Argentina's Crisis By John Cherian • Hit by a recession induced by free-market economic policies, Argentinians force out their President. Now the new government's decision to renege on foreign debt repayment spreads panic across the world. The writing was on the wall for quite some time. The neo-liberal economic policies that successive governments implemented with the support of Western financial institutions had led to a protracted and painful recession, which set in about four years ago. The economy had been contracting at an annual rate of 11 per cent and unemployment hovered around 20 per cent. The international financial institutions had tried their best to bail out one of their star clients by extending loans of unprecedented levels, which had been denied to more deserving countries. But they had attached stringent conditions. In the past one year, the International Monetary Fund (IMF) helped arrange loans worth $48 billion for Argentina. At the same time the government was forced to adopt more austerity measures to meet IMF/World Bank conditionalities. All this was too much for the people who had undergone years of unremitted suffering. The IMF wanted the government to cut fiscal deficit to zero in 2001. In early December, it warned that it would not release the last crucial tranche of loan worth $1.3 billion, unless the government either devalued the Argentinean currency or made the dollar the country's official currency. In the event, the loan was insufficient to keep the beleaguered government of President Fernando de la Rua from collapsing amid chaos and the government that followed from defaulting on loan repayment. The last straw for most Argentineans was the government's decision to impose limits on cash withdrawals from banks and the attempt to impose an even harsher budget aimed at restoring the $2.7 billion loans suspended by the IMF and other international agencies. The government desperately needed the money, to avoid defaulting on repayment. Among other things the budget recommended was a further cut in spending by $9.2 billion. Finance Minister Domingo Cavallo, a blue-eyed boy of Western financial institutions, claimed that the austerity measures envisaged in the new budget, such as further cuts in the public sector workforce and a reduction in the salaries of government servants, would help save the economy. The government even wanted to withhold the traditional Christmas bonus. Most Argentinians had voluntarily accepted large pay cuts. The government was also delaying the payment of pensions. Expenditure in the social sector was sought to be curtailed by 70 per cent. Looting and violence engulfed Buenos Aires, the capital, and its suburbs from the middle of December. The police used force and fired rubber bullets at the rampaging mobs. Twenty-seven people lost their lives, most of them in police firing. A few looters were killed by shopkeepers. A Korean whose shop was looted committed suicide. The first to step down was the Finance Minister. He resigned as the rioting spread. President de la Rua tried to hang on to power even as the demonstrations against him intensified. A state of emergency was declared and de la Rua held a lengthy meeting with his predecessor, Carlos Saul Menem, who had recently been acquitted by a court of the charge of gun-running. It was Menem who started the "dollarisation" of the economy. The Argentinean peso was pegged to the dollar and was made freely convertible. He also dismantled the state structures and went on a privatisation spree. Menem, who wants to make a third bid for the presidency, would have liked de la Rua to continue until his term ended. He is constitutionally barred from contesting for another two years. But almost the whole of society was affected by the economic and political turmoil. A national survey found that 93.8 per cent of the respondents were "experiencing distress, sadness, depression or bitterness due to the socioeconomic crisis". It was clear by the end of the year that de la Rua and his Radical Party stood totally isolated. In the third week of December, the President went on television pleading for a government of national unity, but there were no takers. He was left with no choice but to resign, in order to prevent further bloodshed. De la Rua, who had two more years to govern, resigned on December 21 after lifting the state of emergency. The presidential election was in the normal course to be held in 2003. There was widespread rejoicing as news of the President's resignation spread. Most Argentinians hold him responsible for their woes. He was perceived as being indecisive. Law and order has returned for the time being as Argentina once again begins to chart a difficult course towards economic recovery. The last time Argentina was in a big financial mess was in 1988 during the presidency of Raul Alfonsin, also of the Radical Party. Mobs had then gone on the rampage, as the peso became almost worthless. It took the legislators more than two days to decide on an interim President to replace de la Rua. Finally, on December 23, Adolfo Rodriguez Sua, the tough-talking Peronist Governor of the province of San Luis, the most popular politician in the country at the moment, was named for the post. One of his first acts was to renege on repayment of the country's huge foreign debt. A survey done in the middle of 2001 found that 42 per cent of Argentinians wanted the foreign debt to be restructured while 22 per cent wanted it to be repudiated. Commentators have described the new government's action as the biggest debt default in history. Many analysts believe that the renegement on the repayment of Argentina's debt, a staggering $132.1 billion, has the potential to impact adversely on the global economy. Argentina's interest payments alone account for $10 billion a year. Many neighbouring countries are waiting with bated breath for the economic repercussions. Argentina is among the five largest debtor countries in the world. The new President is a votary of a strong peso and is obviously making a last-ditch attempt to stave off the inevitable. Most economists are of the view that devaluing the currency and changing the national currency are the only two alternatives before the country. Rodriguez Sua has a business-friendly profile and has so far eschewed the populism that Peronists have been well-known for since the time of Juan and Evita Peron. Besides, Sua is known to have long-term political ambitions. He was the front-runner among the Peronists to be their flagbearer in the election that was due in 2003. All indications are that Sua will tread cautiously while attempting to please the voter. At the same time he has to keep the international financial institutions happy. Argentina had not too long ago enjoyed European standards of living. At the turn of the last century, Argentina was among the 10 richest countries in the world. Today, around 20 per cent of Argentinians live below the poverty line. Demonstrations have already begun outside the presidential palace to protest against the supplanting of one set of free marketeers by another. Copyright © 2002, FRONTLINE MAGAZINE. All rights reserved. Reprinted with permission.