Argentina's crisis


Hit by a recession induced by free-market economic policies, Argentinians force out their President. Now the new government's decision to renege on foreign debt epayment spreads panic across the world.


THE writing was on the wall for quite some time. The neo-liberal economic policies that successive governments implemented with the support of Western financial institutions had led to a protracted and painful recession, which set in about four years ago. The economy had been contracting at an annual rate of 11 per cent and unemployment hovered around 20 per cent. The international financial institutions had tried their best to bail out one of their star clients by extending loans of unprecedented levels, which had been denied to more deserving countries. But they had attached stringent conditions.


Protesters against the Fernando de la Rua government clash with the police in Buenos Aires on December 20.

In the past one year, the International Monetary Fund (IMF) helped arrange loans worth $48 billion for Argentina. At the same time the government was forced to adopt more austerity measures to meet IMF/World Bank conditionalities. All this was too much for the people who had undergone years of unremitted suffering. The IMF wanted the government to cut fiscal deficit to zero in 2001. In early December, it warned that it would not release the last crucial tranche of loan worth $1.3 billion, unless the government either devalued the Argentinian currency or made the dollar the country's official currency. In the event, the loan was insufficient to keep the beleaguered government of President Fernando de la Rua from collapsing amid chaos and the government that followed from defaulting on loan repayment.

The last straw for most Argentinians was the government's decision to impose limits on cash withdrawals from banks and the attempt to impose an even harsher budget aimed at restoring the $2.7 billion loans suspended by the IMF and other international agencies. The government desperately needed the money, to avoid defaulting on repayment. Among other things the budget recommended was a further cut in spending by $9.2 billion. Finance Minister Domingo Cavallo, a blue-eyed boy of Western financial institutions, claimed that the austerity measures envisaged in the new budget, such as further cuts in the public sector workforce and a reduction in the salaries of government servants, would help save the economy.

The government even wanted to withhold the traditional Christmas bonus. Most Argentinians had voluntarily accepted large pay cuts. The government was also delaying the payment of pensions. Expenditure in the social sector was sought to be curtailed by 70 per cent.


Adolfo Rodriguez Sua, who took over as Interim President.

Looting and violence engulfed Buenos Aires, the capital, and its suburbs from the middle of December. The police used force and fired rubber bullets at the rampaging mobs. Twenty-seven people lost their lives, most of them in police firing. A few looters were killed by shopkeepers. A Korean whose shop was looted committed suicide.

The first to stepdown was the Finance Minister. He resigned as the rioting spread. President de la Rua tried to hang on to power even as the demonstrations against him intensified. A state of emergency was declared and de la Rua held a lengthy meeting with his predecessor, Carlos Saul Menem, who had recently been acquitted by a court of the charge of gun-running. It was Menem who started the "dollarisation" of the economy. The Argentinian peso was pegged to the dollar and was made freely convertible. He also dismantled the state structures and went on a privatisation spree. Menem, who wants to make a third bid for the presidency, would have liked de la Rua to continue until his term ended. He is constitutionally barred from contesting for another two years.

But almost the whole of society was affected by the economic and political turmoil. A national survey found that 93.8 per cent of the respondents were "experiencing distress, sadness, depression or bitterness due to the socio-economic crisis". It was clear by the end of the year that de la Rua and his Radical Party stood totally isolated. In the third week of December, the President went on television pleading for a government of national unity, but there were no takers. He was left with no choice but to resign, in order to prevent further bloodshed. De la Rua, who had two more years to govern, resigned on December 21 after lifting the state of emergency. The presidential election was in the normal course to be held in 2003.