Is Brazil going the way of Argentina?

[OneFootInTheGrave]

Originally posted by El Awrence
Life is hell. People are scared of going into the street. There's and 'express kidnapping' every 24 hours or more according to statistics. Unemployment has hit an alleged 20% and inflation is up by 40% in six months. You see people scavanging through rubbish and garbage all day now, and crime runs rampant and without any punishment usually.

Life hasn't been normal since the sackings took place last December. People are scared of going out and I no longer take the train or buses but rather walk home to avoid public transport.

whooo...

I din't think it is so bad, as Argentina is a wealthy country (at least in my mind), as far as natural resources and food goes.

But I guess there is not enogh channels (family and the like) for it to get to people in big cities and to calm people a bit.

Well this is almost a good excuse for a well-minded politician to take control of the situation (but a dictator would be more likely to appear) and to do something with the economy and give the country a lifeline.

Scary.

[Bereta_Eder]

Originally posted by OneFootInTheGrave
Interesting thought for a possible quick getaway for the people, if you would have a good leader.

Onefoot, I want to say that your banana rocks.


Apart from that, do you think that if a socialist leader was abuot to take the reigns and fix Argentina's problems (let us not forget that Cuba has the highest quality of life in Latin America, not to say anything about dignity - El Lawrence maybe udnerstands what I'm saying here, I don't expect many more others to understand), so do you think that if such a leader was to be produced the US would not try to counter him thus throwing the country deeper in desperation?

The people know who to blame for their problems and the people are right.

(of course this is one of the many parameters - but a significant one)

[chequita guevara]

Who Shot Argentina? The Finger Prints On the Smoking Gun Read ‘I.M.F.'
Inside Corporate America
Guardian (London)
Sunday, August 12, 2001
by Greg Palast

And news this week in South America is that Argentina died, or at least its economy. One in six workers were unemployed even before the beginning of this grim austral winter. Millions more have lost work as industrial production, already down 25% for the year, fell into a coma induced by interest rates which, by one measure, have jumped to over 90% on dollar-denominated borrowings.

This is an easy case to crack. Next to the still warm corpse of Argentina's economy, the killer had left a smoking gun with his fingerprints all over it.

The murder weapon is called, "Technical Memorandum of Understanding," dated September 5, 2000. It signed by Pedro Pou, President of the Central Bank of Argentina for transmission to Horst Kohler, Managing Director of the International Monetary Fund.

'Inside Corporate America' received a complete copy of the 'Understanding' along with attachments and a companion letter from the Argentine Economics Ministry to the IMF from ... well, let's just say the envelope had no return address.

Close inspection leaves no doubt that this 'Understanding' fired fatal bullets into Argentina's defenseless body.

To begin with, the Understanding requires Argentina cut the government budget deficit from US$5.3 billion in 2000 to $4.1 billion in 2001. Think about that. Last September, Argentina was already on the cliff-edge of a deep recession. Even the half-baked economists at the IMF should know that holding back government spending in a contracting economy is like turning off the engines on an airplane in stall. Cut the deficit? As my 4-year old daughter would say, "That's stooopid."

The IMF is never wrong without being cruel as well. And so we read, under the boldface heading, "improving the conditions of the poor," agreement to drop salaries under the government's emergency employment program by 20%, from $200 a month to $160.

But you can't save much by taking $40 a month from the poor. For further savings, the Understanding also promised, "a 12-15 percent cut in salaries" of civil servants and "rationalization of certain privileged pension benefits."

In case you haven't a clue what the IMF means by "rationalization" - it means cutting payments to the aged by 13% under both public and private plans. Cut, cut, cut in the midst of a recession. Stooopid.

Salted in with the IMF's bone head recommendations and mean-spirited plans for pensioners and the poor are economic forecasts which border on the delusional. In the Understanding, the globalization geniuses project that, if Argentina carries out their plans to snuff consumer spending power, somehow the nation's economic production will leap by 3.7% and unemployment decline. In fact, by the end of March, the nation's GDP had already dropped 2.1% below the year earlier mark, and nosedived since.

