Twenty years have passed since Argentina imploded in what has been its worst social and political crisis, at least in modern times. The besieged nation defaulted on a US $ 96 billion loan, failed to secure support from the United States and the International Monetary Fund, and saw five presidents come and go from Casa Rosada in a period of two weeks until Eduardo Duhalde, a Peronist who had been defeated in the legislative elections a few years earlier by the recently resigned Fernando De La Rúa, took over, paving the way for more than a decade of Kirchnerismo.
Fast forward to today and Argentina’s huge debt is still at the center of political discussions, as is the IMF and the possibility of default. There is no doubt that the crisis of 2001 marked a schism in the history of Argentina, and that Alberto Fernández, Mauricio Macri and Cristina Fernández de Kirchner all gained their central place in the current political arena due to shock waves that always reverberate through the system. While this is clear, it is not easy to imagine that Argentina and the IMF have truly learned their lessons and will be able to build a constructive relationship that will help the country emerge from nearly a century of mediocrity. economic.
Speaking of economic mismanagement, Argentina holds several world records. We have defaulted on our sovereign debt nine times, starting in 1827, when the nation was in childbirth. We held the record for the largest sovereign default in history with US $ 96 billion in 2001. Argentina firmly maintains its place among the top countries in the world for annual price increases, with inflation reaching an annualized rate. of 52.1% in the latest INDEC report. national statistics office. With 21 deals with the IMF since 1958, we received the largest bailout ever with US $ 57 billion in 2018 and remain its biggest debtor, with US $ 44 billion of this mega line of credit disbursed.
The situation in 2001 was radically different from today. After the hyperinflations of the late 1980s, in the aftermath of the military dictatorship of 1976-83, President Raúl Alfonsín failed to tame the economy, forced to resign before the end of his term and paved the way to Carlos Menem, the neoliberal Peronist, take office. Following the economic fashion of the time, Menem and Minister of the Economy Domingo Cavallo followed the Washington consensus, pursuing a policy of deregulation and privatization in favor of the market, while implementing a known currency board. under the name of convertibility plan which fixed the value of the dollar to one peso. It has done wonders in controlling inflation and stimulating economic growth, making Argentina the darling emerging market and allowing it to borrow cheaply – and recklessly – in foreign currencies. By 1998, economic momentum had slowed down, Argentina had entered a recession, the sovereign and the provinces had accumulated large deficits, unemployment was on the rise and convertibility had become a dependency. When De La Rúa, a member of the Radical Civic Union (UCR), took office, he promised to reduce the deficit and end corruption, but found himself in bed with the IMF as the economy was falling apart before his eyes. Unable to end convertibility, he called on Menem’s Minister of Economy, Cavallo, for his help. The second the IMF cut its emergency funding, the economy collapsed, the nation defaulted, and the hard peg between the peso and the dollar ended.
Néstor Kirchner was Duhalde’s protege, seizing power in 2003 and ultimately getting rid of his former master. Kirchner led the country through one of its strongest periods of economic growth as it rode the commodities super-cycle, expanding the use of social plans to mitigate the impact of the loss of formal jobs following the 2001 implosion (something similar happened in Brazil). At the same time, Néstor began a tough debt restructuring battle with its creditors, reinforced by double surpluses due to rising commodity prices.
The global financial crisis triggered by the subprime bubble marked the end of the super-cycle fueled by Chinese growth, and Argentina, now ruled by Cristina Fernández de Kirchner, saw its model run out of steam. Rather than relying on reforms to improve the competitiveness of Argentina’s economy, Cristina and her economic team, led by figures like Amado Boudou and Axel Kicillof, relied on the dismissal of the company’s pension plans, National Energy Agency (YPF) and all their coffers. could find. Spending deficit, inflation, export taxes, exchange controls and double exchange rates on the one hand, with inflammatory rhetoric, all-out war against its opponents, and griette (polarization) on the other.
One of the benefits of being excluded from international debt markets for the Kirchnerites was that they handed over a state that was not heavily indebted in foreign currency, but Cristina’s administration saw a sharp increase in the intra-government debt. She left Macri with a time bomb when he took office, with a lack of foreign exchange reserves that led to hard currency controls and intense pressure on the official exchange rate. A massive budget deficit and a manipulated official statistics agency masked inflation and unemployment.
Macri and his team quickly deactivated this bomb by raising the cepo and strike a deal with recalcitrant creditors and “vulture funds” like Paul Singer’s Elliott Management. Yet the Cambiemos leader has not been able to effectively tackle deficit spending, which he actually increased at first. Inflation was never brought under control, and the reliance on US dollar sovereign debt led to several peso rushes at the first sign of danger, such as when Turkey (it’s still Turkey) suffered a currency crisis. in 2018. Not only did Macri widen the deficit and shoulder a load of dollar-denominated debt, he never managed to use his political capital to push through long-awaited and promised reforms. He finished as he started, with another cepo and hand over a time bomb to his successors, the Fernández-Fernández tandem.
Alberto and Cristina experienced an imploded economy and had to deal with the global coronavirus pandemic. But, as mentioned in previous columns, there is no more time for excuses, with an impossible debt schedule in Q1 2022 ahead of us, inflation over 50 percent, poverty around 40 percent. and an increasingly close socio-economic situation. to a breaking point.