Disasters of Neoliberalism
Argentina in flames
by Salomon Partnoy
CovertAction Quarterly, Spring 2002
Argentina is on the horns of a triple dilemma-social, political
and systemic. The social dilemma is that, while anarchy is no
solution, outrage is the only logical response to an economic
system so unjust that it is destroying the fabric of society.
The political dilemma is that the Argentine people have been sold
out to the global market predators by their own ruling class,
which has made itself obscenely rich off the suffering of the
great majority. The systemic dilemma is that today's neoliberal
economic model isn't working, but the power holders claim it is
the only option, although it promises no hope for the future.
To understand how Argentine politicians have sought a way
out of the extreme crisis facing the nation-in light of the social
explosion December 19-20, 2001, in which police repression caused
at least 25 deaths and a large number of wounded-it is important
to analyze the different political positions that have emerged.
On the one hand, those politicians who follow the Peronist line-conservative
although still populist-adjusted to the discipline of the majority
in Congress and voted for candidates determined by top party leadership.
On the other hand, those following new political coalitions-center-left
workers and the rebellious middle-class- responded to the explosive
social events of the moment out of self-interest by backing their
Since its institutionalization during the presidencies of
Juan Peron (1946-55, 1973-74), the Peronist party has sought and
obtained power through clever demagogic appeals to the popular
masses. At first, tangible social-democratic reforms in labor,
education and welfare did help Argentine workers make significant
gains, but Peronism has always primarily benefited the upper classes,
today associated with the large corporations. Carlos Saul Menem
(president 1989-2000 and hoping to return to office) is a Peronist,
as is the current president, Eduardo Duhalde. Peronism today makes
the same populist appeals, but has nothing to offer the average
In this context, two opposing positions have emerged. One
is held by Graciela Fernandez Meijide, leader of a group named
Frepaso-an alliance of Peronists and socialists-who, after the
withdrawal of President Fernando de la Rua, backed Duhalde who
sought to prevent the country from falling into a state of anarchy.
Challenging that position, deputy Elisa Carrio-leader of ARI,
an alliance of trade unionists and Peronists-proposed following
the constitutional rules which called for electing a new president.
During the presidency of de la Rua (December 1999-December
2001), the government announced that it had neither financial
resources nor foreign credit to pay the next installment of the
foreign debt that was about to come due. Facing default, Argentina
would thus fall into bankruptcy. While a judicial request to declare
bankruptcy is a solution corporations can employ when they face
a state of insolvency, no such proviso applies to bankrupt nations.
When President Fernando de la Rua resigned his post on December
21, 2001, the presidency fell to Ramon Puerta, President of the
Senate. The Legislative Assembly (Chamber of Deputies and Senators)
did not follow the process established by the Constitution for
calling new elections. Instead, the two major political parties,
which had the vote majority, proceeded to manipulate the political
situation outside the Congress, orchestrating hidden agreements.
As a result, they designated Adolfo Rodriguez Saa, Governor from
the Province of San Luis, as President, who should have called
for immediate presidential elections.
When they installed him in the presidency, however, they made
it clear he would not be a provisional president, but would remain
in power until 2003 with no new election. Saa made several promises:
to raise the minimum salary from $400 to $500 a month; to not
pay the foreign debt; to accept requests for the extradition to
foreign countries of those military leaders from the old dictatorship
judged guilty of the disappearance of many thousands of people
during the "Dirty War" (19761983); and to publicly receive
the Mothers of the Plaza de Mayo, who requested he free all those
detained by the police during the protests initiated against President
de la Rua, which Saa promised he would do. However, since there
was insufficient support from the Peronist governors in the most
important provinces, he resigned his post after one week without
fulfilling any of these promises.
The designations of Saa of Duhalde as president had no parliamentary
legitimacy. In both cases, the Legislative Assembly operated as
an autonomous body making decisions beyond its powers. The opposition
group, Frepaso, failed to take any clear position or to back any
alternative, for fear of losing their posts prior to any popular
elections. Luis Zamora, a socialist deputy, denounced the whole
Legislative Assembly as a fraud because it didn't represent the
people who had mobilized the mass protests.
