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How IMF policies led to disaster

By Lee Sustar | January 11, 2002 | Page 7

"OVER THE last two decades, IMF strictures have led to a great deal of suffering and hardship in the daily life of ordinary people in many countries around the world…In the wake of the Argentine debacle, it's time for a serious reconsideration of the IMF and its loan policies."

For months, global justice activists have been savaged for making such statements. Protesting the International Monetary Fund and its controllers in Washington, they were told, simply played into the hands of "terrorists" following September 11.

But this criticism of the IMF comes from the mainstream media itself--a December 28 editorial in the Bergen News-Record in northern New Jersey.

Whatever credibility the IMF had left has been destroyed. After all, its usual excuse for devastating crises and grinding poverty--that governments in developing countries won't follow free-market, or "neoliberal," policies of deregulation, privatization and labor "flexibility"--doesn't apply in Argentina. The Argentine government did all of those things--exactly as prescribed.

The country even pegged its currency, the peso, to the dollar in a one-to-one relationship in 1991. "Argentina had become the IMF's star pupil," the Financial Times recalled last week.

Apologists for the IMF point out that the Argentine economy boomed at first after the peso and dollar were pegged together, growing at the second-fastest rate in the world after China in the early 1990s. But they usually leave out the fact that the Peronist government of Carlos Menem used wholesale privatization, big job cuts and repression of strikers and the landless rural poor to deliver growth.

What's more, Argentina's growth in the early 1990s was fueled by massive borrowing from foreign investors. But when a financial crisis hit East Asia in 1997 and began spreading around the globe, this economic lifeline turned into a noose as investors fled developing countries. They wanted out of Argentina--and they wanted their money back in dollars.

Argentina's neighbor and top trading partner, Brazil, dealt with the crisis by devaluing its currency, which made its exports cheaper and eased its debt burden. But Argentina, under pressure from the IMF and the Clinton White House, kept the peso tied to the dollar, which was then increasing in value. As a result, Argentina's exports evaporated, with devastating economic consequences.

The IMF agreed to provide new loans--as long as the government of President Fernando de la Rúa agreed to another round of austerity measures. Last July, de la Rúa passed a law to wipe out government budget deficits and slashed state employees' pay and pensions by up to 13 percent. Meanwhile, banks demanded interest rates of up to 90 percent on dollar-dominated loans--which led to a collapse in industrial production and mass layoffs. Unemployment rose to nearly 20 percent, and even large sections of the middle class sank into poverty.

But this wasn't enough for Argentina to pay its foreign debt--which reached $132 billion last year. So the IMF provided two new "bailout" loans last year totaling $48 billion. But as usual, the money didn't go to working people suffering from the crisis.

"Little of the bailout money escapes New York, where it lingers to pay interest to U.S. creditors holding the debt, big fish like Citibank and little biters like Steve Hanke," journalist Greg Palast wrote last August. "Hanke is president of Toronto Trust Argentina, an 'emerging market fund' which loaded up 100 percent on Argentine bonds during the last currency panic, in 1995. Cry not for Steve, Argentina. His annual return that year of 79.25 percent put the speculator's trust at the top of the speculation league table. This year, he'll do it again."

Incredibly, IMF officials demanded still more austerity--even as the economy unraveled. When De la Rúa and his economic policy chief, Domingo Cavallo, backed off a plan to freeze bank accounts, the IMF withheld $1.3 billion in aid as punishment.

Spurred on, de la Rúa and Cavallo tried to seize pensions and turn them into securities to be sold on the market--and proposed a staggering 20 percent cut in the government budget. The IMF cheered them on--until the mass uprising last month that forced them out.

"IMF officials--like medieval doctors who insisted on bleeding their patients, and repeated the procedure when the bleeding made them sicker--prescribed austerity and still more austerity, right to the end," wrote New York Times columnist Paul Krugman.

The new Peronist government of President Eduardo Duhalde has suspended repayments on Argentina's debt. But Duhalde's planned devaluation of the country's currency will drastically reduce savings and income for millions of working people. This isn't surprising. It was the Peronists who put Argentina into the IMF's death grip in the first place.

The hope for Argentine workers lies in rejecting the free market--and the misery and suffering imposed by the IMF.

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