"The IMF and Argentina's Unpayable Debt: A Historical Perspective"

2023-05-21 04:48:21

Our own history and that of other countries (Greece, Portugal, Ecuador, among others) teaches that the IMF is a huge disruptor of economic and political stability. In the current Argentine case, the amount of the debt is also disproportionate with respect to the ability to pay.

To make the panorama even more dramatic, the stock of freely available reserves in the Central Bank is very low and, although the prospects are better than the present dismal picture, it would be risky to estimate an extraordinary short-term increase in the flow of dollars from Vaca Muerta, mining (lithium and others) and agriculture without drought.

To take into account the unreasonable dimension of the debt with the IMF, it is worth noting the following numerical exercise of the relationship available reserves and amount of the loan: if desired cancel the debt as the government of Néstor Kirchner did in 2005 (9.5 billion dollars with about 18 billion reserves), The Central Bank would need to have some 90,000 million dollars available today just to meet the total bill with the Fund and not be left in a vulnerable financial and exchange situation.

This account is therefore unpayable. It is impossible to visualize a nearby scenario that offers the possibility of completing the cancellation. Then a core dilemma about what to do with the debt with the International Monetary Fund. This implies analyzing what type of link is likely to be maintained without collapsing the economy with the main individual creditor, which is itself a multilateral organization constituted as the financial arm of the geopolitics of the United States.

Three great cycles of external indebtedness

There are three paragraphs of the letter that CFK dedicated to detailing the origin of the current economic crisis, identifying the beginning in 2016 when the government of Mauricio Macri inaugurated the third great cycle of external indebtedness in Argentine history.

The first was the one started by Bernardino Rivadavia, in 1824, with the loan from Baring Brothers, which was finally canceled 120 years later (in 1947). The second was born with the military dictatorship in 1976 that multiplied the debt tenfold and spread until it became unmanageable with the outbreak of convertibility and immediate default in 2001/2002. Macri started the third, which is still developing, with the aggravating circumstance that a significant portion of the debt is with the IMF.

The course of these three great cycles of external indebtedness has similar features:

The payment of interest surcharges.
Non-transparent financial operations with promiscuous links between bankers and officials.
Definition of conditional clauses of economic policy by creditor banks, first, and by the International Monetary Fund, later, an organization that also acts as auditor of the debtor country.
The diversion of the dollars received towards other unforeseen objectives at the time of requesting the external credit.
The irregular application of the resources obtained.
The funds received from external credits were the feed channel for financial speculation in the local market and subsequent capital flight.

The IMF gave a “political” credit to the Macri government that will condition the Argentine economy for a long time. Image: AFP.

The origin of the investigation of the irregularities of the IMF loan

The debt with the IMF complies with each of these traits that are repeated in the extensive journey of the country’s external indebtedness. But it has an addition that makes it even worse. Was a political credit to finance the electoral campaign of a right-wing candidate, motivated by a geopolitical objective of the United States: prevent the triumph of a “populist” political force and stop the advance of China in the region.

The balance is even more dramatic because this US move was unsuccessful: Macri lost the election and China continues to gain space in Latin America in the absence of an active financing policy for the region (for infrastructure works as well as to help public finances) from the United States. Joined. However, this unusual credit has left the Argentine economy with a high degree of financial and, therefore, also political subordination to the IMF, which is the same as saying to the United States.

The last report of the General Audit of the Nation on this credit is lapidary. It is worth remembering that the original investigation and subsequent judicial complaint of the IMF loan was carried out jointly by the National Movement of Recovered Companies, the Center for Financial Integration/CEPPAS and the Coordinator of Public Interest Lawyers (CAIP).

The investigation, detailed in these pages in May 2019, showed that, in order to contract the most important credit in Argentine history and from the IMF itself, Macrismo violated each and every one of the national regulations that determine how administrative decisions of these characteristics have to be made. The AGN confirmed the irregularities, as had also been done before by the Anti-Corruption Office, the Treasury Attorney and the General Receivership of the Nation (Sigen).

While, The judge Maria Eugenia Capuchetti, in charge of the legal case and with obvious links to macrismo, has the file asleep. She is the same magistrate who ignored the request to deepen the investigation into the assassination attempt on Vice President Cristina Fernández de Kirchner.

What is the outcome of an economy with an unpayable debt

Throughout Argentine economic history external debt has been the main determining factor of economic policy and vehicle for the transformation of the economic structure, that is, the accumulation mode. This has settled in the following learning.

