Protesters hold a banner that says 'The debt is with the people, not with the IMF' as they rally in Buenos Aires, Argentina on December 11, 2021. Photo: Natalie Alcoba/Al Jazeera
By Saheli Chowdhury – Jan 27, 2022
Argentina is passing through two pandemics—COVID-19 and Macrismo, and it is the latter, the Macrismo pandemic, which has brought more suffering to the nation than COVID, according to a recent statement from Vice President Cristina Fernández de Kirchner. By the Macrismo pandemic she referred to—apart from the savage neoliberal destruction of the Argentine economy by former President Mauricio Macri—the $44 billion exceptional loan (out of $57 billion of a stand-by agreement) given to the Macri administration by the International Monetary Fund (IMF) in 2018, which Argentina has to pay back now, in dollars, with interest.
In 2021 alone, in the midst of the pandemic and the associated economic contraction, the IMF extorted from Argentina some $5.16 billion in payback, which was around 1.1% of Argentina’s 2021 GDP. More payment deadlines are coming up this year—totalling about $20 billion in 2022, which the current government, headed by Alberto Fernández, admits that it does not have the resources to pay. The IMF is trying to impose a structural adjustment plan on Argentina, and threatening a default if the Fernández administration does not accept the adjustments.
The “support” that supported no one in need
In 2015, when Mauricio Macri became president of Argentina, he took charge of one of the strongest economies in Latin America. Yet, by the beginning of 2018, it was not only nearly bankrupt, but the government had also accumulated so much debt that international financial markets stopped giving any credit to the state. Macri, desperate to avoid the impending crisis, asked the IMF for help, which, surprisingly, authorized for Argentina the largest ever loan to a single country in the history of the institution. It committed several irregularities and violated its own norms in the process.
The principal irregularity was the authorized amount, $50 billion (later raised to $56.7 billion). According to IMF’s own laws, the maximum amount of a stand-by agreement (SBA) cannot exceed 145% of a country’s Special Drawing Rights (SDR) quota for any 12-month period, and the cumulative limit over the entire period of the agreement can be a maximum of 435% of the quota. It may be noted here that the IMF also has an Exceptional Access Policy to grant loans above these limits, the access being granted on “case-by-case basis.” It is not known whether Argentina was a “special case;” however, Argentina’s quota in 2018 was 3.1873 billion SDR, equivalent to about $4.46 billion. Hence, the loan granted was more than 1100% of the quota, well above IMF’s established limit. Also, the amount the IMF gave the Macri administration exceeded 60% of the organization’s lending capacity, while SBA norms dictate that the support granted to any country cannot exceed 50% of the funds allocated for this purpose.
Moreover, as the IMF continued disbursing the authorized loan in installments, the IMF staff that prepared the reports on the loan alerted the Fund that Argentina’s financial situation was unsustainable. According to Argentine economists Alan Cibils and Germán Pinazo, in such a situation the IMF should have conditioned that Argentina restructure its private debt—already in tens of billions of dollars—before it could get the loan, as is common practice. Yet, the IMF loaned $57 billion in the face of a virtual default.
Not a single dollar of the loan reached the economy, instead it “financed a mega capital flight,” highlighted economist Horacio Rovelli. According to information from the Central Bank of Argentina, which had essentially facilitated the capital flight, around $86.2 billion left the country during the years of Macri’s Cambiemos government (currently Juntos por el cambio of the opposition), to be hidden in tax havens around the world. The IMF, despite being aware of the situation, continued disbursing the installments.
Now the Central Bank indicates that at least 15 years will be necessary to pay back the loan, instead of the 10 that the IMF granted.
It was not a debt but a bet
Right from the beginning of the saga, it was evident that the IMF was not keen on getting its money back; rather, the aim was more sinister, and political. Even in 2019, when current President Alberto Fernández was on his electoral campaign, he had complained about the capital flight and the grave crisis that the next administration would certainly face, to an IMF team that met him. In a recent interview, Macri himself admitted that the IMF had granted the loan so that foreign investment funds could abandon their Argentine stakes and take their assets abroad, which means that the IMF knowingly financed capital flight, violating Article VI of its own statute. An investigation by the Central Bank of Argentina documented evidence of all this, based on which the Fernández government initiated a lawsuit; however, the Argentine justice system seems to have stalled the case.
