Argentine President Bows to IMF and Banks

On May 30, 2002, the Argentine senate voted to repeal the 1974 economic subversion law criminalising bad business decisions and capital flight in an effort to meet conditions set by the International Monetary Fund (IMF) for issuing new loans to the debt-ridden nation. Senate President Juan Carlos Maqueda broke a 34-34 tie to pass the repeal after weeks of procrastination. Charges pending under the law against several bankers – including one currently in jail – will now be dropped.

Those in support of the removal of the law said other existing laws were adequate to protect the bankrupt country against financial crimes. The opposition had argued that the repeal of the economic subversion law would see an immediate halt to all investigations, as well as amnesty and impunity, for the bankers under prosecution.

Of the many demands made by the IMF for renewed aid to Argentina, three had generated particular controversy and resistance from Argentine commentators, politicians and the public: changes in the bankruptcy law, a repeal of the law of economic subversion, and demands for a reduction of state spending in the provinces.

It is feared that these conditions would only deepen the country’s recession, which is already expected to shrink the economy by more than 10 percent this year, increasing an already acute employment problem and provoking further social unrest. Also the state remains the biggest employer in many of Argentina’s poorest provinces, and drastic cuts in provincial budgets could have a devastating effect. In fact, during the recent heated legislative debate on the bankruptcy and economic subversion laws, one legislator, Alicia Castro, raised the U.S. flag and said, “If you are going to pass these laws, you might as well take down the Argentine flag and put this one up instead.”

However, Argentine President Eduardo Duhalde, who began his term with populist rhetoric about creating jobs and curbing the power of the banks, spoke of going to the IMF “with lowered head.” On April 26, Duhalde announced the selection of Roberto Lavagna, the country’s ambassador to the European Union and a former trade minister, as his new economic minister, the sixth to occupy the post in a little more than a year. Lavagna is known as a champion of “free market” economic policies and an advocate of the austerity prescriptions laid down by the IMF.

The multilateral institution was against the economic subversion law because it could be used to prosecute bankers. The law was used by Argentine investigators to go after banks like Citibank who they claimed had illegally transferred large amounts of money out of the country, triggering last year’s economic collapse and wiping out the savings of thousands of middle and low income people when banks froze their accounts. Argentina’s Federal Police had begun an investigation into charges that the US-based Bank of Boston and Citibank had carried out massive and illegal looting of deposits from its Argentine branches. According to the charges made, the banks had organised the loading of some $26 billion in cash on to trucks that were taken to the Ezeiza international airport and then flown to the US just before the then-president Fernando de la Rua announced the corralito withdrawal restrictions on December 3, 2001.

The IMF, whose most important member is the US, was emphatic that the economic subversion law must be repealed, leading to the heated debate in the Argentine legislature and the huge public protests across the country. The change in law is likely to bail out business and banks accused of playing a role in the veritable stampede of financial capital from the country at the end of last year.

Similarly, changes in the bankruptcy law, which have been approved by Argentina’s legislative bodies, will facilitate a process known as “cram-down”, which will make it easier for foreign creditor companies to take over bankrupt national companies, including the company’s capital assets. This has added to a general fear of loss of national sovereignty. For a country that once prided itself on being the most industrialised in the region, there is virtually no viable national industry left in Argentina, since only a few public companies have survived the large-scale privatisation of industry.

Moreover, cutbacks in provincial government spending that the IMF has prescribed have raised concerns that this would lead to a loss of an additional 500,000 jobs in an already recession-wracked economy. However, most provincial governments have already agreed to the IMF demands, with the notable exception of Governor Felipe Sola of the province of Buenos Aires, who had called the IMF’s demands unrealistic. “I don’t know if I can even pay next month’s state salaries,” he has said.

The demand of the IMF clearly showed that it places the interests of international bankers, even those involved in criminal activities, above those of Argentine citizens affected by the financial and economic crisis. But even this capitulation by the Argentine government is not likely to bring much relief in terms of improved prospects for growth and investment if the basic IMF paradigm continues to be followed.

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