A love or hate relationship?
Dear friends, in this video we’re going
to
talk about a very special relationship.
So special that it’s close to reaching its 70th anniversary.
Yes, love has finally come to VISUALPOLITIK.
But, hold on a second, don’t think we’re talking about two ordinary lovers.
Not at all.
Our protagonists love and hate each other, need and despise each other.
I’m talking about the connection between Argentina and the International Monetary Fund.
[TEXT: But all this time there was no agreement with the IMF]
[TEXT: We paid them and said goodbye.
We recovered our sovereignty, we recovered our dignity.
The IMF will no longer lead the homeland economy’s destiny as it did for so long.]
[TEXT: The role of the FIFA president has been more satisfactory than that of the IMF
officials]
So the Argentines promise themselves over and over again that they won’t go back to
the IMF, but then just a few years later the relationship picks up again where it left
off.
To give you an idea, since the mid-50s, Argentina has had to negotiate an IMF rescue package
roughly every four and a half years.
Now, why on earth does Argentina have this recurring dependence on the IMF?
Whose fault is it?
Can this relationship ever be finalized?
Let's investigate but first, we need to discover how it all began.
(THE ORIGIN OF A TOXIC LOVE)
In 1946 the International Monetary Fund emerged as an offshoot of the Bretton-Woods Agreements
of 1944.
Back then, World War II had just ended, Europe was shattered and the Western allies were
preparing to face the economic consequences and demands of reconstruction.
At that time, the idea in everyone’s mind was to avoid what had happened after World
War I, that is, to accelerate recovery and avoid the emergence of crises that could tip
some countries towards radical movements or even nudge them into the Soviet orbit.
With this idea in mind, and with the Marshall Plan, three institutions emerged from Bretton-Woods
to achieve this goal.
These institutions are still with us today:
First, the IMF or International Monetary Fund would act as a last resort lender for countries
with strong fiscal imbalances or currency crises.
In other words, the IMF would provide the necessary resources so that these countries
could develop reforms with which to correct their imbalances.
Secondly, what we know today as the World Bank was created to be in charge of offering
loans with low-interest rates and long loan repayment periods to help countries finance
their reconstruction and encourage large investment projects.
The third one was GATT, the “General Agreement on Tariffs and Trade”, the prelude to what
is now the World Trade Organization, which was born precisely to promote free trade and
thus favor economic growth.
Although it may be hard to believe today, at that time Argentina had some of the best
economic conditions on the planet; which is why it was invited to be a founding member
of the IMF from the outset.
However, Juan Domingo Perón, who had just been elected president of Argentina was not
the man for the job.
Let's just say that he had a very different model in mind for Argentina, one which had
nothing to do with this kind of large-scale economic integration.
By the way, I’ll leave a link in the description to a video all about Juan Domingo Perón and
the changes he made in Argentina.
However, things soon changed.
In 1955, Perón was overthrown by a military coup d’état.
By then, the country’s economic situation was already quite different: they had high
inflation rates, high public deficits and no foreign exchange reserves.
All of this led de facto president Pedro Eugenio Aramburu to join the IMF and request aid of
almost one billion dollars in today’s terms.
The romance had begun.
And, around the same time Argentina had already started to look more like the Argentina we
all know today.
But just a second.
Some of you may be wondering, but…
How does it work??
Does the IMF give money just like that?
Do you ask for a loan with more favorable conditions and it’s done and dusted?
Is it an NGO or something like that?
Well...
No, not exactly.
You see, the IMF grants financing with very favorable conditions but also imposes conditions
that it sees as necessary to correct the problems in order to eventually recover the money granted.
Of course, no country is obliged to ask for or to accept their help.
In fact, some countries have refused to work with this agency in the past.
But if you do accept their money and conditions, then you have to fulfill said conditions,
right?
Well...
The truth is that in Argentina’s case, the broken promises came pretty quickly.
Listen up.
(SAME OLD STORY)
When Arturo Frondizi took over as president in 1958, just two years after Argentina’s
first bailout, the country again asked the IMF for help.
On that occasion, the IMF’s condition was that in exchange for receiving the money,
Argentina would have to push through a significant cut in public spending and eliminate import
price controls and restrictions.
Then...
Once they received the money..., well, let's just say the adjustment plan was never fulfilled.
In fact, the following government, that of Arturo Umberto Illia, decided to distance
itself completely from the Fund’s recommendations, and, of course, things didn’t improve.
Quite the opposite.
TEXT: [I, Juan Carlos Onganía, swear by God our Lord and these holy gospels to fulfill
the position of President of the nation with loyalty and patriotism.]
After another military coup in 1966, on this occasion led by Juan Carlos Onganía, the
country once again fell into the hands of the IMF.
This time the international organization’s conditions were harsher, and yet the Argentine
government still never corrected its imbalances, so much so that between 1966 and 1973 the
Argentine external debt grew by 50%, or up to 4.8 billion, which would be equivalent
to almost 30 billion dollars today.
As you can see, the events don’t differ much from what we’ve seen in Argentina in
recent years.
But this was just the beginning of the romance.
[TEXT: The president of the nation attended an event last night offered in his honor at
the Great People's Palace in Beijing.]
Three years later in 1975 there was another military coup, this time led by General Jorge
Rafael Videla.
At the time, the economy was, once again, broken down.
To give you an idea: the country was coming from an economic crisis that resulted in the
so-called Rodrigazo, a brutal devaluation of the currency by 100% on the dollar, which
not only caused huge inflation but also a shortage of many types of products.
And given those circumstances, what do you think the new military government did?
Exactly, they ran straight back into the arms of the IMF.
In fact, Videla’s government maintained very close relations with this organization
and a large torrent of money flowed into Argentina from the Fund.
