The Crisis in Argentina
A Case of Innovative Dollar Imperialism
Argentina “is recovering.” It’s true that the population has been starving there for over two years now and will continue to do so to an extent never before seen in this — as the wantonly uncomprehending analysts report — “basically rich” country. Even today there isn’t a whole lot of production and trade taking place, not nearly as much as before the “major payments crisis” around the turn of year 2002. And the nation as a whole still hasn’t regained much international credit. However, the speculators are active once again. They are speculating within Argentina, on its stock exchange for example, which has apparently survived every economic catastrophe. They are speculating on Argentina, on its assets and government bonds that supposedly possess a bit of value again and could once again bring in some good money, even though the newly elected Kirchner administration has left much to be desired. Of course, the country must first of all fulfill a few conditions: the IMF and Argentina must agree to new loan guarantees and conditions; the country must newly resettle and service its national and international debts; some progress needs to be seen in the balancing of the national budget; in other words, the country must once again become ‘calculable’ and make a return to ‘normalcy’ in the eyes of the business world and according to its standards. The financial markets, in this sense totally unperturbed, are now handling the entire country as an object of their speculation that has become interesting again, a country in which the entire monetary system recently collapsed under their very direction.
At the end of 2001, the Argentine state announced the end of a fixed dollar-peso exchange rate policy that had been valid throughout the previous decade. Not only did the value of the national money immediately collapse following this announcement, but suddenly there wasn’t any more money available in the country at all. And with that, the worst thing that could possibly happen to an ‘economy’ in which everything turns on the ‘flow of funds’ and money accumulation indeed happened in this country. This is something that states concerned above all with the growth of their national monetary wealth seek to avoid in times of economic crisis whatever the price. When the accounts of the nation’s companies turn out generally poor, and business, instead of growing, recedes on a national scale, then it’s not only firms that end up with payments crises, but also increasingly the country’s banks and credit institutions. Loans fall through and are cancelled; capital is withdrawn from the country, flowing out instead of in. And all this occurs to such an extent that the banking sector itself, and with that the entire credit system, fall victim to this development, in turn causing payment transactions in the affected nation as a site for capital accumulation to become collectively endangered. In the end, general insolvency and the bankruptcy of the national circulation of money and debts threaten. Confronting and coping with this consequence, so disastrous for the national economy, is an elementary challenge for a state power, one to which it dedicates itself with the exercise of its monetary sovereignty. It ‘provides liquidity’ as long as possible; and does its utmost to refinance its stagnant banking sector with legal means of payment. With state credit guarantees, it seeks to prevent moribund banks from collapsing wherever possible, hoping that their thereby rescued business operations, as well as those of their enterprising clientele, will subsequently start to expand to a degree that would justify these state interventions as ultimately being successful advances on business. After all, state power cannot itself create new growth by means of these measures alone, but rather merely replaces losses. Nor can it thereby even prevent the devaluation of credit claims and capital assets, but merely bridges over a situation of general insolvency in the hope that nothing emerges except an ultimately temporary ‘liquidity squeeze.’ It is also at this point, however, that the guardians of the country’s capability as a site for business run up against the limits of their economic power to intervene. Argentina provides a particularly clear example.
Since the end of the 1990s and with increasing intensity, the Argentine government had been afflicted with symptoms of economic crisis. The financial world took this as a sign that the country’s economic situation was becoming rather precarious. Investors consequently acknowledged the need to be more cautious in their speculation, and instead of making new investment commitments, decided to rescue and secure their monetary assets. In December, 2001, in the face of the country’s growing general cash squeeze, the Argentine government declared itself unable to cope with the threatening endangerment of the national monetary system by supplying money, be it in the form of state-‘created’ credit money intended to bridge over or at least loosen the grasp of the ‘liquidity squeeze,’ be it by spending foreign exchange from the state treasury, or just by more international borrowing. On the contrary, it ordered the closing of the country’s bank counters in order to prevent a ‘run’ on ‘cash,’ especially on dollars and thereby on the state treasury’s assets, thereby bringing payment transactions to a halt and withdrawing cash resources from the economy. Furthermore, by simultaneously defaulting on its debts to foreign creditors, the government broke off its international credit relations and shut off its source of credit, bringing about total general ‘illiquidity’ and thus the national business world to a standstill.
As dramatic as this move was, the Argentine government no longer saw any alternative to this violent act of slamming the brakes on the national circulation of money and thus on the economy as a whole — and indeed it really didn’t have any alternative. This is because this crisis of payments in the banking and business worlds, the miserable discrepancy between inflated credit and demanded actual money earnings, all had their particular starting and ending point in a particular external relationship established by the Argentine state as the basis of its national system of money and credit. By means of a legally binding decree according to which a fixed peso-dollar parity could be demanded of the state at any time, the national means of payment (the peso) no longer represented, unlike every other regular modern currency, state-created and guaranteed — capitalistically more or less successfully utilized and thus more or less economically justified — national credit. Instead, this legal tender directly represented the country’s dollar reserves. Not only was every circulating peso supposed to represent the value of a dollar and if necessary purchase a dollar, it was also supposed to be ‘backed’ by dollar reserves in a 1:1 ratio,[*] just as in earlier times when all paper currency was backed by state-hoarded supplies of precious metals — and even this was always more theoretically than actually true.
