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 party militants.

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 Argentinian.

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.


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 services.

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 has written:

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.


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 to power.

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 or controls.

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 1,200,000 persons.

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: rspartnoy@aol.com

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