What is more serious, Mauricio Claver Carone, current president of the Inter-American Development Bank and US representative on the IMF board during Trump’s administration, openly admitted that the IMF loan was a political favor to Macri, that Trump wanted the IMF to do everything possible to prevent a “populist axis of Argentina, Venezuela, and Cuba” from emerging, which would have been a detriment to US interests in the region. Macri’s recent confession corroborated this, as he claimed that the IMF loan was to help his government to get through 2018 and 2019 without major financial problems and win the 2019 presidential election, which signifies that the loan was the IMF’s campaign contribution to Macri. In fact, the former president further clarified that the current debt repayment structure—which would never be below $12 billion a year even with grace periods—was deliberately agreed upon to tie the hands of a progressive government in case Macri, or anyone else sympathetic to the IMF, did not win the 2019 elections.
It would appear that the Trump-IMF-Macri conspiracy is bearing fruit, as the present government is trying to satisfy both the Argentine people and the IMF and is floundering in the process. Since 2020, the government of Argentina has been trying to negotiate with the IMF for a longer debt repayment schedule and the elimination of interest rate surcharges, but the negotiations have not reached anywhere. The IMF has even imposed some conditions on Argentina, which include reduction of the fiscal deficit, a steep restriction of the Central Bank’s assistance to the Treasury, and an essential devaluation of the Argentine peso. All this is restricting Argentina’s economic growth, raising prices of food and essential goods, and over 40% of the population has fallen into poverty.
The resulting indignation of the people exploded in the parliamentary elections of November 2021, where Peronismo lost the Senate majority for the first time in 40 years. It was Juntos por el cambio that reaped the benefit, the coalition headed by Macri, who is the one responsible for the unfeasible situation in which Argentina finds itself.
To pay or not to pay
On December 10, 2021, during the official celebration of the Day of Democracy and Human Rights at the Plaza de Mayo in Buenos Aires, Alberto Fernández told supporters, “If the IMF releases my hand, I am going to hold the hands of each one of you.” The next day, in a counter-demonstration at the same place, thousands of people—many of whom had probably voted for Fernández—called him out for allowing the IMF to tie his hands in the first place, and denounced any possible “adjustment.” According to the statement read at this demonstration, “the multi-year plan [of debt repayment] aims to subjugate the Argentine people for decades [and] to have as its main priority the collection of dollars for the payment of an illegitimate and fraudulent debt.”
The government is trying to collect dollars by a brutal external adjustment based on maximizing exports and reducing internal consumption of food and energy, explains economist Rovelli. However, the real problem of this plan is that it ends up benefiting exporters—who take away most of the profits earned this way, and sends the country further into debt. This is especially true of the mining and energy sectors, as a majority of those areas are in the hands of multinationals that do not pay enough taxes, and their profits go abroad. Thus, according to Rovelli, the government’s projected trade surplus through exports will flee the country, instead of being invested into what would really invigorate the economy—infrastructure, dredging of the Parana river, recovering sea and river ports, having a merchant navy, etc.
In this state of affairs, the IMF is trying to force Argentina into a dreaded “structural adjustment,” which usually means slashing funds in public education, health, housing, employment, pensions, and every social welfare program.
“We are in a critical situation,” confessed the Minister of Economy, MartĂn Guzmán. “We have sharply reduced our primary deficit from 6.4% of the GDP in 2020 to 3% of the GDP in 2021.” But, he insisted, “if we were to continue on the trajectory dictated by the IMF, it would undermine growth and the success of the support program.”
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The “support program” to which Guzmán referred is a condition of the negotiation, in which the IMF will give a loan to Argentina so that the country can pay it back to the IMF as debt repayment. Apart from that, the financial institution will “co-govern” Argentina—it will revise the situation of the Argentine economy every three months and will advise the government on how to “adjust” its economic and labor policies for the Argentine State to be able to stick to the debt repayment schedule. This means that Argentina would have to surrender its economic sovereignty to the very institution that destroyed its economy.
Thus, from sectors of the left, including from within Peronismo, the demand for non-recognition of the debt is growing. Argentine economist Alejandro Bercovich opines that it is possible. “There is a fear that there will be a catastrophe if an agreement is not reached with the IMF, but is it true that nothing else can be done except surrendering sovereignty and betting on adjustment?” he asks. It is true that Argentina will suffer boycotts and embargoes from international financial markets. Multilateral organizations like the Inter-American Development Bank, the World Bank, the Andean Development Corporation would possibly stop funding social programs. However, these loans amount to $5 billion annually, while the Argentine state could save more than double the amount every year if it stops repaying the IMF.
