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IMF Jumps onto Floundering Argentine Ship

Shortsighted IMF Jumps onto Floundering Argentine Ship

* Throwing money at deeply troubled Argentine economy is an ill-fated prescription to mend a very sick society *
* De la Rúa sacrifices meaningful reform and provokes social and economic meltdown for the sake of IMF-driven policies *
* IMF demonstrates willingness to ignore habitual corruption and politics that hardly distinguishes the present government from its deeply troubled predecessor *
* State Department's support of IMF loans indicates that the two institutions have learned little from the anti-IMF demonstrations in Washington and Prague *
* Social backlash in Argentina could prove costly for IMF's already sullen reputation *
* Argentine economy a basket case as local businesses fall to Brazil and Argentines flee the country

With its pending mega-loan of some $15 billion to Argentina, the International Monetary Fund is offering a short-term fix with potentially disastrous long-term consequences. At the same time, the agency is largely ignoring Buenos Aires' growing incapacity to deal with mounting political and social unrest and its unwillingness to implement meaningful institutional reform. What is driving the IMF is its pledge to rescue Argentina's creditors and project its relevance despite the gamble that orthodox fiscal adjustments and an increasing debt burden will hurl the country into even deeper political and economic instability. For his part, Argentine President Fernando de la Rúa has been a most tractable supplicant, willing to expose himself to grave political risks and the nation to considerable discord in order to methodically follow the IMF's austere deflationary financial recipes.

A government both corrupt and incapable The IMF will be allocating the largest financial package in its history to a country not already in the throes of an economic crisis. In addition, an estimated matching amount of up to $15 billion more will be sent by a combination including the World Bank, the Inter-American Development Bank, various private lending institutions as well as the governments of Italy, Spain and France. The IMF is intent to put to the test its new strategy for combating the kind of infectious capital flight witnessed in Asia and Latin America that sparked the spate of currency crises during the late 1990s. It is also dutifully responding to international investors' nervous cries that Argentina could default on its foreign debt payments without receiving additional liquidity.

But Fund officials seem blithely unaware that instead of fulfilling his promise of restoring integrity to an office crudely tarnished by the outgoing Menem administration's corrupt practices, De la Rúa has only propagated the sordid legacy of his predecessor, maintaining a cozy relationship with "el establishment"-multinational corporations and Argentina's financial and corporate elite-while the gulf between rich and poor in his nation deepens, the middle class sustains its downhill slide, a record crime and delinquency rate afflicts the nation and the country's politicians continue to rob with impunity. The Argentine president has done surprisingly little in the way of institutional reform, instead centering his administration's efforts on slashing the budget through a rigorous commitment to the IMF's standardized draught of fiscal castor oil: privatizing social services, cutting the salaries of public employees and raising taxes on the middle class, in hopes of reducing high interest rates. Yet, as the calls for a change in policy grow louder, De la Rúa has only increased his commitment to his fiscal adjustment program, and is now negotiating the soon-to-be announced $15 billion IMF arrangement. The package is the logical step in an economic model, to which he is slavishly devoted, that appears to confuse an absolute dependence and submissiveness to the IMF in the face of imaginary irreversible economic forces, with an incapacity to negotiate with independence and a sense of dignity. Unlike Brazil, which rejected initial IMF recommendations against devaluation during its 1999 economic crisis, while still managing to receive a record multi-billion dollar aid package from that institution, De la Rúa has passively accepted any and all conditions the lending agency has requested of the government. This has prompted endless characterizations of the Argentine president as a mere puppet of Fund officials. But De la Rúa has proven equally incapable of negotiating within his country. On the heels of a November 10 announcement that the social security system would be dismantled (a condition of the loan purportedly imposed by the IMF), the largest union confederation headed a nationwide 36-hour strike that cut off public transportation and effectively shut down the country's major cities. While Menem was at least able to deftly placate union leaders with concessions*either real or mirage-like*De la Rúa has made an enemy of the syndicates and professional guilds, which have organized numerous work stoppages and highly publicized protests since he assumed office. It is becoming increasingly evident that the neo-liberal strategy that was imported by Menem, has incurred only more poverty (the unemployment rate is expected to top 15.8 percent this December) and a greater concentration of wealth in the hands of a few. But while Menem was able to assuage worried Argentines with a wholehearted conviction in his policies and beguile his opponents with his negotiating skill and tremulous reassurances, De la Rúa has proven to be an unconvincing proponent of his own economic program as well as an inept politician. Even the Mr. Clean image that was the heart of his election campaign has been tarnished due largely to a bribery scandal that led to the October resignation of Carlos "Chacho" Alvarez, the country's well-respected vice-president. Alvarez, moved out of the Casa Rosada after the president refused to fire his closest advisor and intelligence agency chief-a scenario reminiscent of Peru's scandal involving Vladimiro Montesinos that brought down the Fujimori government-suspected of bribing 11 senators to vote for a controversial, IMF-sponsored and De la Rúa-backed labor reform measure. The investigation of the alleged pay-offs is under way, but few believe that anyone will actually be prosecuted. Every senator under accusation has flatly denied accepting money and the federal judge carrying out the case is himself under investigation by a congressional committee for possessing large sums of allegedly illicitly obtained money (there is some question as to how the judge could have afforded his $1.5 million house on his $60,000 per annum salary). With Alvarez out of the picture, there is little hope that De la Rúa will take any action to get to the bottom of things, and certainly none, if, as some suspect, he has been there from the beginning.

