - El Salto.

After Argentine President Mauricio Macri announced, on 3rd September, a brutal austerity plan under IMF supervision, the people hit the streets to express their anger at rising prices and budget cuts.

Seventeen years after the 2001 crisis in Argentina, the Macri government, which came to power in December 2015, is reinforcing a fierce structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

plan for its population following the loan requested from 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.
. The country, which in 2018 holds the presidency of the G20 G20 The Group of Twenty (G20 or G-20) is a group made up of nineteen countries and the European Union whose ministers, central-bank directors and heads of state meet regularly. It was created in 1999 after the series of financial crises in the 1990s. Its aim is to encourage international consultation on the principle of broadening dialogue in keeping with the growing economic importance of a certain number of countries. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, USA, UK and the European Union (represented by the presidents of the Council and of the European Central Bank). , is one of the most affected by the rise in 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 the United States, the leakage of capital, the soaring dollar and speculation on the stock market, as with the crisis that is emerging in Turkey.

In the context of President Trump’s trade war to favour US exports over others, the rise in 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. rates in the United States has led to a rush on the dollar, which is now seen as safer than ever. Dollars are being repatriated to the United States to take advantage of the interest rate hike, cash flows suddenly dry up, the currencies of so-called “emerging” countries fall sharply.

Turbulence in Argentina

The peso is in free fall, prices are exploding, consumption is reduced to a minimum, the middle classes are being squeezed, many firms and businesses are closing, hunger is spreading in outlying areas and speculators are panicking without knowing what to invent to avoid the shipwreck that has been announced. However, we could have learned from past crises not to reproduce them: Argentina has already seen this situation before... the people remember it, 2001; there was hunger, the clatter of empty pots hit by hammering spoons in front of closed banks. This was the “corralito” [1]. On the other side, capital flitters away discreetly to await better times. The scenario orchestrated by the IMF all over the globe infinitely repeats itself, which does not prevent it from distilling its same nauseating recommendations whatever the latitude of the country concerned.

“Zero poverty” Macri repeated during his election campaign. Today his popularity is plunging, and this slogan lies among his many election promises that will never be fulfilled, once again the people’s trust has been trampled on, betrayed by the power of money. At fault, the austerity cure that only aggravates the social situation already rolled out by more than two years of a hard right government.

The first 15 billion dollars of the IMF’s 50 billion dollar mega-loan in June does not seem to be enough to stabilise the economy, which has been buffeted by inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. of around 30%, itself stimulated by a depreciation of its currency. The Argentine peso lost nearly 20% of its value against the dollar in two days, 29th and 30th of August, and 98% over the last 12 months (more than 50% since the beginning of the year) reaching an historic all-time low at over 40 pesos for a dollar.

In a frenzy, the 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.

raised its key rate from 45% to 60% on 30 August, one of the highest in the world after having increased it from 40% to 45% on 13 August, to encourage investment in local currency [2]. However, this action, like the efforts of the Central Bank of Argentina, which has sold more than 12 billion dollars of its foreign exchange reserves since the beginning of the year to stabilise the peso [3], failed to contain investors’ fear of default, or to mitigate falling prices. As if provocatively, on 31 August, the day after the spectacular rise in central bank rates, the US rating agency Rating agency
Rating agencies
Rating agencies, or credit-rating agencies, evaluate creditworthiness. This includes the creditworthiness of corporations, nonprofit organizations and governments, as well as ‘securitized assets’ – which are assets that are bundled together and sold, to investors, as security. Rating agencies assign a letter grade to each bond, which represents an opinion as to the likelihood that the organization will be able to repay both the principal and interest as they become due. Ratings are made on a descending scale: AAA is the highest, then AA, A, BBB, BB, B, etc. A rating of BB or below is considered a ‘junk bond’ because it is likely to default. Many factors go into the assignment of ratings, including the profitability of the organization and its total indebtedness. The three largest credit rating agencies are Moody’s, Standard & Poor’s and Fitch Ratings (FT).

Moody’s :
, Standard & Poor’s, placed the note of the Argentine debt “under negative watch”.

