Argentina has struck a deal to renegotiate its $44.5 billion debt to the IMF. Critics say now is the time to declare this debt illegitimate.
Jacob Sugarman.
The crush of people began at the 9 de Julio subway stop downtown, less than a block from the Buenos Aires obelisk, the city’s most recognizable monument. By 5:00 p.m. on February 8, thousands from over 100 trade unions, human rights organizations and student groups had blocked the main thoroughfare to protest a preliminary agreement between the Peronist, center-left government of Argentinian President Alberto Fernández and the International Monetary Fund. Amid a cacophony of competing drumbeats, demonstrators along Roque Saenz Peña bore signs that read “With the IMF, we return to the bottom,” “The IMF is poverty and unemployment,” and “Enough of austerity.”
Closer to the Casa Rosada, the presidential palace from which then-President Fernando de la Rúa fled via helicopter during the IMF-fueled crisis of 2001, a band of demonstrators from the Resistencia Popular waved blue flags in front of a newly constructed sound stage. A procession led by Socialist Workers’ Party members Nicolás del Caño and Myriam Bregman, sporting a pair of black Converse, would soon join them.
“We’re mobilizing to show that there is an exit,” Bregman said in a pre-recorded statement. “We don’t have to bow our heads and pay the Fund as the government of Alberto Fernández is doing. We say that scams are not to be paid, and we say no to the impunity of those responsible for surrendering our sovereignty. We’ve seen this story many times before in Argentina, and it always ends with an adjustment for working people.”
Eleven days before, after months of grueling negotiations, the Fernández administration announced that Argentina had reached an accord to renegotiate its $44.5 billion in debt to the IMF, a powerful international financial institution whose stated mission is to “reduce poverty around the world.” In the administration’s telling, the deal, which is expected to be completed later this week, will allow the country to meet its financial obligations without implementing the kinds of brutal austerity measures the fund imposed two decades earlier. Fernández and his economic minister, Martín Guzmán, have found enthusiastic support from Nobel prize-winning economist Joseph Stiglitz, who hailed the agreement in Foreign Policy for providing Argentina “room to continue its economic recovery” and, perhaps more importantly, setting a “precedent for dealing with debt restructuring and financial crises that could arise in the pandemic’s aftermath.” (Stiglitz mentored Guzmán at Columbia University and has praised his disciple as “Argentina’s bright young hope.”) Yet this view is far from the consensus even within Fernández’s own party, Frente de Todos (Everyone’s Front). As the deal slowly makes its way to Congress for approval, those within the country’s left-wing economic and political circles warn that such a pact will not only reify an illegitimate debt but immiserate the general population — just as it did in 2001.
The IMF, which came into being at the Bretton Woods conference in 1944, has a checkered history in Latin America. From Brazil to Ecuador to Peru, the fund has extended billions of dollars in credit on the condition that its debtors sell off valuable state assets and make sweeping cuts to their federal budgets. Argentina has been one of the IMF’s most reliable clients, accepting 21 bailouts from the fund since 1956 including a record $57 billion in 2018. Like so many of the fund’s investments in the developing world, that loan’s ostensible aim was to restore market confidence by imposing strict spending cuts to the tune of 4.4% of GDP from 2018 to 2020. But the IMF likely had an ulterior motive. Mauricio Claver-Carone, the president of the Inter-American Development Bank and an ex-representative to the IMF board, has since acknowledged that the loan was a political favor to the country’s right-of-center president, Mauricio Macri. By flooding Argentina with cash less than a year before the presidential elections of 2019, the fund, whose largest shareholder is the United States, sought to bolster the prospects of a former Trump business associate that the administration saw as a key ally in its efforts to overthrow the Venezuelan government.
The IMF’s gambit backfired spectacularly. Instead of attracting foreign investment and stabilizing the economy, the country’s GDP shrank 2.6% in 2018 and 2% in 2019 amid mass layoffs and soaring utility costs. Inflation climbed to more than 50% annually, and thousands took to the streets in April 2019 to protest the administration’s IMF-prescribed austerity measures. A general strike, the fifth of Macri’s presidency, ground the country to a halt nearly two months later. By the time the Peronists swept back into power in October of that year, Argentina’s poverty rate had climbed from 29% in 2015 to more than 40%, per the Catholic University of Argentina.