While many had hoped that Menem's departure signaled the end of an age of venality in Argentine politics, De la Rúa has taken few actions to extinguish the cronyism that blossomed during the epoch of Menemismo. Instead, the President has taken a cue from Clinton's mantra, "It's the economy, stupid" since taking office, centering his administration's policies around implementing IMF-promoted fiscal adjustments. But his stringent economic plan has yet to bear fruit, and as the recession becomes more severe, De la Rúa's mandate to govern becomes increasingly precarious. His continued stubborn disregard for the ABC's of practical politics has clearly backfired, only further alienating potential investors due to the nation's increasing political volatility, who already were being dissuaded by the lack of clear prospects for economic growth.

IMF and U.S. unconcerned over flawed democracy As his list of domestic critics lengthens and the ferocity of the protests against his political ineptitude intensifies, De la Rúa's relationship with the IMF seems to be growing closer, warmed perhaps by the agency's serene indifference to the country's rock-bottom lack of civic rectitude and its profoundly fouled judiciary. The U.S. Congress' unanswered denouncements of the disturbing anti-Semitic nature of the Argentine courts' relentless seven-year hounding of the respected educational institute, the Buenos Aires Yoga School, is but one chilling manifestation of how De la Rúa has continued Menem's policy of ignoring the grievous failings of one of the most venal judiciaries in Latin America. But Fund officials, who seemingly have forgotten the angry public demonstrations in Washington and Prague, have hardly twitched a muscle at the routine corruption highlighted by Alvarez's departure*so much for their recent talk about the IMF becoming more people-oriented by factoring in a conditionality on future loans based on transparency and good governance*instead, praising De la Rúa for continuing to implement sound economic policies. Similarly, the White House's strong backing of De la Rúa's game plan consigns to the trash can Washington's professed interest in democratization and judicial and administrative reform. Meanwhile, the Clinton administration's technocratic vision sees the pending multi-billion dollar package as De la Rúa's only opportunity to halt a full blown economic crisis, while displaying little comprehension of the heavy political price he may have to pay. In any event, it is clear that when it comes to Argentina, the IMF and the U.S. still insist on doing business the old way.

IMF tests its luck Making only token efforts at reform, the Fund has faced an escalating surge of well-merited assaults on its reputation in recent years, but perhaps nowhere is it more vilified than in Argentina. While the De la Rúa administration consistently has heeded every recommendation offered by the Fund, the country's economy has continued to plummet with scant prospect for a rapid turnaround. Unemployment is expected to top 15.8 percent by this December and social tensions are reaching an unbearable pitch. Meanwhile, the IMF's credibility is being assailed by Third World leaders and First World street activism for the corporate mentality of its management and the disproportional power exercised by a few rich nations: of 182 member countries, the U.S. controls almost 20 percent of the organization's voting bloc.

Fund officials are now well aware of the alarming increase in intensity of anti-IMF sentiment in creditor nations which pales in comparison with the vitriol with which it is being addressed throughout the Third World. While the much-publicized protests against the IMF were contemptuously dismissed at the time by its brass as the work of a handful of disaffected middle-class radicals, the same cavalier tone can hardly be taken with regard to a May 31 demonstration in Buenos Aires, in which some 40,000 Argentines of all political points of view gathered to denounce the lending agency's stranglehold over government policymaking.

Regardless of whether the mammoth loan to Argentina ends up staving off a crisis, or instead, is destined to "pick up the pieces after an accident," as characterized recently by the IMF's second-in-command, Stanley Fischer, barring a fundamental change in IMF policy in the direction of greater social justice, the present Argentine firestorm could be opening the gates to even fiercer attacks on the organization around the world.

By Reed Lindsay, COHA research fellow

The Council on Hemispheric Affairs, founded in 1975, is an independent, non-partisan and tax-exempt research and information organization. It has been described on the floor of the Senate as being "one of the nation's most respected bodies of scholars and policy makers."


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