Such a construction is deprived of its foundation as soon as capitalists actually make use of the offer and take advantage of it in a ruinous way. And in this case the offer was first of all and quite extensively exploited by foreign investors and creditors, who had been invited to bring their money to Argentina with the guarantee that they could earn a real U.S. dollar for every peso earned in the country. Needless to say, they had accepted this invitation without hesitation. When the international financial world then demanded massive amounts of payment in U.S. dollars — partly because of their own payment obligations, partly because they no longer saw any chances for further business expansion — the Argentine central bank initially complied in accordance with its official guarantee. International creditors and investors were paid off with profits or perhaps later with losses, but in both cases with portions of the national dollar reserves. Unsurprisingly the state ran out of these currency reserves over the course of making these payments, setting off predictably disastrous consequences for the circulation of money and commodities in Argentina. In accordance with its own sovereign decree, the state refrained from ‘supplying liquidity’ for the purpose of bridging over the worsening crisis of payments. On the contrary, Argentina found itself obligated to annul pesos to the same degree that its dollar reserves were vanishing. The more and the more urgently pesos were needed, the more the central bank consequently restricted the amount of its own sovereignly created national means of payment. Conversely, with every transacted dollar payment, the guaranteed peso-dollar parity that the state had offered to foreign investors as well as domestic money owners became more and more untenable. Peso holders reacted to this by conducting a practical experiment born out of their growing distrust, testing the ability of the banks and the power of the sovereign monetary authority to redeem this guarantee. Now they really started to get their assets converted into dollars in order to avoid at all costs sticking them back into the local peso economy. The legally decreed identity of the means of circulation with the central bank’s foreign exchange reserves could therefore no longer be sustained. With the official cancellation of the peso-dollar parity and the ordered closing of the banks, the maintenance of this identity was abandoned. The Argentine state thereby forcibly interrupted national payment transactions, which would have collapsed anyway in the wake of the total loss of all national world-money reserves, in order to ‘rescue’ some remains of these foreign exchange reserves for itself. After the IMF refused to provide Argentina with new dollar funds, the nation was furthermore forced to cease servicing its debts towards its international creditors.
By making this total and general payments stop, the Argentine state effectively declared bankruptcy. It found itself totally unable to satisfy its accrued payment obligations in any way. Its national economy was not earning any dollars, and the state itself didn’t possess the dollars that the national currency was supposed to represent. As soon as the state was asked to make this fiction a reality, it turned out that it didn’t have the funds to do the job. And there is something else that the Argentine state admitted with this declaration: the funds with which it redeemed its dollar guarantee up until the bitter end had long ceased to be funds earned by the country’s economy itself. They were instead borrowed funds, loans from international agencies. And so the lenders’ refusal to prolong these funds immediately blew this state monetary construction sky high.
2. The Reckoning
Argentina’s crisis of payments and its declaration of insolvency are the consequences of a comprehensive settlement that foreign creditors demanded of Argentina These creditors didn’t just settle accounts with concern for the positive, and for the most part currently negative results of transnational commerce, as is customary between states in times of crisis. Instead, this is a case in which foreign capital settled accounts with the wealth of the nation as a whole: with its foreign exchange reserves, from which nothing remains; with its means of business, credit and circulation, i.e., with its money that has been — for the time being — completely annulled. And finally, Argentina’s foreign creditors decided to settle accounts with the national economy itself in its capitalistically decisive quality as a source of money — and for quite a long time now, this source has clearly been unable to satisfy the monetary claims accumulating on the country.
This settlement was the necessary conclusion of a particular kind of business commerce carried out between Argentina and the important, financially powerful global economies, a commerce which its inventors and protagonists had thought to be — quite correctly — most ‘innovative.’