Last December, as talks with the Fernández administration drew to a close, the IMF issued an unprecedented report acknowledging that its 2018 loan had failed to “deliver on its objectives.” But whether the Fund has internalized the human costs of Argentina’s economic unraveling remains, at the very least, an open question. Rather than postpone its negotiations so that the country might concentrate on its pandemic response, the IMF has continuously pursued its debt even as more than 125,000 Argentinians have died of Covid. Meanwhile, U.S. lawmakers including Alexandria Ocasio-Cortez (D‑N.Y.) and Pramila Jayapal (D‑Wash.) have raised concern about the financial institution’s predatory practices beyond any individual agreement with a developing nation.
In January, 18 Democrats sent a letter to Treasury Secretary Janet Yellen urging her to push the IMF to drop its loan surcharges — additional fees that only add to the debt burden of cash-strapped governments. As of this writing, those charges remain in place, limiting the resources of countries like Argentina to combat the social and economic effects of the coronavirus and all but compelling them to consider budget cuts they might otherwise avoid.
While the IMF has placed no formal restrictions on Argentina’s fiscal response to the pandemic, left-wing critics have taken aim at the Fernández administration for suspending government assistant programs like the Ingreso Familiar de Emergencia (Emergency Family Income) and the Programa de Asistencia de Emergencia al Trabajo y la Producción (Emergency Assistance Program for Work and Production) when the country was still in the throes of the pandemic in order to pay the Fund.
“I think those decisions were the main consequence of the IMF negotiations,” says Marcelo Leiras, an associate professor at the University of San Andrés in Buenos Aires and an advisor to the country’s interior minister, Eduardo “Wado” de Pedro. “I don’t know it for a fact, but I believe the minister of the economy wanted to send a signal to the IMF that the country was committed to fiscal discipline. He might have been worried that a continuation of the Ingreso Familiar de Emergencia would have had a negative impact on our stance in the negotiations.”
Mark Weisbrot, co-director of the Center for Economic Policy and a frequent collaborator with Stiglitz, remains encouraged that after decades of liberalizing Latin American economies, the financial institution is taking a less austere approach to Argentina. In 2020, the Fernández administration reached a separate agreement with private creditors, or “fondos buitres” (vulture funds), to refinance more than $7 billion in debt. The deal allowed the country to narrowly avoid default, and the Argentinian government received an unlikely assist from the IMF.
“There was a shift when the fund determined that Argentina’s debt was unsustainable,” says Weisbrot of those previous talks. “The IMF’s position really helped Argentina in their negotiations with private creditors. It allowed the recovery that you’ve seen. That’s the first time in my lifetime that the IMF has ever done anything like that.”
“In this agreement, I think the government got the most important thing that it needed, which was no restrictions on fiscal policy that would prevent the country from growing,” he continues. “That’s what the 2018 agreement didn’t allow. If the question is whether the IMF is being less insistent on imposing damaging macroeconomic policy, then yes, I think so. But I wouldn’t want to exaggerate that.”
When its language is finalized, the new accord with the IMF will extend Argentina’s payments on its $44.5 billion debt over a period of ten years. (The Fernández administration canceled the final tranche from the fund shortly after taking office.) The deal also calls for a primary fiscal deficit of zero in 2025 — meaning all non-interest spending is fully financed — with primary deficit targets of 2.5% of GDP in 2022, 1.9% in 2023 and 0.9% in 2024. Although the pact does not formally institute state spending limits, labor reform or the sale of public companies as previous agreements have, it does subject the Argentinian government to quarterly reviews.
“What’s surprising, at least from what we know of the agreement, is that the International Monetary Fund appears to be much more flexible than is typically the case,” says Martín Burgos, an economist at the Centro Cultural de la Cooperación (Cultural Center of Cooperation) in Buenos Aires. “The IMF is accepting a certain amount of responsibility for lending Argentina money that it was never in any condition to pay. Over the next three or four years, we need to develop a strategy to increase exports and invest in companies within the country. But the possibility is there for Argentina to recover from the economic damage of the pandemic.”
Leiras is more circumspect in his praise of the agreement. If he recognizes that the IMF has spared Argentina’s pension system for the time being, he’s quick to mention that this is likely because the system has already undergone a series of cuts in recent years.
“How fast should the fiscal balance be restored, and how long can we wait to start repaying our debt to the fund?” Leiras asks. “Given the difficulty of those questions, these are not the worst parameters for an agreement. Having said that, one hopes the fund would have acknowledged that it lent a lot of money to the previous administration without imposing restrictions strong enough for the bulk of that money to get out of the country fast.”
