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Why a once rich country rose in revolt
Bad debts
by Eric Toussaint
4 January 2008

In 1914, when the revolution led by Emiliano Zapata and Pancho Villa was at its height, Mexico suspended all payment of its foreign debt. Although it owed its northern neighbour more than any other country of the Americas, it repaid only symbolic amounts between 1914 and 1942. There were protracted negotiations over 20 years (1922-1942) with a consortium of creditors led by a director of the US Morgan Bank. Meanwhile in 1938 President Lazaro Cárdenas nationalised the US-owned oil industry without compensation.

While the Mexican population benefited, the creditors obviously objected. But Mexico’s tenacity paid off : in 1942 the country’s creditors cancelled over 90% of the debt and agreed to modest compensation for the companies they had lost [1]. Other countries, among them Brazil, Bolivia and Ecuador, also suspended, or partly suspended, payments after 1931. Brazil’s selective repayment freeze lasted until 1943, when a 30% debt reduction was agreed. Ecuador interrupted payments from 1931 until the 1950s.

During the 1930s 14 countries suspended payments long term. Of the large debtors, only Argentina kept up its payments, as it had done during a previous crisis at the end of the 19th century. As a result, in the 1930s its economy was in far worse shape than Mexico’s or Brazil’s.

Argentina’s decision to suspend debt payments last December after the popular uprisings brought down President de la Rúa did not set a precedent. Since most Latin American countries gained independence at the start of the 19th century, four major debt crises have resulted in dozens of suspensions.

During the first crisis, between 1826 and 1850, nearly all the Latin American countries ceased payments. Eleven of them then did the same in 1876. Fourteen countries ordered a moratorium in the 1930s [2]. Mexico, Bolivia, Peru, Ecuador, Brazil and Argentina discontinued repayments for several months at one time or another between 1982 and 2002. This enabled them to create conditions favourable to a subsequent resumption of payments after renegotiating with their creditors.

On 26 November last year, Anne Krueger, appointed by the Bush administration as number two at the International Monetary Fund, announced that the IMF was planning a procedure that would allow countries in difficulty to suspend payments for an extended period [3]. That might in some cases make the debt burden bearable and avoid a crisis breaking by forcing private creditors to abandon some of their claims.

The IMF wants to discipline private creditors to avoid a repetition of the crises that hit Mexico in 1994, Southeast Asia in 1997, Russia in 1998 and, most recently, Turkey and Argentina. But Krueger said it would take two or three years of talks in the IMF to put such a procedure in place. The major crisis in Argentina therefore took it unawares.

Clearly both the IMF and creditors in general are only talking about a respite [4]. They have profited well from the situation since August 1982 when repayment of the Mexican debt was provisionally suspended. None of the breaks have lasted more than a year and none were ever coordinated between several countries. As a result, private creditors have reaped dividends and the money lent to debtors to enable them to honour their international commitments, and to continue or resume repayments, has been repaid to the IMF every time with interest.

Argentina’s current public external debt amounts to more than $130bn. But during the 25 years since the military dictatorship came to power in March 1976 it repaid more than $200bn. Under the “leaden years” of the 1976-1983 reign of terror, its external debt increased 5.5 fold from $8bn to $45bn. The IMF backed and advised the generals, even seconding a senior official, Dante Simone, to the Argentine central bank. In the final period of the dictatorship, the overwhelming majority of the private external debt was transferred illegally to the state.

Under international law such debts incurred by a dictatorial regime are “odious debts”. When democracy was restored in 1985, President Raúl Alfonsin would have been justified in refusing to bow to pressure from the IMF and other creditors. Instead, he began constitutional rule by signing an agreement with the IMF to repay every last cent the country owed. Most of the debts subsequently contracted were used to pay back the older ones.

On 13 July 2000, after 18 years of deliberations, the Federal Court in Buenos Aires handed down a 195-page judgment demonstrating the illegal nature of the debt and the culpability of the international private creditors, the IMF and the US Federal Reserve [5]. It showed the rapacity of Argentine capitalists systematically exporting their capital after draining the national economy of its substance and destroying its industries. The people are therefore perfectly entitled to call on President Eduardo Duhalde to keep the debt suspended and seek its cancellation.

A regime that consistently made satisfying its citizens’ basic human rights a priority and took specific measures towards doing so would enjoy wide popular support in Argentina and elsewhere. Brazil, with its $250bn debt, will hold presidential elections in October. The new president could make common cause with Argentina against their creditors. And why not join forces with Hugo Chávez’s Venezuela ? That could prove a historic turning point for Latin America.

Released in “Le Monde Diplomatique, February 2002”.

Footnotes :

[1For a detailed analysis see Carlos Marichal, A Century of Debt Crises in Latin America, 1820-1930, Princeton University Press, 1989 ; by the same author, La deuda externa : el manejo coactivo en la politica financiera mexicana, 1885-1995, mimeograph, Mexico City, 1999.

[2See Eric Toussaint, Your Money or Your Life. The Tyranny of Global Finance, Pluto Press, London, 1999.

[3See IMF website

[4The IMF has given Buenos Aires one year’s grace to make a $741m repayment that was due on 17 January 2002.

[5An article discussing the judgment can be found on the CADTM website.

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.