What on Earth would induce Argentina to embrace the IMF's goofy program? The payoff, if Argentina does as it's told, is that this week the IMF lend $1.2 billion in aid. This is part of an emergency loan package of $26 billion for 2001 put together by the IMF, World Bank and private lenders announced at the end of last year.

But there is less to this generosity than meets the eye. The Understanding also assumes Argentina will "peg" its currency, the peso, to the dollar at an exchange rate of one to one. The currency peg doesn't come cheap. American banks and speculators are charging a whopping 16% risk premium above normal in return for the dollars needed to back this currency scheme.

Now do the arithmetic. On Argentina's $128 billion in debt, normal interest plus the 16% surcharge by lenders comes to about $27 billion a year. In other words, Argentina's people don't net one penny from the $26 billion loan package. Little of the bail-out money escapes New York where it lingers to pay interest to US creditors holding the debt, big fish like Citibank and little biters like Steve Hanke.

Hanke is President of Toronto Trust Argentina, an 'emerging market fund' which loaded up 100% on Argentine bonds during the last currency panic, in 1995. Cry not for Steve, Argentina. His annual return that year of 79.25% put the speculator's trust at the top of the speculation league table. This year he'll do it again.

Hanke profits by betting on the failure of the IMF's policies. But 'vulture' investing is merely Hanke's avocation. In his day job as professor of economics at Johns Hopkins University, Maryland, he freely offers straightforward advice to end Argentina's woe, advice which would put him out of the speculation game: "Abolish the IMF."

To begin with, Hanke would do away with the 'peg' - that one-peso-for-one-dollar exchange rate - which has proven a meat-hook on which the IMF hangs the Argentina's finances.

It's not the peg itself that skewers Argentina - but the peg combined with the Four Horsemen of IMF neoliberal policy: liberalized financial markets, free trade, mass privatization, and government surpluses.

'Liberalizing' financial markets means allowing capital to flow freely across a nation's borders. Indeed, after liberalization five years ago, the capital has flowed freely, with a vengeance. Argentina's panicked rich have dumped their pesos for dollars and sent the hard loot to investment havens abroad. Last month alone, Argentine's withdrew 6% of all bank deposits.

Once upon a time, government-owned national and provincial banks supported the nation's debts. But in the mid 1990s, the government of Carlos Menem sold these off to Citibank of New York, Fleet Bank of Boston and other foreign operators.

Charles Calomiris, a former World Bank advisor, describes these bank privatizations as a "really wonderful story." Wonderful for whom? Argentina has bled out as much as three-quarters of a billion dollars a day in hard currency holdings.

There's more cheer for creditors in the Understanding, including 'reform of the revenue sharing system.' This is the kinder, gentler way of stating that the US banks will be paid by siphoning off tax receipts earmarked for education and other provincial services. The Understanding also finds cash in "reforming" the nation's health insurance system (cut cut cut).

But when cut cut cut isn't enough to pay the debt holders, one can always sell 'la joyas de me abuela,' grandma's jewels, as journalist Mario del Carvil describes his nation's privatization scheme. The French picked up a big hunk of the water system and promptly raised charges in some provinces by 400%.

The Understanding's final bullet is imposition of "an open trade policy." This requires Argentina's exporters, with their products priced via the 'peg' in US dollars, into a pathetic, losing competion against Brazilian goods priced in a devaluing currency. Stooopid.

Still, the IMF's scheme could work. All, that is required is 'flexible' workforce, willing to bend to lower pensions, lower wages or no wages at all. But, to the dismay of Argentina's elite, the worker bees are proving inflexibly obstinate in agreeing to their own impoverishment. One inflexible worker, Anibal Verón, a 37-year-old father of five, lost his job as a bus driver; his company owes him 9 months pay.

Verón joined the 'piqueros,' the angry unemployed who blockade roads (39 blockades began just this week). In clearing a blockade in November, the military police allegedly killed him with a bullet to the head.

The death in Genoa of anti-globalization protestor Carlo Guiliani was Page One news in the US and Europe. Verón's death was page zero. Nor did you read about Carlos Santillán, 27 nor Oscar Barrios, 17, gunned down in a church courtyard in Salta Province when the police fired on a protest against the IMF austerity plan.

