Socialist Viewpoint

Across Argentina, corporations and government officials are bracing for a social explosion, bolstering the widespread belief that President Eduardo Duhalde’s negotiations to obtain $20 billion immediately from the International Monetary Fund and other financial institutions are doomed to catastrophic failure. In March, Duhalde warned the international lenders that the country’s political institutions would begin to collapse as early as April if the International Monetary Fund (IMF) does not provide the billions needed to prop up Argentina’s battered economy.

However, the IMF in Washington, D.C. insists that the Argentine authorities on the federal and provincial levels first implement deep cuts in their spending and provide stronger guarantees for investor rights before it will provide the aid. The IMF’s tough conditions put Dulhalde between a rock and a hard place. Compliance with the IMF’s demands is politically and socially explosive because it implies firing hundreds of thousands of government workers, perhaps a third of the government workforce. Without an immediate cash infusion, Argentina’s economic crisis will deepen and quickly. Given the impasse, the IMF, backed up to now by the Bush Administration, is likely to see the already unpopular Duhalde government fall, amid street demonstrations and violent protests from an angry populace.

Upon close inspection of Duhalde’s economic plan, it is clear that—even though Dulhade has complied with many IMF demands, including floating the peso which is losing value relative to the dollar every day, and eliminating the two-tier exchange rate, designed to keep the banks afloat—the Duhalde government lacks the political will to carry out more necessary reforms.

The government recently reported that the Argentine economy has contracted 15 percent since the 4-year-old depression began, private investment has dropped 40 percent, industrial output is down 20 percent, unemployment has reached 23 percent and more than 40 percent of Argentines now live below the poverty line!

Since defaulting on $141 billion in debt in December, Argentina has lost all access to trade financing and other forms of international credit. The devaluation of the peso and a host of measures designed to cushion devaluation’s impact on Argentine savers and debtors has nearly wiped out the private financial system.

As a result, the country’s only sources of hard currency are exports, which account for only 10 percent of its gross domestic product and have not increased despite the peso’s devaluation. Argentina must now pay cash for its imports, damaging trade and investment flows with neighboring countries, such as Brazil and Chile.

The Wall Street investment firm of Goldman Sacks estimates that the Argentine economy will contract at least 10 percent this year, and inflation will exceed 100 percent as the government prints billions of new pesos to offset vanishing hard currency reserves.

Even if the IMF provides Duhalde with the aid he wants, Duhalde’s government seems likely to fall. However, the armed force’s top commander recently said that there was no possibility the military would take control of the government, calling instead for “more, not less, democracy” as the only solution to the country’s problems, the Associated Press reported. But if Argentina collapses into anarchy in the coming weeks, its reluctant, discredited and financially crippled military may be the only option for restoring order until new elections can be held. Elsa Carrio, a populist socialist leader, who presently heads all voter surveys of potential alternative leaders to the traditional Peronist and radical political establishment, told the Buenos Aires daily La Nacion on March 8 that with or without IMF assistance, Duhalde won’t retain power to the end of 2002.