As economists like University of Buenos Aires professor Claudio Katz are eager to point out, the IMF’s latest loan has helped subsidize an exodus of personal wealth that will cost Argentina for years to come. In a recent piece titled “The Nasty Return of the IMF,” Katz notes that not a single dollar of the payments have been used to strengthen the country’s crumbling infrastructure, much less build schools or hospitals. Instead, that money was used to pay off foreign remittances and the interests on Argentina’s existing loans, while huge sums found their way into the offshore tax havens of the country’s elite.
If the Macri administration is responsible for the disbursement of these payments, he reasons, then the IMF served as its chief enabler by extending a loan that violated its own bylaws—among them that its money can’t be used to finance capital flight and, at the time, that no individual loan exceeds 50% percent of the fund’s lending capacity. (In an op-ed for Project Syndicate last month, former IMF chief economist Kenneth Rogoff criticized the fund for its negligence in permitting the former.)
Under these circumstances, Katz and his ilk argue, any deal with the IMF is a nonstarter that only serves to “legitimize a fraud.”
“In two and a half years, when this refinancing [period] ends, Argentina will sit down again with the IMF and argue again about what will happen with its $44.5 billion debt,” Katz tells In These Times. “For me, this is the central problem. The opportunity to declare this debt illegitimate, unpayable and fraudulent is now. In one or two years, the Argentinian government can’t say that the loan that Macri accepted violated the norms of the IMF, and that the money that entered the country financed capital flight rather than productive enterprise. It won’t be able to go to the International Court of Justice, the UN General Assembly or CELAC (Community of Latin American and Caribbean States) and say, ‘this is illegal.’”
Then there is the agreement with the IMF itself. Whatever the president and his economic minister contend, many fear that any pact with the fund will invariably usher in a reduction in fiscal spending. Indeed, the Fernández administration has already indicated that curbing energy subsidies for homes and gas distribution companies, which totaled $11 billion last year and helped keep consumer prices down, will be essential to meeting the country’s debt obligations.
Julio Gambina, an economist and a professor at the National University of Rosario, sees the agreement as little more than an extension of Argentina’s existing mortgage — one that it will be no more likely to pay down in 2025 than it is today. Gambina also suggests that the IMF will wield enormous political power over the country by auditing its finances every three months. Should it fail to make its disbursements, then the agreement — as well as Argentina’s access to credit markets — would collapse, with all the political ramifications that come with it.
“There is no good deal with International Monetary Fund because the fund follows the same rules it always has,” says Gambina. “One way or another, sooner or later, there will be a fiscal tightening that affects health, education, the income of public workers and the most vulnerable sectors of Argentinian society. The fund today isn’t any different [in its objectives] than the fund in 2001 or at any other point in history. If you look at its debtors, the largest is Argentina and the second largest is Egypt. These are countries from the Global South.”
IMF Managing Director Kristalina Georgieva insists that there is “no alternative” to the agreement, but Katz maintains that deferring payment indefinitely would be preferable to a deal with the fund. While inflation hovers around 50% and poverty has crept up, Argentina’s economy grew 10% last year after contracting by nearly that amount the year before. Katz contends that the government could have consolidated these gains through progressive tax reform and state control of foreign trade, among other measures.
He also argues that Argentina might have sought to form a broader alliance against the fund following left-wing electoral victories in Chile, Honduras and Peru, and with Luiz Inácio Lula da Silva of the Workers’ Party leading Jair Bolsonaro in the polls ahead of Brazil’s presidential election this October. Instead, he laments, the government capitulated to American capital, and the administration of President Biden was all too eager to silence any questions about the legitimacy of the loan or the fund itself. Last month, amid the Fernández administration’s negotiations with the IMF, Secretary of State Antony Blinken hailed Washington’s “partnership” with Argentina in the “hemisphere and beyond,” adding that the United States supports a “vibrant Argentine economy.”
“This is a problem that illustrates the role of the United States in the International Monetary Fund,” Katz continues. “This wasn’t a normal loan where an organism evaluates a country’s credit. That’s why [former IMF Managing Director] Christine Lagarde resigned. No one wants to talk about this, or the role that Trump and the Fed played in [pushing this loan through]. Biden just wants it to go away.”
Perhaps in anticipation of the tense congressional debates to come, President Fernández has made diplomatic visits to Russia and China since announcing a new deal with the IMF. In Beijing, Fernández agreed to join the republic’s mammoth Belt and Road initiative with the aim of securing $23.7 billion in investment, while in Moscow, the Argentinian head of state made what may prove an even more telling statement. “I am determined that Argentina has to stop being dependent on the Fund and the United States,” he told Russian President Vladimir Putin.
The livelihoods of a generation of Argentinians may depend on it.