(a) Since the beginning of the 90s, the Argentine state power had been casting its lot completely with foreign capital for the promotion of its economic growth. Wealthy foreign business interests were granted access to state-owned enterprises, banks, natural resources, railroads, transportation routes and ultimately to every actual and potential capitalistically usable money source, all the way down to national pension schemes. The country’s peculiar national monetary regime strictly bound the creation of national ‘liquidity,’ and thus above all the state’s own purchasing power, to the nation’s foreign exchange reserves. In other words, the Argentine sovereign monetary power prohibited itself from creating money to an extent that might harm the currency’s stability. This self-imposed restriction explicitly served the purpose of protecting foreign investors from all possible risks of a depreciation in the currency’s value, thereby turning the entire national economy into an unbeatably ‘attractive’ investment opportunity for those who had the funds to take advantage of this offer. However, when a state makes such a generous offer, it certainly doesn’t reveal any outstanding qualities as a site for business, but instead concedes what the country itself regards as its decisive economic weakness: a lack of accumulated and further accumulating capital, especially in comparison to the world market’s financially powerful and dominating ‘industrial nations,’ to which a state exposes its country in order to succeed in competition with the global economic powers. A state thereby concedes that the mass and power of its capitalistically productive wealth are simply insufficient for keeping up in this comparison. And it is precisely for this reason that Argentina’s accumulating capital did not suffice to provide the Argentine state with the necessary tax revenues and credit power for its far-reaching national ambitions. In all of its earlier attempts to go beyond the limits of its national capitalist economy by way of national and international debt, the Argentine state quite simply failed. And indeed it failed so thoroughly that its very self-confidently attempted endeavors to remedy its notorious lack of capitalist potential by ‘opening’ up its national economy for potential capitalists — i.e., through the sale of its exploitable inventory and capacity to financially powerful capitalists — amounted to a genuine act of desperation.
(b) With Argentina’s internationally praised and supported ‘reorientation’ of its monetary policy at the beginning of the 1990s, the Menem administration put an end to the previous administrations’ endeavors to build up the country into an attractive site for capital on its own a site encompassing as many lucrative business sectors of world-market class as possible. During Peron’s rule in the 1940s and 50s, Argentina’s efforts had first of all been aimed at building up national industry via state credit. The goal was to expand the scope of exports beyond agricultural products and raw materials, as well as to improve the country’s negative trade balances through ‘import substitution.’ But there was a catch. The founding of new industries with public funds, cheap loans and subsidies for private enterprise may bring about a bit of state-supported industry and state-created infrastructure, but it certainly doesn’t guarantee sweeping success in competition with the already established global economic powers. On the contrary, state financing of intended future national profitability can sooner or later mutate into a rescue mission for failed world-market endeavors that increasingly burden the state’s credit. This burden expresses itself in the damage done to the national token of credit, i.e., the national currency, in a rising rate of inflation and in the currency’s depreciation in international comparison. On the basis of these bad experiences, the caretakers of the Argentine economy drew the conclusion that, despite all state support, it was not possible to boost economic growth solely on the basis of the nation’s capital assets. For this reason, they simultaneously and more and more incessantly sought aid by attracting foreign capital. This then resulted in an even more ruinous situation for many domestic businesses and an expensive matter for the state. After all, foreign investors had only brought their capital to Argentina because of the state’s special guarantees, in particular its offer of securities in the form of ‘risk premiums’ for peso assets in case of currency depreciation, as well as the constant exchange rate of pesos for dollars. As a result, the growing business commerce of the 1980s was accompanied on the one hand by the national money’s accelerating international and domestic depreciation, and on the other hand by a constantly increasing outflow of foreign exchange and a more and more drastic foreign exchange shortage on the part of the government. At the beginning of the 1990s, Argentina had been in a situation very similar to that of a decade later.
Upon concluding that the country could only make capitalist progress if it proffered itself even more decidedly as an opportunity for international capital, the Menem administration undertook a new and radical approach towards solving once and for all the country’s peso depreciation problem and external payments crises. This concerned above all the nation’s means of business itself — its credit money — which the administration equipped with the above mentioned dollar guarantee. This was intended to put an end to both ‘hyperinflation’ and the falling exchange value of the peso. The risk of once again issuing a not yet ‘discredited’ currency and engaging in international competition for world money on one’s own account wasn’t even attempted. On the contrary, the state guardian of the currency abstained from the free exercise of its monetary sovereignty, intending to thereby induce the plentiful dollar investments that would provide the state treasury with world money and eventually turn the peso into a currency in demand. This was a decision that demonstrated both realism with concern to monetary policy and idealism with concern to world money. Realism, because by making this decision, the Argentine state acknowledged that without a special security guaranteeing internationally active capitalists that the money they earned in Argentina would be money of value, the business so important for the guardian of the currency just wouldn’t come about. Idealism, because the state thereby acted as though a political guarantee could undo the peso’s relative worthlessness, which had been previously established through free foreign exchange transactions. Despite the country’s lacking economic prowess, the government sought to offer the international business world a secure speculation on the national currency’s tenability by taking the risk of a fall in value off the capitalists’ shoulders. With that, however, the Argentine guardian of the currency was only tampering with a mere symptom of the actual disease. After all, the country’s previous bankruptcies were not caused by lacking business activity due to an unstable currency. Rather, the peso constantly failed as a representative of value because its capitalist utilization as a means of business left much to be desired; that is, there was far too little profitable business to be done in it! The Argentine government — in agreement with the agents of global business — decided to deal with this fact in the opposite manner, with quite decisive consequences for the nation’s domestic economic policy. By taking the monetary measures it did, the government fundamentally restricted its freedom to finance the tasks essential to a bourgeois state. It restricted itself from financing ‘growth’ at its own discretion by means of sovereignly created credit. And so Argentina turned the international criticism — according to which Argentina’s generous use of monetary sovereignty for the promotion of the nation’s sources of wealth was nothing but a ruinous misuse of this power — into the credo of its own monetary policy. To this end, the government planned budgets that were as debt free as possible, reduced certain state functions or cut them out completely; furthermore, it privatized state-owned companies, thus handing over the results of its previous efforts at building up a national industry to the capitalists’ private business calculations. And finally, it lowered import tariffs and removed other restrictions on cross-border commodity trade and capital flows, in order to clear away the last remaining obstacles for investors and to offer up its domestic market to foreign importers. Domestic firms no longer received state support, and without further ado they were exposed to competition with world-market capital, which sets the standards for how the Argentine economy could be successfully run.