IMF austerity

Argentine President Mauricio Macri announced, on 3rd September, a brutal austerity plan under IMF supervision. This included the introduction of a tax on agricultural exports of 4 pesos per dollar exported [4], which Macri himself acknowledged were “very bad taxes”, but the level of the budget deficit required emergency action. After so much austerity applied to the poor, this measure may not appeal to the producers of soybeans and maize, the largest purveyors of foreign exchange of the state, hard hit by a record drought early this year. In addition, Macri announced the removal of 12 out of 22 ministries! Mr Macri is claiming to eliminate the ministries of Culture, Labour, Science and Technology, Energy, Agribusiness, Health, Tourism and the Environment to convert them into State secretariats under the dome of other ministries: Culture and Science and Technology pass for example under the mandate of the Ministry of Education, Work under the orbit of the Ministry of Production, Health is absorbed by that of Social Development and Agro-industry moves to the Treasury Department while dismissing 600 workers. So far, only the dictators Pedro Eugenio Aramburu and Juan Carlos Onganía had ventured to eliminate the Ministry of Health.

On 4 September, Argentine Economy Minister Nicolas Dujovne and Central Bank Vice President Gustavo Cañonero went to the IMF in Washington to negotiate a revision of the agreement signed in June and speed up payments. Argentina is sorely lacking in cash. At the same time, the prosecutor Jorge Di Lello indicted President Mauricio Macri for abuse of authority and violation of the duties of a public official for signing the agreement with the IMF on 7 June, without submitting it to Parliament, thus violating the Constitution. For his part, President Macri is unable to calm the growing discontent. He has said on TV and keeps repeating, “This crisis is not just another crisis, it must be the last (...) the worst is behind us. [5] However, the same mistakes produce the same effects and history repeats itself...

In the street, soaring prices are resurging popular discontent. In Buenos Aires, La Plata, Rosario, Mar del Plata, or in other cities of the country, the people express their anger at the rise in prices or the budget cuts imposed on the public administration in exchange for the IMF loan, like those applied to public universities. On strike for more than a month, the professors of the fifty-seven public universities are demanding pay rises. Awakening the tragic memories of the financial collapse of 2001, soup kitchens are again overwhelmed, not only with children but entire families... Galloping inflation is reducing margins on falling consumption and the US supermarket giant, Walmart, has sold a dozen hypermarkets. The price of bread has increased by more than 20% in a few days [6]. As in 2001, the people are hungry, for social justice and bread.

Article published on the French blog Un monde sans dette from the journal Politis.
Translation: Jenny Bright.


[1The Spanish word corralito, diminutive of corral, is used in Argentina to refer to a folding enclosure used for babies to play in. This was also the name given to the measures imposed by the government of Fernando De La Rua on 3 December, 2001 to fight against the leakage of capital, measures that would lead to his resignation. They limited cash withdrawals to 250 pesos per week and prohibited any sending of funds abroad.

[4At the current rate of Argentine money this equates to about 10% on wheat, maize, beef, soybean, and an increase of that already existing on oil cakes and soybean oil, of which Argentina is the world’s largest exporter. Claire Fages, “L’Argentine taxe le blé, la Russie y renonce”, RFI, 5 September, 2018.

[5”Richard Partington, “Argentina launches fresh austerity measures to stem peso crisis”, The Guardian, 3 September, 2018.

[6“La crisis del pan”, Página 12, 6 September, 2018. “El precio del kilo de pan subió esta semana un 21 por ciento. El kilo de pan pasó de un valor de banda de precios de entre 65 y 70 pesos promedio a un precio de entre 80 y 90 pesos.”

Jérôme Duval

member of CADTM network and member of the Spanish Citizen’s Debt Audit Platform (PACD) in Spain ( He is the author, with Fátima Martín, of the book Construcción europea al servicio de los mercados financieros (Icaria editorial, Barcelona 2016) and he also co-authored La Dette ou la Vie (Aden-CADTM, 2011), which received the award for best political book in Liège (Belgium) in 2011.



35 rue Fabry
4000 - Liège- Belgique

00324 226 62 85