Show Who Done It
By: Gregory Palast
The Observer, February 7, 2002
In Buenos Aires, the Paris of Latin America, police gunned down two dozen
Argentines in December after they chose to face bullets rather than
starvation. The nation’s currency had crumbled and unemployment had shot
up from a grim 16 percent to millions more than the collapsing government
could measure. The economy had been murdered in cold blood.
Who done it? The killers left fingerprints all over the warm corpse.
A “Technical Memorandum of Understanding,” dated September 5, 2000,
was signed by Pedro Pou, president of Argentina’s Central Bank for
transmission to Horst Köhler, managing director of the International
Monetary Fund. I received a complete copy of the inside report from . . .
let’s just say the envelope lacked a return address.
The “understanding” required Argentina to cut the government budget
deficit from $5.3 billion in 2000 to $4.1 billion in 2001. Think about
that. Eighteen months ago, when the “understanding” was drafted,
Argentina was already on the cliff-edge of a depression. One in six
workers were unemployed. Even the half-baked economists at the IMF should
have known that holding back government spending in a contracting economy
would be like turning off the engines of an airplane in stall.
The IMF is never wrong without being cruel as well. Under the boldface
heading, “Improving the Conditions of the Poor,” the agency directed
Argentina to cut 20 percent from $200 monthly salaries paid under an
emergency employment program. The “understanding” also promised a 12
to 15 percent cut in civil servant salaries and a pension
“rationalization” (IMF-speak for a 13 percent cut in payments to the
Salted in the IMF plans for pensioners and the poor were economic
forecasts bordering on the delusional. The report projected that, once
Argentina snuffed consumer spending, somehow the nation’s economic
production would leap by 3.7 percent and unemployment would fall.
It didn’t. The IMF plan kneecapped industrial production, which fell 25
percent in the first quarter of last year before keeling over completely
to interest rates that by summer were running up to 90 percent on
Another enveloper that walked onto my desk contained the memorandum for
Argentina’s “Country Assistance Plan” for the next four years. The
June 25 document, signed by World Bank President James Wolfensohn,
included a warning that recipients must use it “only in the performance
of their official duties.”
My duty as a reporter is to tell you that the plan amounts to a
breathtaking mix of cruelty and Titanic-sized self-deception. With the
economy already in its death spiral, Wolfensohn claimed that “despite
the setbacks, the goals set out in the last [year’s] report remain valid
and the strategy appropriate.” The IMF plan, cooked up with the World
Bank, would “greatly improve the outlook for the remainder of 2001 and
for 2002, with growth expected to recover in the later half of 2001.”
In this eyes-only document, the World Bank president expressed particular
pride that Argentina’s government had made “a $3 billion cut in
primary expenditures accommodating the increase in interest
obligations.” In other words, the government gouged spending on domestic
needs to pay interest to creditors, mostly foreign banks.
Crisis, indeed, has its bright side, as Wolfensohn crowed to his banker
readers: “A major advance was made to eliminate outdated labor
contracts.” And “labor costs” had fallen due to “labor market
flexibility induced by the de facto liberalization of the market via
increased informality.” Translation: Workers lost unionized jobs and
turned to selling trinkets in the street.
What on Earth would lure Argentina into embracing this program? The bait
was a $20 billion emergency loan package and “stand-by” credit from
the IMF, the World Bank and their commercial bank partners. But there is
less to this generosity than meets the eye. The “understanding”
assumed Argentina would continue its “Convertibility Plan,” a 1991
policy that pegged the peso, the nation’s currency, to the Yankee dollar
at an exchange rate of one-to-one. The currency peg hadn’t come cheap:
Foreign banks working with the IMF had demanded that Argentina pay a
whopping 16 percent risk premium above U.S. Treasury lending rates for the
dollars needed to back the scheme.
Now do the math. When Wolfensohn wrote his memo, Argentina owed $128
billion in debt. Normal interest plus the premium amounted to $27 billion
a year. In other words, Argentina’s people didn’t net one penny from
the $20 billion in “bailout” loans. The debt grew, but none of the
money escaped New York, where it lingered to pay interest to U.S.
creditors holding the bonds.
The creditors range from big fish, led by New York–based Citibank, to
little biters such as Steve Hanke, president of Toronto Trust Argentina,
an “emerging market” fund. Hanke’s outfit loaded up 100 percent on
Argentine bonds during a 1995 currency panic. Cry not for Steve,
Argentina. His 79.25 percent profit that year put his fund at the top of
the speculators’ league. Players call it “vulture investing”:
betting on the failure of the IMF policies.
In his day job as a Johns Hopkins University economics professor, Hanke
freely offers a cure for Argentina’s woes. The advice would put him out
of business: “Abolish the IMF,” he told me.