(c) Businessmen and politicians from the upper echelons of the capitalist world of states certainly didn’t ignore the invitation. After all, it was these nations’ experts who encouraged the Argentine rulers to make such a promising change of course in the first place. As is standard procedure in such cases, foreign capital took hold of the country’s spheres of production and circulation, the most profitable branches of the national economy. More often than not, however, the money a state gains from such a sale ends up constituting the greater part of the desired capital transfer — and often enough remains the entire contribution that financially powerful foreign investors make to the expansion of the nation’s economic power. The result of these efforts turned out to be quite different than what had been hoped for, and yet it was wholly consistent with the logic that capitalists fundamentally apply when taking advantage of such national opportunities, or what remains of them. The self-interest of investors, being equipped with all kinds of freedoms and guarantees, did not in this case exactly lead to an increase in national wealth. And as can be seen by the example of the great economic world powers, private and national self-interest only coincide in those few extraordinary situations in which the accumulation of capital is already progressing nationwide in accordance with the standards set by superior competition. Only here are investments made in order to participate in accumulation for the long term. A national lack of capital, by contrast, can indeed be exploited by canny investors who are offered the necessary investment securities, but it is by no means remedied in this way.
In Argentina at any rate, the investing foreign business world readily took advantage of every cent to be made there. Yet in no way did they thereby intend to help build up the country’s accumulation process to a competitively decisive magnitude, and this was certainly not the result either. Instead, foreign investors acquired further portions of the, if not thriving, at least functional national business by means of the pesos earned there, often with the explicit intention of paralyzing the somewhat successful Argentine competition to the advantage of their own firms — and in this they succeeded. Investors took advantage of the Argentinean government’s guarantee, according to which they were permitted to transfer their proceeds abroad in dollars, in order to invest the dollars elsewhere. And more than a few foreign companies insisted on their right to claim expected payments in dollars from the outset. On the whole, the special interests of money holders in securing their Argentine assets by exchanging them for dollars in no way died out with the peso-dollar guarantee, rather the state simply reckoned with and served their interests in an especially radical way. On balance, good world money was earned on Argentina to such a degree that not even superb rates of profit on foreign investments could remedy the nation’s lack of capital. Instead a new deficit came about. Hardly had the foreign takeover of state firms and the acquisition of domestic company shares and the like brought the national budget and the balance of payments into the black — causing economic pundits to rave about this new silver bullet for ‘national prosperity’ — then payments were due once again that couldn’t properly be serviced from capital inflows. And hardly did the initial success in turning profitable domestic sources into world money begin to drop off then the Argentine state once again was compelled to borrow foreign exchange in order to vouch for its peso-dollar guarantee.
Indeed, Argentina was granted the loans it requested. After all, since its ‘change of course,’ it was still possible to earn good money on Argentine soil. And thanks to the tried and true techniques of rescheduling debts, moneymaking continued far beyond the extent to which export earnings and foreign investments were replenishing the country’s foreign exchange reserves. Although Argentina couldn’t dispel mistrust in its creditworthiness, being no longer supported by any positive balances, it was at least able to effectively calm fears concerning its creditworthiness by gaining the approval of the supreme authorities of global credit politics. IMF loans granted the country the required creditworthiness; and as a result, the one-sided expropriation of the national economy — which consisted in draining it of every U.S. dollar — could be continued far beyond the country’s long since vanished solvency.
By unconditionally ‘opening up’ the country to foreign productive and financial investors, the Argentine state managed to achieve temporarily solid account balances and some liquid budget funds. From the outset, however, and in the long run, the state also saw itself confronted with demands on world-money accumulation which simply overwhelmed the country’s ‘capability’ to perform the function assigned to it as a dollar accumulation machine. Foreign shareholders and investors had been fundamentally settling accounts with Argentina from the very beginning; and the longer they did so, the more fierce and critical the settlement became. They demanded payments and withdrew good money from the country instead of increasing the nation’s stock of capital and credit. Instead of equipping the state with growing world-money assets and thereby enabling it to act as a source of world money by means of its own national credit, the Argentine state was made liable for the guarantee that good money was to be made on its territory. As a consequence, the accumulation of capital was accompanied by a constant money squeeze. In normal economic crises, such a situation usually signals the end of profitable lending. In the case of Argentina, however, this money squeeze characterized the general manner in which capital enriched itself in and on this country. Clearly, economic growth induced by foreign investment does not make a nation any richer, but continuously poorer. As a consequence, the only alternative a state has in the use of all its nation’s earnings is to constantly attempt to keep up with all the foreign payment liabilities demanded of it.