Yes, we’ve already told you before on Visualpolitik that during that time, Washington saw any
dictatorship that didn’t commune with the Soviet bloc in a positive light no matter
how criminal it was.
Surely that influenced the huge amount of money that the IMF poured into Argentina.
The surprising fact is that Videla’s government actually did manage to meet the IMF’s requirements
regarding economic stabilization.
What they didn’t manage to do was cut public spending, which is why fiscal imbalances and
the demand for funds continued.
(CHART)
By the way, in a future video here on VisualPolitik we’ll talk long and hard about the policies
that the IMF and the fund itself promulgated.
And no, the IMF isn’t an NGO, not at all.
It’s a lender that lends under favorable conditions, but it’s also a lender that
intends to recover its money.
During the dictatorship, in just seven years, Argentina's external debt multiplied by six,
reaching the astounding figure of 42 billion dollars at the time.
(CHART)
It was obvious that the country was broke.
And to top it off, this period under military rule ended with the Falklands disaster.
Just when they thought things couldn’t get any worse.
After that last blow, there was a return to democracy when Raúl Alfonsín came to power
on December 10th, 1983.
Democracy came with many expectations:
(AUDIO: “With democracy you eat, heal and educate yourself.”
Raúl Alfonsín)
Unfortunately, even this straightforward prophecy was never fulfilled.
But let’s stay on track.
After reaching power, Alfonsin rejected the Fund, even announcing an audit on the debt
that the military government had contracted.
A gesture of sovereignty.
Can you guess what happened?
Two years later, in 1985, under a colossal mountain of debt and rising inflation, the
Alfonsin government once again asked the Fund for help.
You know how it goes; I love you, I love you not, and so on, and so on.
What a sweet story.
Once again, the IMF set conditions but once again the promises remained promises.
That is how Alfonsín's mandate ended in a complete disaster: with a runaway crisis and
rising hyperinflation.
To give you an idea, in 1989 inflation was over 2000%.
[TEXT: I come to summon you, to fight the battle against privileges, vested interests,
speculators, usurers.]
And then came a brand new president, Carlos Menem, and with him more help from the IMF:
the Brady Plan, a plan that forced Argentina to restructure its external debt, privatize
the social security system, privatize public companies, eliminate taxes on financial transactions
and create a new currency tied to the dollar to avoid the country's endemic inflation.
Many things were done during Menem's time, especially during his first term...
And what’s more, they worked.
But he still didn’t do the most difficult thing: adjust public spending.
In fact, he did quite the contrary, under this president’s mandate, public spending
continued to grow and with it the government's external debt.
Check this out.
(CHART)
That is how Menem's presidency ended with another huge crisis that paved the way for
the famous default of December 2001.
Just months after the IMF granted the government of Menem’s successor, Fernando de la Rúa,
a mega-rescue package of 40 billion dollars known as “Financial Armouring”, there
was the definitive default of 2001.
The armour had only lasted ten months.
And after that came a new crisis that pushed poverty in Argentina to above 50% of the population.
As you can see, every IMF bailout has ended in a resounding failure….
And it’s become normal.
The IMF can give a lifeline to a country so it balances its accounts...
But even if it doesn’t, the result will always be the same.
And in Argentina many things have been done except for really opening up the economy and
cutting public spending.
There’s also the issue of the size of the state, which is gigantic.
Want an example?
Well...
Check out this graph which we’ve shown you on previous occasions.
But it’s truly scary.
(CHART)
And don’t think that this has been a good deal for the IMF.
Not at all.
Argentina has been an example of this organization’s incapacity.
It has been a source of constant humiliation because Argentine politicians accepted the
money but never corrected the problems.
And so… with such a mess and this lack of reliability, nothing was working well.
Nothing could work.
But then, what happened with Kirchnerism?
They never sought funding from the IMF.
So why did Macri?
Listen up.
[TEXT: Bearing the squeezes that one may suffer, but they won't break us.]
[TEXT: I've worked all my life and I've been a successful lawyer.
Now I’m also a successful president.]
(THE KIRCHNERS)
The Kirchners didn’t ask the IMF for help, that’s true.
But their story has a catch.
You see, after the 2001 default, Argentina never paid most of its nominal debt, which
led to a restructuring that eased the pressure on public accounts.
To this we need to add that during most of Kirchner's years the price of soybeans and
natural resources, which the country exports, were sky high.
That meant a huge influx of dollars.
So, the Kirchner government had some wiggle room to continue expanding public spending
without having to resort to the IMF.
The problem was that those conditions didn’t last.
When the price of soybeans and other raw materials fell, the usual government problems returned,
as well as price controls, exchange controls and restrictions of all kinds.
That was precisely what led Mauricio Macri to the Casa Rosada.
But with Macri things didn't change either.
Public spending continued to skyrocket and the promise of gradual change was so gradual
that most of the reforms simply never came.
The oxygen ran out and with it the Argentine economy’s autonomy.
So, in May 2018 the government requested a new rescue package from the IMF.
In this case it amounted to more than 50, 50 billion dollars.
And so the cycle starts again.
The IMF sets conditions and Argentine politicians don’t want to comply with them, the crisis
grows so politicians use the IMF as a scapegoat.
Then they reject the international body, and the hatred stage begins.
And finally, they go running back into its arms.
This is a never-ending story.
Since the 50s, Argentina has requested a rescue from the IMF roughly every four and a half
years.
And none of the rescues have ever worked.
Isn't it time for a change?
Isn't it time for Argentine politicians to understand that the country needs change?
Isn't it time for the IMF to understand that it has never really helped Argentina because
it has dragged out a scenario that is just leading the country from bad to worse?
What do you think?
Leave your answer in the comments.
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the vocals in this episode that were not mine.
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