PRIVATIZATION, DEREGULATION, GLOBALIZATION, BANKRUPTCY
These four themes frame the parameters of the financial crisis
behind the desperate social situation that has fallen upon Argentina.
The historical context for such crises in the free market economies
of the Americas first appeared in Mexico, developing during the
presidency of Carlos Salinas de Gortari (1988-94) and marked by
the collapse of the Mexican stock market in December 1994. This
happened at the same time the indigenous Zapatista rebellion in
Chiapas was challenging the corruption and lies that cloaked the
newly imposed neoliberal model called NAFTA. A total Mexican collapse
was avoided through a $50 billion bailout orchestrated by President
Bill Clinton, as the only way to avoid a complete disaster and
save the North American Free Trade Agreement (NAFTA). Now, Argentina
is the second crisis. It developed in Argentina during the government
of Menem, although the actual collapse occurred in December 2001
under de la Rua, it has submerged the people in disaster and emptied
the nation's bank accounts. The cases of Mexico and Argentina
are both examples of Robin Hood in reverse: the poor are robbed
to pay the rich.
In relation to the emptying of the bank deposits, Carlos Heller,
Vice President of the Association of Public and Private Banks
of the Republic of Argentina, said:
...in order to reestablish the people's confidence in the
banks, they have to explain where the money is and who took more
than $20 billion out of the country during the last days just
before the crisis exploded-money the system doesn't have-and which
caused the collapse; and to expose the guilty, those rich capitalists
whose money flows in and out of the country at will.
A report from the Central Bank of Argentina confirmed the
fact that in the month of November 2001, $4.9 billion were withdrawn
from the nation's banks. Those rich depositors who had more than
$250,000 in the bank withdrew 47.4% of their money, whereas the
small depositors who had up to $10,000 were allowed to withdraw
only 9% of their funds.
The withholding of bank deposits, that is, prohibiting people
from withdrawing their `` savings-called "corralito"-a
creation of ' the Minister of the Economy, Domingo Cavallo, was
a measure taken on December 1, 2001, in the face of the massive
withdrawal of money by the biggest depositors. Most of the money
belonging to small depositors still remains inaccessible to them.
The most recent data from the Central Bank reveal that 98%
of all depositors had their deposits blocked, that is, those with
$50,000 or less in their accounts, whereas this restriction only
affected 0.21% of the major accounts of more than $250,000. As
a result of emptying the banks of these huge deposits and referring
to this "blocking" invention of Cavallo, President Duhalde
said: "the corralito is like a bomb, if it explodes no one
is left with a single peso." In other words, a situation
in which anyone who has a bank account loses everything.
The main standard-bearers of this neoliberal system in Latin
America were Augusto Pinochet in Chile, Carlos Salinas de Gortari
in Mexico, Carlos Saul Menem in Argentina, Carlos Andres Perez
in Venezuela and Alberto Fujimori in Peru. Each of these cases
resulted in such financial disasters for their societies that
three of these leaders were arrested-Menem, Perez and Pinochet-and
two of them fled into exile-de Gortari and Fujimori. Ronald Reagan
and Margaret Thatcher were the commanders who are still unpunished.
In Argentina, the program of privatization was initiated by
President Menem in 1989. This strategy, based upon a macroeconomic
theory, has as its goal the corporate takeover of the finances
of the State, both its public spending potential and its operating
budget. While market theory talks about "greater efficiency"
and "social benefits," its real goal is the deregulation
of the national economy. It accomplishes this by demanding the
privatization of the country's major industries, thus reducing
the State's income and then having foreign companies take over-privatize-the
principal industries which control the primary services of the
society: gas, electricity, telecommunications, water and sanitary
In Argentina, this neoliberal economic model took off in 1990,
focusing on the laws related to the de-monopolization of public
services by the State: state reform, monetary regulation and the
law of convertibility, by which the Argentine peso abandoned the
gold standard and made the U.S. dollar its base. The primary objective
of Domingo Cavallo, then Minister of the Economy, was to undermine
the nation's sovereignty, by integrating Argentina's economy into
that of the United States. The Minister of Foreign Relations for
Argentina, Guido Di Tella, defined these bilateral ties with the
US as "carnal relationships."