A government in this kind of situation feels itself compelled, and is also forced by its creditors, to constantly prove the state’s solvency; that is, it feels and indeed is compelled to provide evidence that it still deserves international credit in spite of growing debts. In the eyes of international creditors, the only valid criterion for such a state’s monetary and budgetary policies is their compliance with the state’s debt-service obligations. And the various Argentine administrations correspondingly oriented their policies completely to the fulfillment of this task. They were determined to unconditionally vouch for the outflow of foreign exchange; and as a consequence, their finances became more and more insufficient for all other tasks. They did everything in their power and took more and more decisive actions to offer evidence for the ‘solidity’ demanded by foreign creditors. And to this end they brought their budgets ‘under control,’ cut back on public spending and squeezed out taxes from their nation’s wholly insufficient earnings. In this way, the dollar earnings to be made on Argentina and the economic activities in the country were eventually made to coincide with each other. The result certainly didn’t turn out as the Argentine state had expected and hoped for, but was nevertheless wholly consistent with the logic of this ‘new beginning.’ All the steps the government took to strangle any production and consumption not useful for dollars were inflicted as consequences of its unconditional insistence on maintaining international creditworthiness.
However, the Argentine government at the same time also proved that even with the best of intentions, it could not restrict itself in its spending to the degree that its ‘currency board’ and the IMF had demanded in the face of the country’s growing dollar debts. The budget deficit continued to grow, and the country’s provincial regions turned more and more to stopgap currencies — ‘funny money’ — to finance their tasks. The state deficit, now spinning more and more out of control, and growing international debt revealed that the state was no longer able to vouch for its dollar liabilities. Yet as long as it could borrow the necessary funds, the government was nevertheless able to pull this off. Of course, there was a price to be paid: an ever-growing accumulation of completely unproductively employed debts, i.e., debts used solely for the purpose of servicing previous debts.
This is how the accumulation of wealth in Argentina turned out to be the growing power of disposal of foreign capital and international credit authorities over the country. It is upon their businesslike examination that the entire continued existence of the Argentine economy has become dependent. They decide in accordance with their own calculations how useful a country still is for them, what kind of a status a state has as a guarantor of due payments, what kind of credit it needs and what kind it deserves. And therefore also decide on the execution in practice of their verdict that the entire nation is no longer profitable — for them.
(d) The country’s rulers didn’t even dream of terminating this ruinous foreign political relationship anyway. As long as they received the necessary loans, they used these borrowed funds to punctually organize the outflow to their foreign creditors of the monetary wealth brought about within their country. Had it been up to them, this would and should have just kept on going. But it was the foreign beneficiaries and managers of the peso-dollar economy that brought about the Argentine crisis of payments. It was their decision — in accordance with their business criteria — that they could not afford to and would no longer maintain economic relations in Argentina that had long since become their own. And thus they forced Argentina into declaring the bankruptcy of its crisis-ridden economy — which had long since become necessary of course, as everyone knew afterwards. And with its own decision that it could no longer afford to service its debts and uphold the dollar-peso guarantee, Argentina for its part merely carried out the foreign termination of credit relations.
For their own reasons, foreign capitalists involved in Argentina insisted on dollar payment in greater amounts — partly because they needed money to cover their own worldwide payment problems, partly because their engagements in Argentina had come up against obstacles that they decided to confront with reduction, abandonment and liquidation of their enterprises there. In any case, no new capital flowed into the country. Foreign capitalists only further strained the country’s foreign exchange reserves, which had long consisted solely of borrowed funds, to a critical degree. These capitalists were the first ones to come to the conclusion that although the Argentine state power’s willingness to provide the demanded dollar sums could probably be counted on, its ability to do so could no longer be relied upon. It was in this suspicion and even more so in the critical financial situation into which they drove Argentina step by step that they found their second reason for ending their financial engagements and insisting on payment. They were no longer willing to prolong their loans to Argentina nor to grant any new ones. They realized that their insecurity with regard to the tenability of their credit exposure wasn’t just limited to Argentina. Their practical distrust was instead of a more general nature, fueled by the ‘growing risks’ facing similar investments they had made in the ‘emerging markets,’ which they compare with each other as alternative spheres of investment. As a consequence, the international business world resolved to let the object of their speculation do the suffering for the foreign capitalists’ general business crisis.
