IMF deal is bad for Argentina, not good

Mainstream & Zerohedge got it wrong

by Diego Ramiro Lattes

This is a reply to the ZeroHedge article regarding Argentina and the latest IMF loan given to the country. In the aforementioned article some incorrect assumptions are made about Argentina, particularly in regards to the country’s future and the international economy. I intend to dispel these erroneous views. Hopefully, when the facts change, the Tyler Durden account will change its mind…

Rumors of an economic and currency collapse

While it’s true the currency dropped in value, rumors that the economy or currency will “collapse” are largely unfounded. The Argentinian economy still has ample room for growth, and in some areas, economic potential is actually higher than in previous years.

Make no mistake, the rise in dollar prices does indeed mean imported consumer goods – specially of the electronic variety – will become more expensive, however these do not affect Argentina’s domestic productive capacity. She is first and foremost an agro-industrial country, and the production in these sectors won’t be affected. Imports have and will continue to become more expensive, but this won’t translate into a drastic reduction in Argentina’s living standards, nor will it lead to the demise of its currency.

Government intentions, foreign “aid”, and comparisons to Greece

It is indeed true that the Macri government believes it has made a smart move that will help in the long run, but the sad truth is that this is another ploy to install Neoliberal economics in an emerging country, thereby reducing its ability to develop.

Nobody but Argentina is losing on this deal, and nobody is “footing” the bill, except the banks who will profit from it – those banks that the folks at ZeroHedge like to rail against (with good reason). So why aren’t they doing it now? Those familiar with the situation know that Argentina and its public have a long standing obsession with paying back the national debt, which means that successive governments (particularly Neoliberal-leaning ones such as Macri’s) will emphasize that goal. Again, this does not harm the international economy, but does limit Argentina’s ability to develop its own.

It is also particularly jarring to see from the author’s accusations of US “taxpayer money,” not only because taxes do not fund US Federal Government spending, but because a significant amount of IMF loans come from private funds – the so-called “vulture funds” that actively seek to exploit developing countries for their profit (trans-national rent-seeking). The US government might support the project, but it need not even finance it directly; merely praising these Neoliberal developments is enough for its ruling class, since it knows there are profits to be made.

Comparisons to Greece are also uncalled for. Greece is bound to the euro, whereas Argentina is not bound to the US dollar. Every time the country has faced inflation issues it has been largely due to removing currency controls (dropping pegs), but these price fluctuations are to be expected in a free-floating fiat regime. This doesn’t mean Argentina has to implement a harsh austerity program if it doesn’t want to, nor does it mean the economy is unstable or doomed to fail.

Greece doesn’t have its own (sovereign) free-floating fiat currency, nor can it afford to say no to harsh austerity measures given its geopolitical position vis-a-vis the Euro-zone. I’d call it vassalage, but thralldom is a more accurate label. So long as Greece is bound to the Euro-zone, it will have no choice but to submit to Franco-German interests.

Austerity, privatizations, corruption

“As for what happened the last time the IMF bailed out Argentina in the early 2000, the following 2004 article from the Telegraph tells you all you need to know why when a nation is desperately in need of deleveraging, giving it another $50 billion in debt is generally a bad idea.”

No, that conclusion is completely off to what is said in the Telegraph article. The IMF admitted that giving Argentina money to maintain the currency peg to the dollar was a mistake and that the money would have been better spent elsewhere. Durden seems to ignore the fact that Argentina is no longer on a fixed exchange rate. He is tacitly promoting the austerity policies of Carlos Menem, all the while ignoring the fact that the last time Argentina had to be “bailed out,” it was precisely due to such policies. Carlos Menem during his reign was as Pro-American as any Latin American President could be. He was a personal friend of George H. Bush, went to the USA to celebrate national festivities, and even held a joint conference with him when the US President visited Argentina in 1990, during which George H. Bush praised the privatization program carried out by Menem. Not only that, but Menem also committed Argentina to aid the US in the Gulf War against Iraq.

But I digress… The austerity policies of Menem had a great negative impact on the country. The privatizations actually increased corruption (Menem would be arrested for these accusations later on), and his successor, Fernando De La Rua, sought to continue paying the debt rather than focusing on restoring the nation to stability. This obsession to pay back the dollars led to the implementation of “The Corralito” – a harsh form of currency control where banks had to refuse to allow the retirement of legitimate dollar deposits, and even forced conversions of dollar deposits to pesos. Naturally, this further destabilized the nation and it was not long before De La Rua resigned as well.

“Success Story” and potential coups

Though the touting of Argentina as a “success story” is nothing short of propaganda, this doesn’t mean the country itself will be unstable enough to warrant government coups to form. Latin America has a very strong democratic sentiment, so strong that in fact none’s efforts (people like Chavez, Cristina, and Evo) to eliminate term limits were successful, even as Germany’s (Neoliberal) Iron-lady Angela Merkel continues to be re-elected after several consecutive terms.

The South Atlantic Conflict left a very bitter aftertaste in the mouths of Argentinians. The military no longer commands the respect it once enjoyed among the general public. Discussion of military policy is not on the public agenda. The media hardly ever reports about it, and most governments have made efforts to guarantee the subservience of the Armed Forces to the civilian state, and schools actively teach in the curriculum about the horrors of the military junta, even to the point of great exaggerations – I know what I’m talking about: I had to do it as homework many times during my primary school years.

Out of all the mistakes Durden commits, this is the most egregious. A coup is highly unlikely to succeed. Even if US-backed, it will be unable to gather the political and military support to stabilize itself, and would only serve to reduce the USA’s influence in the country by bringing attention to American interventionism – the traditional cause of military coups in Latin America.

Diego Ramiro Lattes is from South America, Argentina, and has a low tolerance for nonsense, be it left wing or right wing. He can be reached over Twitter and is open to direct messages.