What Caused the Crisis in Argentina

January 12, 2002

The Communist Party of Argentina (CPA) hailed the victory of the mass uprising led by the United Left that has forced the resignation of four presidents in Argentina in the past two weeks. The CPA demanded an end to policies that opened the door for massive corporate looting of Latin America’s third-largest nation over the past decade.

In a statement released Dec. 24, the CPA blamed the crisis on a decade of failed “neoliberal” policies imposed by the International Monetary Fund (IMF).

It has included “dollarization” of the economy, “structural adjustment” strategies such as wage cuts, deregulation, privatization of government enterprises and services, and ruthless plant closings under “free trade” agreements. It has meant untold wealth for Ford, Phillip Morris, AT&T, Verizon, and McDonald’s but plunging wages and income for the working people.

The CPA statement accused the government of President Carlos Saul Menem of “surrender to outside interests and of repression,” which it traced back to the military coup of 1976, in which an estimated 35,000 people were “disappeared.”

The CPA called for a “complete overhaul” of all levels of the Argentine government within 90 days including new elections of officials from the president on down. It called for an emergency convocation to draw up a “people’s program” to deal with the crisis.

Among the demands is a halt to repayment of Argentina’s $136 billion debt held mostly by private banks, nationalization – or renationalization – of banks and major corporate and financial groupings, and a “minimum social wage equivalent to the family food basket for all unemployed” people in Argentina. The only fundamental solution, it stated, is socialism.

“It is also important to cut off all the policies of ‘licking the boots’ of imperialism,” the statement said. “End automatic lining up with the U.S. ‘war on terrorism.’ End military bases and stop encouraging ‘Plan Colombia.’”

Argentina’s Congress approved an emergency package Jan. 6 that included ending a decade-long policy of linking the peso to the U.S. dollar one-to-one. But instead of measures to democratize the country, the legislature granted President Eduardo Duhalde, the nation’s fifth chief executive in two weeks, sweeping extra-constitutional powers.

The Association of Lawyers of Buenos Aires released a statement demanding that authorities “strictly follow the constitution and annul all laws and decrees that violate it.” All officials responsible for the disastrous “neoliberal” policies should be ousted, it stated.

It demanded an investigation of the interior minister, secretary of security and chief of the federal police in the death of 26 protesters and brutality against thousands of other demonstrators in the month-long uprising. Dollar-peso convertibility was part of former President Carlos Saul Menem’s policy of tying Argentina to U.S. coattails.

A close crony of the Bush family, Menem enforced austerity policies dictated by the IMF while privatizing state-owned enterprises. They were gobbled up by foreign investors, mostly U.S. and Spanish banks and corporations. Among them was YPF, Argentina’s nationalized oil company, auctioned off to foreign oil companies and the telephone company eaten alive by AT&T and Verizon.

At first, the policy, fueled by a series of IMF and private bank loans, seemed to be working, but now the bubble has burst.

The Washington-based Economic Policy Institute (EPI) points out that a common theme of editorials on this latest meltdown is that Argentina’s economy was “inefficient” because its work force is highly unionized and enjoys a “high standard of living they have not earned.”

But EPI says the opposite is the case. “Since 1991, when the peso was permanently fixed at parity to the dollar, both real gross domestic product (GDP) and labor productivity in Argentina have risen while real wages have fallen and the share of the population in ‘extreme’ poverty almost doubled.”

In numbers, 15 million are extremely poor, out of a total population of 36 million, or 42 percent. EPI cites a report by the Instituto de Estudios y Formacion in Buenos Aires that labor productivity of workers for Argentina’s 500 largest employers surged 50 percent from 1993 to 1998 but real wages rose only 20 percent.

“During that same time frame, the share of income going to labor dropped from 35 percent to 28 percent while capital’s share rose from 65 percent to 72 percent,” the report said. “The numbers suggest that the Argentine economic problem may not be so much ‘labor inefficiency’ as paycheck insufficiency.”

Rob Scott, an EPI researcher, said the only way out of the crisis is to quickly restore purchasing power by providing jobs and higher income for Argentina’s poor and unemployed masses. “They will have to force the banks holding that debt to ‘take a haircut.’” Scott told the World.

“Argentina, in effect, will have to declare bankruptcy. Already Argentina has defaulted on its debts.” Any recovery plan must start with the “labor market” where 18.6 percent of workers are unemployed and an equal share “under-employed,” he said.

“A lot of people in Argentina are hungry. We need to provide resources for them from the U.S. Treasury and the IMF to meet basic social needs for food, shelter and health care. You pump money into the economy and it will begin to recover. These are the same policies we are advocating to jump-start the U.S. economy in the current recession.”

The crisis, he said, will likely slow down Bush’s fast track Free Trade Area of the Americas (FTAA) scheme while strengthening Mercosur, a regional trade agreement of Argentina, Brazil, Uruguay and Paraguay. Unlike NAFTA and FTAA, he said, Mercosur includes clauses protecting workers rights and the environment.


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