The world’s authoritative credit politicians — the finance leaders of the great economic powers and their functionaries in the IMF and the World Bank — came to a verdict with regard to Argentina’s rising debts and need for loans: precisely because the country did everything right by ‘opening’ its economy to foreign capital, it had from that moment on done everything wrong, and therefore no longer deserved further political credit for maintaining its creditworthiness. The logic of this conclusion is as absurd as it is typical: Argentina’s temporarily solid external account balance was taken as solid proof that this experiment ‘actually’ should have worked and indeed did work just fine. Yet this was nothing but the first temporary consequence of the absurd and grand experiment of freeing a nation from its lack of capital by, of all things, handing over its sources of wealth to foreign creditors, investors and business buyers. The necessarily poor continuation of the story was used as evidence for the conclusion that Argentina’s rulers obviously must have wasted their wonderful budget surpluses through irresponsible economic policy, and of course by not cutting their budget sufficiently and thereby neglecting to impoverish their population. The IMF and the World Bank were no longer satisfied with making mere demands for ‘structural reforms’ and giving their currency funds corresponding rigorous instructions to take up tough negotiations. This time they decided to make an example out of Argentina, which they had driven into a ruinous ‘open-door’ policy, as well as an example of the investors, who as always had relied on the securities provided by the supreme authorities of the global financial system as proof of the country’s creditworthiness. No longer was there any political credit to be had ‘merely’ for the sake of saving the second largest South American country from insolvency, nor to save their own speculators from total losses — at least not for the time being. The political leaders of the dominant global economic powers had their own good reasons for making this decision, and these didn’t have too much to do with the ‘moral hazard’ that Argentine politicians and free speculators represented, and upon which the IMF had clamped down. To them, Argentina’s capitalism was and is no longer worth the trouble of granting any more sovereignly provided financial means. This is due to the simple reason that their global capitalism was — and still is — stuck in a crisis, and is therefore not exactly profitable on the whole, let alone in such a peripheral location as Argentina. They themselves lack the funds which they need for their own interests, such as bridging over their own national payment needs — far more important than the limited Argentine business. In this way, the politicians in charge of world credit have made the country with the most urgent payment needs liable for the fact that their own homemade capitalism has once again brought about a general standstill in the global economy — as well as for the fact that this capitalism has, in particular by using Argentina as a source of dollars, gone way too far in accumulating outstanding debts.
As far as the political agents and analysts at the IMF are concerned, Argentina can also take the moral blame for this disaster. At the very latest since the IMF put an end to its provisional lending to Argentina, everyone knows that mistakes must have been made. By its mismanagement, wastefulness and corruption, the government had been squandering international money of the best quality, while the IMF stood on the sidelines far too long and generously supported these goings-on. According to these experts, the IMF should have withdrawn credit and compelled saving much earlier. They see Argentina’s inability to service its mountain of debts not as an indicator of the extent of the expropriation that had been taking place, nor of the extent of demands on payment that international capital had thus been accumulating, but instead as a sign of ‘unsound handling of budgetary funds on the part of corrupt Argentine politicians’ who just haven’t learned to save. Nor did the speculators’ own ‘criminal negligence’ escape this criticism. What was praised at the beginning of the 1990s for being a model of successful IMF-promoted consolidation turns out now to be the exact opposite: an especially wicked case of Argentine misgovernment — with international support! That the variously involved nations of the more powerful sort evaluate the connection between their own and Argentina’s crisis in different ways — Spain, for example, claims more damage than does the United States — rounds off the picture, as does the balance of power among the rival global-credit powers, which turned out to be the decisive factor in the end.
In this way, the decisive actors of world capitalism crown their access to Argentina — a ten-year-long success story of one-sided enrichment off a capital-needy, capitalist country, adamantly guaranteed by that same country’s state power and by international loans — with a final reckoning that is tantamount and absolutely appropriate to a complete expropriation of this nation’s wealth. They have ceased crediting the country, are squeezing it down to its penultimate dollar reserves, forcing it into official capitulation in the face of their justified claims and thus making it into a victim of their own crisis.
What with its compelled declaration of insolvency, its stop on all dollar payments to foreign businessmen as well as to domestic holders of savings in foreign-exchange accounts, and with its interruption of payment operations in general, the Argentine government paralyzed its entire domestic and international economic life. The consequences were catastrophic.
(a) The domestic consequences of the Argentine government’s measures amount to a far-reaching dispossession of the masses. This concerns all that remains of their assets, savings, income — insofar as they existed at all — and even the elementary supply of material goods. A large portion of the less well-off masses lost their jobs, wages and every prospect of getting them back. Nor will they get their hands on any money for paying the suddenly ballooning prices on the most elementary goods and services. For these people, this amounts to a catastrophe of the greatest magnitude in sustaining themselves. As a consequence, old and newly unemployed and poor flocked together in powerless demonstrations, protesting against their starvation, or just plundered supermarkets. The more well-off parts of the population couldn’t get hold of their frozen assets, which had been devalued by the state-ordered ‘Pesofication’ and continued to lose their worth. They practiced civil disobedience by protesting and scolding Argentina’s politicians and banks. Moreover, and more importantly, the nation’s most essential business activities collapsed. Through the closing of factories and the shutting down of production, the monetary flow has been interrupted, and therefore the flow of goods as well. Even companies that were actually quite competitive in the production of agricultural and other export commodities are unable to function any longer, since corporate credit is no longer available. The banks may have been rescued by state decree from an immediate and ruinous storm of account holders trying to rescue their assets, but they are no longer in the position to function as sound financial institutions.