And, Hanke advised, abolish the one-for-one exchange rate. The currency
peg forced Argentina to beg and borrow a steady supply of dollars to back
each peso, and this became the rationale for the IMF and World Bank to let
loose in the pampas their Four Horsemen of neoliberal policy: liberalized
financial markets, reduced government, privatization and free trade.
The “liberalizing” means allowing capital to flow freely across
national borders. Capital has indeed flowed freely. Last year,
Argentina’s elite dumped its pesos for dollars and sent the hard loot to
investment havens abroad, bleeding as much as $750 million a day from the
Once upon a time, government-owned national and provincial banks supported
their nation’s debts. But in the mid-1990s, President Carlos Saúl
Menem’s government sold these off to foreign operators such as Citibank
and Boston-based Fleet Bank. Former World Bank advisor Charles Calomiris
told me these bank privatizations were a “really wonderful story.”
Wonderful for whom? With the foreign-owned banks unwilling to repay
Argentine depositors, the government froze savings accounts December 3,
effectively seizing money from the middle class to pay off the foreign
To keep the foreign creditors smiling, the IMF “understanding” also
required “reform of the revenue sharing system.” This is the kinder,
gentler way of stating that the U.S. banks would be paid by siphoning off
tax receipts that the provinces had earmarked for education and other
public services. The “understanding” also found cash in
“reforming” (cutting from) the nation’s health insurance system.
And when cuts aren’t enough to pay creditors, one can always sell
“grandma’s jewels,” as Argentines describe the privatizations. The
government sold much of the nation’s water system in 1995 to Vivendi
Universal. The French conglomerate promptly cut staff and raised prices,
including 400 percent hikes in some areas. In his confidential memo, the
World Bank’s Wolfensohn sighs, “Almost all major utilities have been
privatized,” so now there’s really nothing left to sell.
The coup de grâce, spelled out in the “understanding,” was the
imposition of “an open trade policy.” This pushed Argentina’s
exporters (with their products priced in U.S. dollars, via the peg) into a
pathetic, losing competition against Brazilian goods priced in that
nation’s devalued currency.
Have the World Bank and IMF learned from their errors? They learn the way
a pig learns to sing: It can’t, it won’t and, if it tries, the
resulting noise is unbearable. On January 9, with the Argentine capital in
flames, IMF Deputy Managing Director Anne Krueger ordered the country’s
new president, Eduardo Duhalde, to cut still deeper into government
expenditures. Interestingly, President George W. Bush backed the IMF
budget-cutting advice—the same week he demanded that the U.S. Congress
adopt a $50 billion scheme to spend the United States out of recession.
Wolfensohn's memo summed up the program: All Argentina needed to do was
“reduce the cost of production,” a step that required only a
“flexible workforce.” Translation: further cuts in pensions and wages
or, better yet, no wages at all. To the dismay of Argentina’s elite,
however, the worker bees proved inflexibly obstinate in agreeing to their
One such worker, Anibal Verón, a 37-year-old father of five, lost his job
as a bus driver from a company that owed him nine months’ pay. Verón
joined unemployed Argentines, known as “piqueteros,” who block roads.
In November 2000, while clearing a blockade, the military police killed
him with a bullet to the head.
Yet globalization boosters portray resistance to the New World Order as a
lark of pampered, naďve, western youths curing their ennui by
“indulging in protest,” as British Prime Minister Tony Blair put it.
The U.S. and European media play to this theme, focusing on protests in
Seattle and Genoa, while burying news of general strikes honored by
millions of Argentine workers. The July 20 killing of Genoa protester
Carlo Giuliani made front pages across the United States and Europe. But
these newspapers ignored Verón’s death and the June 17 killings of
Argentine protesters Carlos Santillán, 27, and Oscar Barrios, 17, gunned
down by police in a churchyard in General Mosconi, a northern town. Only
in December, when Argentina failed to make an interest payment on
foreign-held debt, did the Euro-American press report a “crisis.”
To implement their “reforms,” the IMF and World Bank work with locals
such as Domingo Cavallo, who resigned as economy minister in December
after mass protests. Argentines remember him as head of the nation’s
Central Bank during the 1976–1983 military dictatorship.
Mindful of that era, the Buenos Aires–based Peace and Justice Service
(SERPAJ) is documenting cases in which police tortured northern
protesters. SERPAJ leader Adolfo Pérez Esquivel, who won the Nobel Peace
Prize in 1980, told me his group has filed a formal complaint charging
police with recruiting children as young as age 5 as informers for
paramilitary squads. He compared the operation to the Hitler Youth, the
organization that trained German boys in Nazi principles. Pérez Esquivel,
who last year led protests against the proposed Free Trade Agreement of
the Americas, says economic “liberalization” and political repression
go hand in hand.
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