“Fuera FMI”: as a new agreement goes before Congress, the Argentine people protest a long, bad history with the IMF
Though the International Monetary Fund has the ability to infuse life into weak economies, too often it has trapped nations in a cycle of debt and made life miserable on the streets.
Walk through Buenos Aires’ center, and you’re likely to see one message repeated over and over:
International Monetary Fund, get out.
It’s tagged on walls, posted on signs and for the last couple weeks, it has been echoed in a massive protests marching through the heart of the city, where I’ve lived for two months, shutting down swaths of the 14-lane Avenida 9 de Julio.
To understand the anger, you have to understand something about Argentina’s long history with the IMF — a story not unfamiliar to many developing countries that find themselves hopelessly indebted to the US-controlled fund.
The IMF was created at the end of WWII with the purpose of reconstructing devastated Europe, and keeping desperate countries from reaching into the pockets of the Soviet Union.
But like NATO, after the collapse of the global communism project, the Fund has endured, becoming one of the top international sources of power. The IMF is a multilateral institution with a European director, but the United States has always had lopsided influence, giving the “yankee” government immense control in the affairs of countries around the globe. (Some tags, like the one pictured above, get straight to that point.)
Though the IMF has the ability to infuse life into weak economies, too often it has used the promise of financial influx and “quick fixes” to trap nations in a cycle of debt, and then impose adjustment programs that result in mass privatization of state assets and austerity measures that benefit foreign corporations over local economies.
Since joining the IMF in 1956, Argentina has made a stunning 22 arrangements with the Fund, and this would be the 23rd.
Even so, it’s defaulted on its debt nine times, most memorably in 2001, when the country made global headlines. Then, mired in deep recession under the close scrutiny of an IMF-supported program, Argentina found it couldn’t meet its payments and was plunged into a historic economic crisis amidst the largest sovereign default ever recorded. Among the fallout: bank lockdowns, extensive looting, major demonstrations followed by police repression, a president forced to resign, and rapid and extreme inflation.
Flash forward to 2018, after Argentina had managed to restructure existing debt: then-president and US buddy Mauricio Macri takes out another loan from the IMF, and it’s a whopper. At $57 billion, it’s the largest single loan the IMF has ever doled out, and represented a third of IMF outstanding credit. (When current president Alberto Fernandez came to power, he rejected the delivery of the last $13b.)
At the time, many declared it both irresponsible and bizarre given the aggressive schedule for payback and the hurting state of a local economy with inflation already at 30 percent.
Influx of cash in hand, things got worse in Argentina, not better. Then came the pandemic, accompanied by one of the longest national lockdowns in the world.
In December, the IMF concluded via its own report that the loan “did not deliver on its objectives.” And yet, as 2022 began, the Argentine government was faced with astronomical payments — the plan was $19 billion this year — even as the country’s net foreign reserves dwindle away.
At the end of last year, Guzman pronounced the prospect of those payments “absurd.” President Fernández, expounded.
“Argentina is absolutely unable to meet these payments,” he said in November. “Nobody in the world seriously thinks in the world that Argentina can pay US$19 billion, between capital and interest, this year.”
In late January, hamstrung by that reality, the Fernández government arrived at a controversial agreement with the IMF once again, this time petitioning for a grace period that would postpone debts. A $2.8 billion payment is scheduled for March, though sufficient liquid reserves simply aren’t in the central bank.
On the heels of negotiation, the Fernández administration claimed austerity measures were off the table, and that the fiscal deficit will be reduced (a condition of the IMF) through growth rather than retraction. Of course, most people locally — including the many who support an IMF deal as a necessary evil — are shaking their heads, finding such a scenario impossible.
Traditionally, when there aren’t immediate opportunities for vast GDP growth (one would think Argentina would have identified them by now), strict IMF deadlines for deficit reduction must be met through significant social cuts. Slashed spending in the midst of a crisis is, of course, bad news for folks dependent on public relief.
In the past, such contraction has proved to be crushing for the populations of Indonesia, Turkey, South Korea and Greece, who as the previous recipients of the IMF’s “largest loan,” defaulted with catastrophic results in 2015.
Recently, the IMF has revised its strategy somewhat, determining in board rooms what folks on the country could have easily testified: that austerity often suffocates recovery and deepens poverty. Director Kristalina Georgieva, has recommended countries bolster finances through wealth taxes, which Argentina did last year.
But the festering of the 2018 Argentine loan, which likely will do the country more harm than good in the end, is proof the institution isn’t far from its latest, greatest failures, and is flirting with compounding them.
In addition to the absurd advance that allowed one administration to further sink the country for years to come, the IMF is also charging Argentina 300 basis points on the hefty sum, a total that will amount to an estimated additional $5 billion by the end of 2024.
Last month, 18 members of the U.S. Congress sent a letter to the Treasury Department expressing concern that “the IMF surcharges, which require that countries already facing debt problems and great financial difficulties pay additional onerous fees to the fund,” undermine the institution’s stated objectives. Last year, Argentina made such a plea to the institution itself. Both requests for leniency were rejected.
In the case of the pending Argentina agreement, the IMF has targeted the country’s spending on energy subsidies, meaning electricity prices are likely poised to rise drastically. Other cuts must surely be found in the budget, and often those come via social programs downsizings that disproportionately affect the poor, who are already not doing so great in the current economic climate, by the way. The depth of Argentina’s economic free fall has made things painful even for the middle class.
Currently, the poverty level sits at 40 percent. As inflation rises — reaching 51 percent last year, a mark that puts it as the fourth highest in the world according to a Bloomberg report — wages fall, job security is low and prices rise perpetually. There are so many shuttered businesses. Just about every Buenos Aires block holds closed storefronts, the patchwork of metal crates carving holes into vibrant neighborhoods, and providing, instead, blank slates for political expression.
The center-left Peronist president Fernandez understandably doesn’t want to further hurt his main voter base, but sees restructuring as a preference over the unknowns of another default. Even so, Fernandez used a recent trip to Russia and China, where he signed onto Xi Jinping’s Belt and Road initiative, to loudly suggest that Argentina must break from from IMF (and thus US) control. Meanwhile, the left-wing faction of the party, including vice president (and former president) Cristina Fernández de Kirchner, are crying out for a total break with the institution, which has dictated decades of economic policy here. The VP’s son, Máximo Kirchner recently resigned as head of the ruling party’s lower house bloc in protest of the proposed deal.
This, of course, is creating new tumult within the administration, and the frustration is spilling out into the streets, where tens of thousands of Argentines have protested the debt in the last couple months. At least twice a week, the masses can be heard from the open doors of my apartment, banging drums and demanding to be heard.
As the agreement goes to Congress (an approval is required before it can reach the IMF executive board), Argentina is likely looking at a choice between two bad options: taking the IMF deal and instigating more suffering, or rejecting it and jumping into chaos.
The impact from all of these new developments on the population can’t yet be known. For now, even the road ahead is unsure.
One thing is for certain: the Argentine people should never have been put in this situation.
Whether a new deal with the IMF is stamped once more, or it isn’t, the world will be watching.