This chaos has inevitably given way to a makeshift economy. The masses, who have more or less fallen out of every system of regulated circulation, are ‘helping themselves’ with miserable forms of neighborly assistance and in the ‘organized’ form of private barter markets with their own kind of ‘man-hour exchange money.’ In those areas where the state’s attempts to rescue its national monetary system have made the elementary basis for the survival of its people unaffordable, the people themselves have made an attempt to get by on their own account — and not a trace of revolutionary machinations is here to be found! Of course on a national scale, such efforts are not productive, but merely an expression of the extent to which capital and the state have simply written off large portions of the population as being useless creatures.
As far as the state itself is concerned, subordinate agencies at the regional level have resorted to the circulation of pseudo-money in reaction to their increasing financial difficulties, and in this way have indeed brought about a local stopgap circulation. Meanwhile the central government — in constant struggle with the supreme court with regard to the ‘corralito’ (blocking of accounts) and to other measures concerning the ‘rescue of the monetary system’ — is busy restoring circulation of the peso in order to somehow get the general national business of buying and selling going again. It has forced its society to use the peso as an internal currency, this time without a dollar guarantee, and for the moment without any free disposal over the peso — in order to delay exposing the national circulating medium to an inevitably ruinous comparison with the dollar. By compelling the conversion of former dollar credits and dollar liabilities into peso accounts in variously established exchange ratios, and by establishing modalities for a step-by-step ‘unblocking’ of these accounts, the government has linked the nominal remaining assets of its earlier national monetary circulation to the current national token. What was earlier supposed to be a representative for the dollar, and to have its value precisely therein, is now supposed to get new validity as a national stock of peso assets through this monetary reform. And the settlement of the resulting state-decreed and thus inevitable losses has become a matter of heated debate. For instance, the government has promised limited compensation in the form of government ‘bonds,’ i.e., debt certificates valued ‘below price’ even before their being issued, for officially acknowledged losses that were somehow extrapolated from the difference between the state-established exchange rate and the ‘free market price’ — this being the official expression for the peso’s rapid devaluation after the cancellation of parity and the blocking of accounts. The legally decreed ‘redollarization’ of forcefully ‘pesofized’ accounts, previously irredeemable for dollars, amounts to an official upward revaluation in pesos, and thereby to a certain increase of compensatory demands on the state that are once again to be settled by means of supplementary ‘bonds.’ In the same form, Argentina’s commercial banks have also meanwhile started receiving state compensation for bad debts. This much is clear: this meager and make-shift ‘refinancing’ has led to a sudden increase of doubtful government securities in the hands of banks that already have far too many nearly worthless government securities in their possession, as well as to a general devaluation of the nation’s collective wealth. Meanwhile, dollars that have until now been help privately have once again been thrown into circulation — be it out of immediate cash needs, or be it for the purpose of rescuing any sort of business operation with payment in cash due to a lack of credit. Thus the Argentine government can happily announce that the peso has not yet fallen into an abyss.
In the middle of the most serious misery and poverty, the first and most decisive condition for renewed capitalist business is thus being worked on: the creation of a means of business — a national currency — with at least some kind of relation to actual world money. The declaration of the worthlessness of the peso has in this way led, quite functionally, to a devaluation of the old money — and consequently to a re-valuation of the circulating medium. With that, the last remains of the productive and consumable national wealth have likewise experienced a new valuation — at an extremely low level upon which the business of making a profit and participating in global capitalism should and could once again take off.
(b) If and how this launch can occur is not in the hands of the Argentine state, precisely because of the international consequences of its declaration of insolvency. That is, the cancellation of all dollar payments and the paralyzation of national business affect foreign capitalists. These measures harmed creditors and parties entitled to residual claims, as well as investors who had bought their way into the national economy’s business operations. These foreign capitalists have confronted the Argentine state with a heated fight over the rescue of their assets, compensation for their lost proceeds and losses suffered. To this end, they have kicked the national and international judicial processes into gear. Privatized ‘service industries’ are insist on hefty price increases and are disputing the conversion of their calculations into pesos. Banks and their foreign parent companies are demanding compensation for failed business operations, devalued peso assets and who knows what else. The last few remaining companies still functioning as sources of dollar credit — above all the privatized national oil industry — refuse to consent to taxation intended to remedy the state’s need for foreign exchange. On the contrary, they insist on free utilization of their dollar assets. And after a year and a half, an agreement concerning the new settlement of national debt obligations still hasn’t been reached. All this has burdened the rebooting of the nation’s ‘market economy’ and its re-entry into global business with a considerable mortgage. It is already certain that the Argentine national economy, having been reduced and demoted to a mere fraction of its earlier fictional value, is now even much less in a position to service its still-existing and further-growing masses of dollar debts, despite all the revaluations.