As a result, Argentina's national sovereignty-its political
autonomy and its economic independence-was subjugated to the global
capitalist system. The Argentine social security system was privatized
through establishing agreements for depositing the funds with,
and transferring the administration to, foreign financial corporations.
The income received from the sale of the State's patrimony
over its national industries was either insignificant or wasted
without the government revealing any clarifying accounting data,
so the public believed the transfer had been a good deal for Argentina.
To the contrary, as if by magic, the nation's entire inheritance,
accumulated over generations through the labor of its people,
disappeared overnight. The system of public administration was
dominated by corruption, based upon a system of artificial justice
and weakened by excessive expenditures manipulated by the presidency
behind a veil of traitorous silence that will take future historians
years to investigate and uncover.
When the government of Isabel Peron fell in 1976, the foreign
debt of Argentina was calculated at $7.5 billion; by 2001 its
debt had reached $142.3 billion, while the interest owed between
1992 and 2001 amounted to $83.2 billion. In 1990, monetary parity
between the peso and the dollar was fixed. Thus, the money supply
is controlled by the amount of reserves in dollars in the Central
Bank. In order to pay its bills, the State borrows more foreign
money instead of increasing the money supply or using funds from
the income of the nation's production.
This system of outside financing, which while successful in
controlling hyper-inflation during the Alfonsin government, was
completely abused during Menem's administration, created a new
crisis resulting from corruption at high levels: the squandering
of presidential expenses, excessively high salaries paid congressional
members and government employees, the widely accepted practice
of not paying taxes and a corrupt judicial system which refused
to investigate any of these illicit activities. All these factors
turned the national fiscal deficit into a chronic foreign debt
that finally became unpayable and led to default.
These economic crimes not only reduced the flow of income
to the State but produced such extreme illicit wealth that it
created a hidden economy that was so huge it equaled the official
economy. In time, the international agencies which control the
public accounts of the State- the IMF and World Bank-made public
the gravity of this fiscal evasion. According to FIEL-Fundacidn
de Investigaciones Econdmicas Latinoamericanas-this hidden economy
or fraudulent financing, rose to $64 billion annually.
Examining the paradox of the foreign debt, Raul Dellatore
Over the past twelve years, two Argentine governments favored
the payment of foreign debt over any other political objective.
The consequence of this policy so evident today is a nation whose
economy consumes itself in order to end all other means of debt
repayment with a debt many times higher than at the beginning
of the military dictatorship (1976). Paradoxically only days after
the explosion which ended that model, the country entered another
cul-de-sac: resolving its commitments to the financial system
by freezing its dollar accounts worth $46.4 billion and its peso
accounts worth $16.4 billion.
MILITARY RULE AND STATE TERRORISM
Despite the health of the Argentine economy after World War
II under its independent and protectionist policies, domestic
political fears and US continental policies led the country into
military rule and eventually state terrorism. These continental
policies developed out of the United States' Cold War policy and
its anti-communist propaganda as well as the rise of leftist movements
in Latin America. Although President Arturo Frondizi (1958-1962)
had cordial relations with President John F. Kennedy, he opposed
the idea of taking precipitous measures against Cuba, opting for
an independent solution to that dilemma. This provided an opening
for the military, which accused Frondizi of being soft on communism
and the Peronists, and thus "deliberately orchestrated a
coup against the Argentine president."
