PETRAS ESSAYS IN ENGLISH

May 10 , 2002

Western model, Third World Disaster: Argentina 1990-2002

James Petras

From 1992-1997, the World Bank Annual Report praised Argentina as the model country in the Third World. Washington and Brussels joined in the chorus of praise. The most prestigious financial newspapers (The Wall Street Journal, The Financial Times) editorialized on the thoroughness and effectiveness of the "economic reforms" carried out by the neoliberal Menem regime. The reason for the effusive support was the total liberalization of the economy, the mass privatization of the strategic sectors of the banking, telecommunication, petroleum and industrial sectors and the total deregulation of the economy. Today, Argentina is a living (barely) disaster. It's in the midst of a five year depression (with no end in sight), with negative growth expected to exceed 20%; over 25% of the labor force is unemployed; living standards have declined 70% in less than two years and; $40 billion in savings of millions of Argentinians have been confiscated (or frozen). The major foreign owned banks are on the verge of collapse or preparing their departure. Hundreds of thousands of public employees in the interior of the country have not been paid for months.

The major highways are blocked by unemployed piqueteros; tens of thousands of pensioners and impoverished middle class bang their pots every day, throughout the city of Buenos Aires demanding their savings, their salaries, their pensions. The country has defaulted on its $150 billion debt. The international financial institutions (IMF, World Bank) refuse new loans; Washington and the European Union demand further reductions in spending, more firing of public employees and less social subsidies, even as over one-third of the children enter school without a morning breakfast and as of May 2002 over 50% of the population is already below the poverty line.

From being the "model" neoliberal economy, in the eyes of the Western Governments, Argentina has become the "pariah" or "leper" state. Argentina cited as the "success story" of the 1990s is the disaster story of the new Millenium. The problem is that Argentina applied all the orthodox liberal prescriptions ordered by the Western economic experts, and they enriched overseas bankers and investors and undermined the local economy: privatized and denationalized enterprises and banks extracted and repatriated huge profits and enormous interest payments; deregulation led to financial swindles and massive capital flight; heavy overseas borrowing led to increased debt payments and no productive expansion.

The overseas experts and their local client politicians promised that immediate sacrifices would lead to long-term prosperity. Instead there are long-term sacrifices and no immediate relief. Washington and Brussels refuse to admit their failed prescriptions. Instead they blame the Argentines and call for greater sacrifices and more pain. The political leaders repeat the same orthodox formulas. But no one listens. The most popular slogan is "Que se vayan todos -( Politicians get out! )". Attempts by the government to impose the policies of the IMF led to a massive uprising in December 19/20, 2001, that toppled the government.

In response the government has proposed an emergency poverty relief fund of 150 pesos ( $50 dollars ) a month per family. For a family of four that is equal to $1.66 per day or $0.42 per person per day to pay for food , clothing, transport etc. Clearly a starvation subsidy.

The IMF backed by Washington and Brussels in May 2002 called for greater austerity measures which will raise the number under the poverty line to70% and the unemployed to 35%.

With hyper-inflation taking hold this year (10% in April), and salaries fixed and unpaid, Argentina is heading for a major popular upheaval or descent into the "fourth world" certainly not the "next entrant into the First World", as the World Bank predicted six years ago.