Monday, October 15, 2018
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A country captive
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The jury is still out on the costs and benefits of the new government’s economic package.

Wracked by economic and political crisis in December, Argentina had five presidents in just 13 days. The country’s democratic system held up under the strain, but the most significant result of the dizzying cycle of resignations and appointments was that for several days, the Argentine people held the real power.

Massive street protests toppled two presidents and underscored the breakdown of the economic policies that international lenders, including the World Bank and International Monetary Fund, had held up as an example for years.

The sequence of events that led to the Dec. 20 resignation of former President Fernando de la Rúa (1999-2001) and the naming of three presidents who held the job briefly until Eduardo Duhalde took the post on Jan. 2, began on Dec. 3. In early December, the government had placed restrictions on payments of salaries and retirement benefits and had frozen savings accounts, placing a cap on the amount that Argentines could withdraw each month.

The measures forced Argentines to channel all their transactions through banks, a practice that for many people has never been customary. All withdrawals had to be done through banks and all payments by check or credit card. Everyone — from informal merchants, who constitute 39 percent of the 13-million-strong work force, to wealthier Argentines with a monthly income of US$2,000 or more — was forced to open a bank account.

The latest employment figures were released a week before de la Rúa’s resignation. The deepening economic crisis, resulting from economic policies introduced in 1991 by former President Carlos Menem (1989-99) and broadened by de la Rúa, had led to a jobless rate of 18.3 percent, with another 16.3 percent of the work force underemployed. About 14 million people live below the poverty line, and two children die every day from causes related to poverty.

Workers’ anger and general desperation over the economic situation created a time bomb that exploded just days before Christmas. In several provinces in the interior of the country, as well as the low-income neighborhoods surrounding Buenos Aires, tens of thousands of people without food or money took to the streets, looting supermarkets and other businesses.

The televised images were wrenching. Women with babies in their arms fled with sacks of rice, sugar or anything else left behind by earlier looters. Children carried off tins of preserves and bottles of soft drinks. One scene engraved itself on viewers’ memories: a woman who opened a container of milk with her teeth and, within seconds, devoured the liter, paying no attention to the cameras.

On Dec. 20-21, Buenos Aires residents of all political stripes added their protests to the discontent, spilling into the streets, banging pots and pans and demanding the resignation of Economy Minister Domingo Cavallo. Cavallo, who engineered Argentina’s economic model in the early 1990s, was appointed to the post again last year by de la Rúa (LP, April 2, 2001).

The protesters faced off against police until they reached the city’s two most symbolic places, the Plaza de Mayo, outside the seat of government, and the plaza in front of the Congress building.

De la Rúa declared a state of emergency. When people ignored the restrictions, he ordered a police crackdown of a scale unprecedented even during the last military dictatorship (1976-83). The president, who had been voted into office by lower-income Argentines who hoped he would change the country’s economic model, fled in a helicopter, leaving a toll of 28 protesters killed, hundreds injured and 3,000 detained.

Senate President Ramón Puerta succeeded de la Rúa as president for 48 hours. On Dec. 22, the Justicialist Party (PJ), which won a majority in both houses of Congress in balloting on Oct. 14, elected Adolfo Rodríguez Saá, governor of San Luis, in west-central Argentina, as temporary president and ordered new elections to be held March 3.

Just one week later, Rodríguez Saá was forced to step down. Once more, Argentines from across the political spectrum staged spontaneous protests to the sound of clanging pots, demanding the resignation of the president and several of his advisers, who were accused of corruption during Menem’s terms in office.

For the second time in a week, popular rejection of the country’s political class — which was also reflected in the 49-percent rate of absenteeism and spoiled ballots during the October legislative elections (LP, Nov. 5, 2001) — made Argentine citizens the protagonists of another historic event: Rodríguez Saá’s resignation on Dec. 30. He was followed, for just over 24 hours, by Rep. Eduardo Camaño, president of the lower house of Congress.

The situation stabilized somewhat on Jan. 2, when a joint session of Congress chose Duhalde to complete de la Rúa’s term, set to end Dec. 10, 2003.

On Jan. 6, Duhalde won congressional approval for a package of economic measures that reversed some of the key policies put in place by Menem and de la Rúa. The new measures withdraw some of the privileges — including tax-free overseas funds transfers and other financial transactions — enjoyed by multinational businesses and formerly state-run companies privatized over the past decade.

Most notable, however, was Duhalde’s decision to put an end to the policy that had pegged the Argentine peso to the US dollar since April 1991, a measure that economist Eric Calcagno called "the most inconsistent and deceitful of all the grandiose projects thought up by Menem and Cavallo."

The false parity increased the cost of Argentina’s exports, making them uncompetitive. That, combined with a high interest rates and a tight loan market, forced 8,000 small and medium-size businesses — which employed about 500,000 people — into bankruptcy in the past 10 years, according to the government’s Secretariat for Small and Medium-Size Businesses.

According to a study by the Argentine Industrial Union, a business association, some industries, such as chicken farming, shoemaking, textiles and toymaking, have practically disappeared.

Over the objections of minority progressive and leftist parties, the emergency legislation gave the president greater legislative power for the rest of his term.

Under the emergency plan, consumer and business loans that had been calculated in dollars are to be recalculated in pesos, although loans of less than $100,000 are to be recalculated at a rate of one peso per dollar, to ease the effects on borrowers.

To compensate banks for losses from the restructuring of the loans, the government will provide a subsidy from a new tax on petroleum exports, which total $6 billion a year. According to official sources, the tax will be set at 20 percent.

The new measures also prohibit the indexing of prices to the dollar and ban layoffs for the next 90 days.

By the night of Jan. 6, the government had set a new exchange rage of 1.4 pesos to the dollar, a 28.6-percent devaluation. In the future, the Argentine currency will float freely.

The jury is still out on the hazards and benefits of the new measures. According to economist Daniel Muchnik, the devaluation represents "an enormous transfer of income from wage earners, who have been the victims of cutbacks for several years, and those on a fixed income, which favors large-scale financial and export sectors."

Among those who stand to gain are 87 large companies that took out loans totaling $26 billion and sent the money overseas.

Economists like Muchnik fear that the new measures could push the government — which already owes $132 billion to external creditors — even further into debt. Duhalde announced that he would uphold the suspension of debt payments decreed days earlier by Rodríguez Saá. In early December, the International Monetary Fund turned down the government’s request for a $1.26-billion loan to help meet December debt-service payments.

Some experts worry that the inflation likely to follow the devaluation will mean that the first effect of the new measures will be a deepening of the country’s 43-month-old recession. Economists warned that the combination of recession and the current high jobless rate will lead to a sharp decrease in real wages, as salaries will be remain fixed in pesos while consumer prices adjust to the new exchange rate.

With the country in an economic straitjacket, the only people to benefit from the evaluation will be wealthier Argentines who were able to move their money out of Argentina before the full force of the crisis hit, according to economist Claudio Lozano, of the research center run by the "combative" wing of the Argentine Workers Central (CTA).

Government bureaucrats seem to be following a recipe, he said, "forgetting that people’s expectations are up and they aren’t willing to accept any more lies. They’re forgetting the formidable grassroots dynamic that brought down two governments in just a few days, along with an economic policy that has carried Argentina to the gates of hell."



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