Globalization boosters like Tony Blair prefer to portray resistence as a lark of pampered Western youth curing their ennui by "indulging in protest, misguided" by naive notions. The media plays to this theme, focussing on the few thousand marching in Genoa, but not the 80,000 in the streets of Buenos Aires last May, nor the general strike honored by 7 million Argentine workers last June.

In Argentina, President Fernando de la Rua blames violence on the protesters. But the Peace and Justice Service (SERPAJ) charges de la Rua's government with using hunger and terror to impose the IMF plans. SERPAJ leader Adolfo Pérez Esquivel told me he is documenting cases of torture of protesters by police in the town where Santillán and Barrios died. To Pérez Esquivel who won the Nobel Peace Prize in 1980 repression and liberalization are handmaidens. He told the Observer he has just filed a complaint charging police with recruiting children as young as 5 years old into paramilitary squads, an operation he compares to the Hitler Youth.

But Pérez Esquivel, who led protests against the Free Trade Agreement of the Americas, doesn't agree with my verdict against the IMF in Argentina's death. He notes that the economically fatal 'reforms' are embraced with enthusiasm by the nation's finance minister, Domingo Cavallo, best remembered as the head of the central bank during the military dictatorship. For the aging pacifist, that suggests that the untimely demise of the nation's economy wasn't murder, but suicide.

Additional research by Oliver Shykles

[Dr. Nick]

Palast explained it better than I could mostly.

[Plan Austral]

Moomin, Argentina is also being forced to pay the debt, 2 months ago, Rato, the minister of economy of Spain "representing the EU" in a meeting said to our minister of economy "Lavagna" that if we didnt reach an agreement with the imf, they would stop buying our exportations.
And they are along with Brazil our principal market, if we say no to the imf and try to do the things by ourselves we wont be able to trade with the world.
Probably we would get sanctions from other countries too.
Right now, we are in default with all the banks but we are still paying to the imf and to the bid.


After the devaluation, our currency is 350% cheaper, now we are really competitive, we are not asking much, all we want is the exact amount of money that we will have to pay the next 2 years, no new fresh money, just what we will have to pay.
Our government and provinces have arranged credits with the interamerican bank of development and other institutions and we wont receive a dolar until we reach an agreement with the imf.

That is why it is so important for us to reach to an agreement, all we want is an agreement that will give us (2 years) to renegotiate the debt and probably a cut,
and with that agreement some lines of credit will come to argentina to finance the exportations.
The biggest problem in our economy is the lack of credit because of the "corralito", we need the credits too finance the companies who want to export.
Because reactivation will only come out of that sector.

[Plan Austral]

I would like to say first:
Good article Chegits, but that is from August and the situation here has changes radically, and not for good, reading that article makes me feel like 6 years younger, and it happened few time ago.

2)My mistake, the minister of economy was Remes-Lenicov, not Lavagna, Remes renounced like 2 weeks after that meeting.Now our minister is Lavagna.

This is a post of mine I wrote in civfanatics like 6 months ago.

Menem (our president in the 90s) during the first half of his government (he was reelected) had a big deficit that was solved by selling a big state company per year.For example a year the argentinean airlines were sold, the next year the oil company.
In the last years of his second government there was nothing else to sell, but he kept spending so our extern debt increased.
But our economy was growing so there was no problem to pay the debt, but In 1998 Argentina starts its recession, with the crisis in Russia and South East Asia,.
The interventions of the IMF started in 1999 with the government of De La Rua, his government inherited a Deficit of 10.000 million from the Menem administration.
The imf said that they were going to help us but they told us that we needed to reduce our deficit.
Taxes were increased and salaries reduced (ordered by the imf) that worsened the recession and the tax collection was even lower than before.
The deficit could not be reduced.
For a while the economy seemed to recover but later our partner in the MERCOSUR Brazil devaluated their coin, Argentina with our currency tyed to the dolar simply couldnt compete against Brazil cheap currency and workers.

The IMF continued doing this, they were proscribing bad policies, but they are not the only people guilty.


Believe it or not the De la Rua government fall because the IMF refused to give us a credit that was previously accorded of 1600 millions.