What is decisive for Argentina’s ‘return’ to the global economy and the ‘capital markets,’ however, is the political vote taken by the collective agents of the dominant global credit authorities: the IMF. And this agency has set a condition for the renewal of Argentina’s sound business capacity that amounts to an imperialist suicide command. The Argentine national budget, that part of the nation’s social life and social survival carried out by the ‘public authority,’ must ‘shrink’ down to what the last remains of national capitalist business might once again be able to hand over to the state from its surpluses in the form of taxes; and it must shrink down to what would remain after the country has serviced its diminished, but nevertheless still existing, debt obligations. By obligating the Argentine state’s budgeting to conform to internationally supervised regulations in accordance with its saving guidelines, the IMF has tailored Argentina to a new and radically restricted creditworthiness. This is the essence of the haggling between the IMF and the Argentine government with regard to new budget guidelines, financial and monetary restrictions on the provinces, and to the general modalities of future Argentine monetary and economic policy. And by the way, this state won’t be freed of its debt obligations even if it is no longer able to service them. On the contrary, the IMF insists on the strict keeping of financial commitments, at least for those obligations towards the IMF and the World Bank, even if the latter immediately enter the dollar sums demanded from the pitiful remains of Argentina’s state treasury into the country’s debt account. In this way the country’s debt situation becomes ever more critical, without the state being able to acquire newly borrowed funds. The IMF has also offered the appropriate recipe to make the rubble of this capitalist wealth correspondingly useful, and it turns out to be the same old story: sell to foreign business interests, regardless of whether they exist, and regardless of the price. This is all to be carried out by a government compelled to run its shop practically for free.
(c) All that is not too far from being a total rejection on the part of global capitalism’s commercial beneficiaries and political managers towards their bankrupt South American member. On the other hand, even the IMF’s verdict has a silver lining: by negotiating ways of enforcing both its demands and the conditions under which Argentina can become functional again, it has conceded Argentina a minimum of monetary responsibility. Somehow, a certain business life is once again taking place in and around Buenos Aires, upon which consequently money must be being earned: commodities are being exported, tourists are finding their way into the country to take advantage of the new bargain offers. Both are contributing foreign exchange to the state’s treasury, thanks to which it ought to be possible once again to take up more and more business with the state. For its part, the state is dealing with budgetary funds that, however fictive, are showing credit-like effects. It has even begun to negotiate ‘forward-looking’ free-trade contracts with its other neighbors on the continent. The list goes on, and since ‘life goes on’ as well, the foreign business world just can’t hold back. These foreign business interests are once again turning the country that they just finished dispossessing via the acquisition of all of its monetary returns into an object of old and new business interests. They are speculating on payments demanded from the country. In this form, they are speculating on the reopening of trade and lending transactions with the country, as well as on new chances to exploit its new misery economy. And this is all happening under the condition, so important for new business, that the nation and all of what it has to offer in the way of sources of money only cost a fraction of their earlier dollar prices. In this manner, the whole country is being economically degraded from a once ‘blooming’ ‘European-style South American country,’ from an up-and-coming ‘emerging market’ (despite its considerable debts) with an exemplary reputation for handing itself over to foreign businessmen, down to a pile of rubble without credit, with debts and also with several dirt-cheap opportunities. And it is that for which the capitalist community has once again developed a taste.
The collective supervisory power of the global economic leaders — the IMF — continues to haggle with the Argentine government concerning conditions for a newly borrowed capacity to function while the capitalist business world speculates upon its chance to make money on an economic upturn of their global business operations, off a ‘partner’ they recently spit out, devalued and degraded. Meanwhile, more Argentine inhabitants are being ruined by sheer poverty than have been ruined in a long time, and yet no doubts have been raised concerning this national road to success in and with the world market. All in all, this is an out-and-out successful case of really practiced imperialist cynicism of the most innovative kind!
[*] With the decision to ensure ‘dollar parity’ by means of a ‘currency board,’ the government obligated the Argentine central bank to back ‘the monetary basis’ (cash in circulation, cash holdings of the commercial banks and their cash deposits in the central bank in local currency) with foreign exchange reserves and gold reserves (at a ratio of one peso to one U.S. dollar). The central bank was then only permitted to issue pesos if “connected with an equivalent increase of its reserves.” As a result, the peso circulated merely as a domestic dollar symbol. The central bank was no longer allowed to grant credit to private banks in accordance with its evaluation of future business trends and with these banks’ refinancing needs, but in principle only in accordance with the movements of its foreign exchange reserves. Moreover, the Argentine state thereby forbid itself, in the form of its central bank, to finance its budget needs with public debt in pesos at its own discretion. As a result, “the previously customary, arbitrary creation of money towards the financing of state budget deficits had become impossible.” For the most part, the Argentine state serviced its credit needs by taking out loans in dollars.
© GegenStandpunkt 2005