The opposition is fear-mongering that Argentina would lose access to the voluntary credit market in the event of non-recognition, but Macri had already lost it in 2018, points out Bercovich. “Since then, that channel remains closed” for the country. Similarly, the dread of the peso plummeting with respect to the US dollar is also meaningless, since it is already happening while negotiations with the IMF are still going on. As far as the fear that no foreign company would invest in Argentina, there has been no foreign investment to speak of since Macri’s term anyway.
Finally, the propaganda that Argentina will suffer a trade boycott is just propaganda, Bercovich asserts. “Why would China stop buying soybeans or meat from Argentina, as it buys these from whichever supplier sells them?” he asks, as China is now Argentina’s largest trading partner. In fact, the profit that Argentina earned from exporting food items to the Asian giant was consumed by the IMF debt. “Won’t it be better to use that surplus to buy machines and other goods and raise productivity?”
Alejandro Olmos Ganoa, the expert in international law who advised ex-president of Ecuador, Rafael Correa, when his government faced a similar crisis in 2008, opines that the negotiation should not be continued in its current form. “It is impossible to come to an agreement with the Fund without adjustments or conditionalities… from 1957 until with Macri, it has always operated in the same way,” he insists.
According to Olmos Ganoa, the Fernández government should instead audit the loan, as he did in the case of IMF loans to Ecuador during 1976-2006. That audit found Ecuador’s foreign debt to be illegitimate due to numerous irregularities, especially in the renegotiation following the 1999 default. With this information, the Correa government renegotiated the debt with a 65% debt haircut. Argentina is in a position to do something similar, asserts Olmos Ganoa. It is now evident that the IMF loan to Argentina, littered with irregularities and violations of the IMF’s own rules, was a gamble on the continuity of the Macri government and an explicit interference in Argentine democracy, which definitely makes the debt illegitimate.
The government of Argentina can also take the legal route, suggests Soberanxs, a peronista group recently founded by former Vice President of Argentina Amado Boudou, former Ambassador Alicia Castro, and former Deputy Governor of Buenos Aires Gabriel Mariotto. “The Fund entered into a stand-by with the Macri government, despite knowing that it was impossible to pay in 36 months the amounts committed in an agreement without precedent in the history of the institution, and which did not comply with the Fund’s usual practices,” stated a document released by Soberanxs. In the face of such illegality, the Alberto Fernández government can file a case against the IMF at the International Court of Justice, and claim reparations for the damages caused. If this happens, “it would be the first time in history that the IMF would be questioned at an international body, essential to show that its impunity must end,” remarked Boudou.
This impunity originates from US hegemony in the institution, points out Argentine sociologist and political analyst Atilio Boron. “The United States is the only IMF member state that has veto power,” Boron recalled. “It has 17% of the voting power in the IMF directorate, and for any decision the IMF requires at least 85% of the votes of the member states. Thus, if the US votes against Argentina, there will be no agreement with the IMF.”
“The IMF president, Cristalina Georgieva, has no voting power,” Boron added. “According to the IMF statute, she is just another employee of the Fund directorate. She is limited to carrying out the decisions of the directorate.” Hence, Minister Guzmán and Georgieva may go on negotiating an agreement for years, but there would be no concrete result unless the US votes in favor.
For the US to vote in favor of Argentina, Boron asserts, it would demand that Argentina end diplomatic and other relations with countries like Venezuela, Cuba, Nicaragua, Iran, China, Russia, etc. that are in the crosshairs of the empire. Basically, Argentina would have to fundamentally change its foreign policy and align it more with the US imperial policy, to the detriment of Latin American unity and regional integrity, especially given that it just became the pro tempore president of the CELAC.
The Committee for the Abolition of Illegitimate Debt (CADTM) advocates for writing down the sort of foreign debt that is pressuring Argentina at present, and many other countries across the world. Branding Argentina’s debt as “odious debt,” because it was contracted through irregular means and used for improper purposes, CADTM suggests that the IMF should eliminate it, and also investigate the officials who had violated the organization’s own statute and approved the loan to the Macri administration.
The situation of Argentina once again establishes that, to assert sovereignty and economic independence, Argentina, and Third World countries in general, need to start breaking out of the structures of economic colonialism imposed from abroad with collaboration of vested internal political and economic interests, and construct their own structures of political and economic collaboration and solidarity.
Featured image: Protesters hold a banner that says ‘The debt is with the people, not with the IMF’ as they rally in Buenos Aires, Argentina on December 11, 2021. Photo: Natalie Alcoba/Al Jazeera
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Saheli Chowdhury
Saheli Chowdhury is from West Bengal, India, studying physics for a profession, but with a passion for writing. She is interested in history and popular movements around the world, especially in the Global South. She is a co-editor and contributor for Orinoco Tribune.