[chequita guevara]

I know it's old, but it lays the groundwork for the situation as it is today. You folks need to overthrow your government. Then tell the IMF that they can collect their money from the former government.

[KrazyHorse]

Originally posted by OneFootInTheGrave
Screw IMF, go isolationist, and see what happens

At least Argentina could afford that as they have pleant of natural resources. Well other than that, when are they going to repay 140 bn of debt, and the interest?

A country of 32 mil people?

Never... that's pretty much the fact.

maybe Argentina should apply to become 52nd US state

I wish Canada's national debt was 140 bn...

[chequita guevara]

Canada can afford it.

[Plan Austral]

Originally posted by OneFootInTheGrave


whooo...

I din't think it is so bad, as Argentina is a wealthy country (at least in my mind), as far as natural resources and food goes.

But I guess there is not enogh channels (family and the like) for it to get to people in big cities and to calm people a bit.

Well this is almost a good excuse for a well-minded politician to take control of the situation (but a dictator would be more likely to appear) and to do something with the economy and give the country a lifeline.

Scary.

Argentina had a first world standard of life untill the late sixties/early seventies.With the military dictatorship we started our slow decline (some people argue that we started to decline as early as with Peron in the 50`s), the decline included, military dictatorships, subversion, falklands, recession, corrupt democratic leaders etc etc.
But even though our standard of life was not as high as in the past, it was far higher than the latin american average.(yeah, chegitz, i know what you will say about cuban sanitation and education, but Argentina and Uruguay were countries the only countries with a strong middle class that included more than half of the population).
For example in 1999 , in the beginning ofthe recession, the economy of Argentina was strong enough to qualify for the standards of the masstricht treaty in a better postition than countries like Portugal (this is just an example I know that we are in Latin america *retarded remark*).

The gross product(sp?) per capita was 13.000 dolars, and we had a big external debt 120.000 million dolars, but out gross product was of 300.000 million dolars, so, our debt was less than 50% of the gross product.
We had 0 inflation, we even had deflation, and the poverty was between 15%-25%.

No the poverty surpassed the 50%, the value of the peso, that used to be tied to the dolar has been reduced to a third, so our gross product is like 100.000 millions dolars now.
And the debt is 150% of the gross product.
The unemployment is like 22% and the inflation like 30%.
If you earned 1000 pesos, a year ago, that was 1000 dolars, now that is like 290 dolars.

All sucks, Argentina three years ago and now are different universes.

[KrazyHorse]

Chegitz, as Kublai's numbers make clear, the Argentine debt load prior to ~4 years ago was only 50% of annual GDP or so. That's pretty easily handled (as long as interest rates on the loan aren't too high).

The real problem is that the economy crashed and burned, feeding a credit shortage, crashing the economy harder, etc. The debt load was only a secondary cause, IMO, one that contributed to skittishness by lenders...

[chequita guevara]

You're wrong about what I would have said. I knew Argentina, Uruguay, and even Chile were doing pretty well. The dictatorships pretty well ****ed them though. Argentina's recent prosperty was due to an investment bubble, as money fled Asia and Russia looking for places to go. Argentina hadn't been looted yet, now it has.

[Dr. Nick]

The interest rates on IMF loans were very high, and went to blazes since 1995.

[KrazyHorse]

Argentina's recent prosperty was due to an investment bubble

I get that feeling too...

[DanS]

The IMF comes out pretty clean in all of this. The way I read it is that the monetary crisis was handled singularly poorly by Argentina, coupled with a dollar that remained stronger for longer than expected.

If the IMF would have had its way, then Argentina would have floated its currency over a year ago. But that was difficult to do politically. Nobody wanted to take the haircut that a modest devaluation would have represented, so Argentina ended up with the worst of all worlds--persistent paralysis of the financial system. Argentina still hasn't floated the peso fully, IIRC.

As it is, Argentina's public debt is no more onerous than that of the U.S. or most other Western countries. However, I have a feeling that this money wasn't spent on worthwhile stuff, and the deficit wasn't spent on worthwhile stuff, both of which create a large drag on the economy.