The IMF In Argentina: Imposing Austerity That Won’t Work, On A Country That Doesn’t Want It
Between June and September of last year, the International Monetary Fund provided an emergency bailout package to the Argentinian government totalling just under $60 billion.
The move was prompted by Argentina’s descent, during the preceding months, into headlong financial collapse, fuelled by a rapid pile-up of foreign debt and a dramatic decline in the value of the peso.
Instead of welcoming the news with a collective sigh of relief, however, ordinary Argentinians responded with a sciatic groan of despair.
The IMF has made more than 20 attempts to “prop up” the Argentinian economy since the 1950s and ‘60s, and on each occasion it has administered some variation of the same spartan diet—deregulation, labour market reforms, and “structural spending adjustments.”
In 2000, it issued a $22 billion loan to the country, then under the centrist leadership of Fernando de la Rúa, in an effort to stave off a looming sovereign debt crisis.
But the intervention failed and, in late 2001, Argentina defaulted on its $130 billion debt burden—the single largest sovereign default in history at the time.
That experience—marked, as ever, by lacerating cuts to public spending, high unemployment, mushrooming poverty rates, and widespread social unrest—left a particularly deep scar on Argentina’s national psyche.
Since then, cooperation with the IMF has been synonymous, for many Argentinians, with a kind of fiscal vassalage to the global financial markets.
In 2005, the leftwing president Nestor Kirchner paid off the last of Argentina’s outstanding debts to the Fund, hailing the end of the repayment programme as a moment of national liberation.
The IMF was responsible for imposing “failed political regimes and monetary systems” on the beleaguered Latin American state, he said. “The result has been exclusion, poverty, destitution, and the destruction of our production apparatus.”
It’s hardly surprising, then, that the Fund’s return to Argentina last year—this time at the invitation of the country’s current president, Mauricio Macri, an arch free-marketeer—has been met with undisguised hostility by large swathes of Argentinian society.
In April and May, Buenos Aires erupted as protesters repeatedly took to the streets in opposition to deepening austerity and the increasing costs of living.
“You either eat or you pay the gas,” one of the marchers, Araceli Ibarra, a pensioner, told Al Jazeera. “You buy medicine or you pay the electricity.”
But perhaps the most striking aspect of the IMF’s latest lurch into Argentina is how obviously it is going to fail—and arguably already has.
In exchange for 2018’s record-breaking bailout deal, the Fund has instructed Macri to implement a set of economic reforms that critics have likened to those forced on Greece in the aftermath of the Eurozone crisis.
Higher export taxes, an end to state energy subsidies, reduced capital investment, new private finance initiatives, cuts to provincial funding, and a public hiring freeze are among the IMF’s flagship policy prescriptions.
As well as arguing that these reforms are necessary from an economic perspective, Christine Lagarde, the IMF’s managing director, has insisted that they won’t disproportionately affect Argentina’s most marginalized communities.
“Now that so much hard work has been done … it would be foolish on the part of any candidate to turn their back to the work that is underway,” she remarked a few weeks ago, in reference to the country’s upcoming general election. “We are now beginning to see the programme actually work.”
And yet, as measured against even the most basic set of economic indicators, it’s clear that the programme isn’t working: unemployment remains high, job losses in the private sector have gone up, industrial production has flatlined, and consumer confidence has gone down.
Moreover, Argentina’s poverty rate rose from 26 per cent in 2018 to 32 per cent in 2019, a trend that reflects the flimsiness of the social safeguards the IMF claims to have baked into its loan agreement. (According to one estimate, the agreement’s mandated “spending floor” amounts to a grand total of $6 for each of the country’s 13 million poorest people.)
The Fund has also consistently misjudged the speed and scale of Argentina’s recovery under the terms of its euphemistically named “stabilization” plan.
“[In June 2018] the IMF predicted that the economy would recover quickly and show positive growth for this year and next,” the Centre for Economic and Policy Research, a left-leaning US think-tank, noted in December.
Macri and Lagarde can point to modestly falling deficit figures and reduced inflation as evidence that the situation is, despite a highly visible and persistent catalogue of failures, ultimately getting better, at least at the macro-economic level.
But the real question is: why was it allowed to get so bad in the first place?
As the economic crisis escalated in 2018, the IMF could have acted as lender of last resort to Argentina, offering to help sustainably restructure the country’s debt repayments to its international creditors.
Instead, the Fund demanded a protracted bout of “fiscal retrenchment”, the results of which have systematically undercut the living standards of millions of Argentinians and compounded the structural weaknesses of the Argentinian economy.
Astonishingly, the IMF almost certainly knew this would happen.
In 2016, it warned austerity-minded governments in Europe that cutting public spending in the midst of a recession would have the entirely shocking and unpredictable effect of making that recession worse.
“In the case of fiscal consolidation, the short-run costs in terms of lower output and higher unemployment have been underplayed,” a report by economists at the Fund stated. “And the desirability for countries with ample fiscal space of simply living with high debt is under-appreciated.”
Christine Lagarde might well claim that Argentina’s high levels of foreign debt meant it lacked the “ample fiscal space” to borrow and spend its way out of crisis.
But the social and economic consequences of her strategy—the strategy currently being implemented—speak for themselves: Argentina is worse off now than it was 12 months ago, and no closer to escaping the financial quagmire.
In October, Argentinian voters will get the chance to deliver their own verdict on the IMF’s most recent incursion into their domestic political life—and on Mauricio Macri’s role in facilitating it.
As it stands, the anti-IMF Peronists, led by Cristina Fernández de Kirchner, the wife of the late Nestor Kirchner and herself a former president, are ahead in the polls.