In June 1966, the military overthrew President Arturo Illia,
claiming his government wasn't adjusting to the new definition
of domestic and international objectives (i.e., the "national
security state"), and replaced him with General Juan C. Ongania
who took charge of a dictatorial presidency with unlimited powers.
The military, filled with excessive arrogance, declared that everything
the civilian administrators had been incapable of doing-ending
the escalation of inflation, reversing the declining economic
development and preventing labor unrest-could be accomplished
through a military regime. A broad sector of the political elite,
business class, reactionary elements of the Catholic Church (Opus
Dei) and groups of intellectuals welcomed Ongania's ascendancy
Even though popular mobilizations and a fraction of the big
capitalists withdrew their support from Ongania in 1969, ushering
in the return to power by Juan Peron in 1973, the economic situation
rapidly deteriorated. This led to the rise of the Montoneros,
leftist students and Peronists, who clashed with right-wing groups
and para-police resulting in 700 deaths. In 1975, the cost of
living escalated by 335% and demonstrations were frequent. On
March 24, 1976, a military junta, led by General Jorge Rafael
Videla, took power. He dissolved the Congress, imposed martial
law and governed by executive decree. In response to street clashes,
the government launched its own counter-attacks, which Argentines
refer to as state terrorism.
In 1987, the Argentine Human Rights Commission denounced the
activities of the military and its "Dirty War" before
the International Human Rights Commission in Geneva, accusing
it of having committed 2,300 political assassinations, making
10,000 arrests for political reasons and 'disappearing' between
20,000 and 30,000 persons, many assassinated or buried in unknown
graves. During this reign of terror, the Videla government imposed
a rigid economic plan that initiated a period of "easy money"
[plata dulce] in which the national currency and corporate assets
were overvalued, facilitating sumptuous spending abroad. Thus,
between unlimited terror inside the country and unlimited spending
abroad, between the concentration of income in a few hands and
the enormous impoverishment of the poor majorities, life in Argentina
was a dream for the few, but a nightmare for most.
The most visible result of this poverty/profligacy phenomenon
was the fall of the "new poor" from the middle class.
Between 1976 and 1983, 30% of the population lost its class status
and today live on incomes of less than $125 a month. Through the
intervention of Jose Alfredo Martinez de Hoz, Economic Minister,
who was also a member of the advisory board of the Chase Manhattan
Bank, the first article of the civil and commercial code proceedings
was modified in order to allow demands against Argentina from
abroad to stand without having to present their cases before the
Argentine judicial system. This marked the beginning of a fundamental
economic change that favored transnational corporations. With
that crucial step, the dictatorship entered into crisis, producing
internal disputes within the military as its economic policy failed.
The defeat of the Argentine military on the Malvinas Islands in
June 1982 precipitated its decline. As a result, democratic government
was restored on December 10, 1983.
To understand how the case of Argentina relates to the international
capitalist system or global economy (neoliberalism), it is important
to remember that capitalism is, in essence, a system that expands
both internally and externally. In the case of Argentina, it is
important to recall what Paul Sweey calls the "financialization"
mechanism in the process of capital accumulation. This process,
which developed in Argentina over a ten-year period, generated
a huge concentration of money and involved enormous financial
earnings which found their way directly into the vaults of the
foreign banks, that is, they were not used to stimulate the growth
of the national economy. This cult of "cash flow," which
is the religion of globalization, results in companies being bought
and sold simply because of their capacity to generate large sums
of money. This policy was supported by a political class in Argentina
which operated from within the government and by the financial
ruling class, using various forms of corruption without any inhibitions
During the last quarter of the 20th century, only the highest
strata of Argentine society saw their incomes increase while the
poorest sectors continually declined. During this period, some
32 million people saw their incomes, worth $27 billion, transferred
into the hands of 5 million.
Simultaneously, a process of extracting investments out of
production (sometimes called "asset stripping" or "deindustrialization")
reappeared during the golden age (1950-1970), a phenomenon that
has persisted down to the present. All this happened within the
context of an expanding global capitalist market, which left its
devastating imprint upon Argentine society, culminating in the
recent dramatic collapse.