International financing was functional to the needs of creditors and dominant economic sectors to obtain extraordinary profits in dollars to later transfer capital abroad.
External debt, far from contributing to productive development, served to restructure private debts, transfer multinational profits abroad, form oligopolies or monopolies with external financing that facilitated the displacement of competition from companies without access to credit, facilitate the purchase of national assets by foreign firms and accelerate capital flight.
The imposition of economic adjustment conditions to guarantee the repayment of the debt, which leads to a profound socio-labor deterioration.
International credit organizations (IMF-World Bank) were born from the Bretton Woods Agreement, signed by the Western powers after World War II, to help countries with balance of payments problems. That purpose ended up blurred and both organizations became auditors of indebted countries at the service of the global financial community.
This situation chart reveals that moratoriums, payment suspensions and defaults were responses to extreme circumstances into which indebted economies were thrown.

Sergio Massa, Minister of Economy, agrees with CFK on the need for a great political agreement. Image: Frente Renovador Press.

What Sergio Massa says about debt

In the meeting of the Renovation Front last Friday, the leader of this political group and current Minister of Economy, Sergio Massaspoke, among other topics, about the debt burden, in line with the analysis of Cristina Fernández de Kirchner.

He mentioned that the country lived a fierce indebtedness and that it is an inheritance (that of Macri) that will haunt Argentina for many years. He also indicated that the Argentine economy had to face a pandemic like the rest of the world but without credit (both internal and external exhausted during the Macri administration), which implied a very strong monetary issue “and that ball of pesos today partly explains inflation, due to lack of multilateral credit and lack of sovereign credit”.

I affirm that “the terrible drama that inflation represents” It has to do centrally with a sum of factors that begin “in the indebtedness that took Argentina off the field in 2018” (when the agreement with the IMF was signed to avoid default with private creditors). To conclude that in the coming years the country has two big challenges:

“One, the Vice President raised it very well yesterday, the issue of debt. Argentina needs a great deal of the entire political leadership to resolve the issues of debt and the dollarization of the economyin cultural terms but in structural terms”.
“The other, the challenges of growth, but you have to getting that growth to the people“.

What Cristina Kirchner of the IMF says in the last letter

As mentioned, CFK locates the Macri government as the beginning of the loss of “economic Democracy” because, recently assumed, he began “a brutal new cycle of external indebtedness that would culminate in the return of the International Monetary Fund through a unusual, unprecedented and political loanwhose objective was not only to help that ‘friendly government’ win the elections, but also to allow speculative investment funds to withdraw in dollars”.

In this instance, he points out what the IMF does in each country that receives its financial assistance, which is not the same as the situation that occurs when the credit is from international banks or large investment funds. CFK indicates that the Fund “intervenes, takes the helm of the Argentine economy, imposes its economic program and the uncontrolled inflationary process in Argentina is triggered again”.

Thus, the Fund’s action is not only disturbing economic stability, but also political, as Cristina Kirchner points out when explaining that “chance is not a political category and, therefore, It is not by chance that neither of the two Presidents who accepted the IMF program retain electoral aptitude. However, in politics there is causality and the determining factor is the economy.”

Those two Presidents are Mauricio Macri and Alberto Fernandez.

He then mentions that an economy with high debt in dollars, bi-monetary, with a historical external restriction and capital flight, “inevitably puts our country’s current account in the red, which, given the shortage of dollars, always ends with the uncontrolled inflation, currency runs against the national currency, devaluation and more inflation“.

Here he delivers a crucial definition for the political and economic debate: “Thus it is impossible for any government reasonably manage the natural distributive struggle for income and turns inflation into the most phenomenal instrument for transferring resources from the whole of society to the richest and most concentrated sectors of the economy that seize that extraordinary income in a framework of tax laxity “.

The word “impossible” indicating that it would be “for any government” implies a disturbing message for those who insist on “the litany” -in the words of CFK in the report on the program Duro de Domar- Cristina President.

This judgment has a drama that requires progress in the analysis of this hypothesis about the margin of action of political and economic management.

For this, it is necessary to return to the dilemma exposed at the beginning: what to do with the political link with the IMF (which is with the United States) and how to approach the administration of a loan that is unpayable now and will be so for many years under the existing conditions of the current macroeconomic programs of the Fund.