In the present protests against the freezing of depositors'
savings-the corralitos a measure imposed by Domingo Cavallo during
the presidency of de la Rua and ratified by Jorge Remes Lenicov,
Economic Minister under Duhalde-workers lost their jobs; the impoverished
middle class lost its identity; depositors with money in the bank
had extreme restrictions placed upon their withdrawals; and, retired
people received payments only occasionally or had their payments
reduced because of liquidity problems. As a result, all these
groups organized into movements of urban protest to demonstrate
against those responsible for their impoverishment and the helpless
situation in which they find themselves submerged.
At the same time, many other protests developed against a
variety of other serious social injustices plaguing Argentina.
They are known as "the unemployed movement," "the
picketeers" and "those without a roof," groups
that use different tactics in carrying out their protests. Few
of them have any revolutionary orientation for their actions.
They are not organized on the basis of ideological theory; they
do not mention Marx or Bakunin, as during the movement of struggle
and protest in the 1970s; no talk about liberation theology or
class struggle or the revolution of the proletariat.
Protests are noisy but peaceful. Sometimes, groups interested
in provoking violence infiltrate the marches, in combination with
undercover agents, para-police groups or political sectors opposed
to the government. These protests, called cacerolazos, move along
with people banging on their pots and pans or employing other
noisemakers such as drums, keys or bells. Protests are organized
as neighborhood assemblies without the participants belonging
to any political party or union structure, but each has a particular
focus or goal.
For instance, the "Neighbors of Buenos Aires" group
demanded renationalization of banks, privatized businesses and
the social security system. Another pressured the government not
to pay the foreign debt and called for the resignation of the
Supreme Court judges; for justice and punishment of those responsible
for the repression in the Plaza de Mayo on the day President de
la Rua resigned. Some demanded that mortgages be payable in pesos,
using the exchange rate that existed at the end of 2001 when a
peso equaled a dollar. The protest against the high electric and
telephone rates called for not using those services. One national
cacerolazo protest, carried out on January 25, organized itself
by utilizing all the communication media. Hospital employees and
medics closed off streets and highways because of the lack of
medicines and the delay in the payment of their wages. Those "without
roofs" were made up of middle class people with secondary
and university education, who remain on the street because they
were thrown out of their living quarters for not paying their
rents or the installments on their mortgages. It is estimated
that those without housing and having no place to live today number
Thus the Argentine middle class is passing through a complete
identity crisis through the loss of their belongings and the positions
they once held in society. In 2001, of the 4 million Argentines
who were below the poverty line, 2 million came from middle-class
homes where their incomes have radically declined. Only 1.6 million
people come from homes suffering from endemic or permanent poverty
who are living in emergency shelters or in very precarious locations.
Catastrophe is coming to Argentina. The banks have no money
to return to their depositors, so a breakdown in the banking system
appears imminent, especially given the pressure of the international
financial institutions, which is forcing the nation to follow
the same rules that applied before this crisis erupted. As a result,
an immediate moral dilemma for the politicians is to evaluate
which economic risk the Argentine government is willing to take
in order to avoid an even greater economic or social risk.
The ultimate dilemma of the Argentine people in its search
for an economic solution to the present extreme crisis is this:
Can the present financial system be reformed? Can the country
be considered independent? Can a Supreme Court and judicial system
be installed that is not corrupt? In the face of all this, the
fundamental question is: Can economies in a state of such collapse
save themselves by adopting Washington's model of free trade without
restrictions, or will they have to seek solutions independent
of the suicidal model offered by the New World Order?
Salomon Partnoy CM, was formerly Professor of Audit and Analysis
of Account Balances at the Universidad Nacional del Sur, Bahia
Blanca, Argentina (1957-1995). Since 1994, he has lived in Washington,
D.C. Contact the author at: email@example.com