ECONOMY-ARGENTINA: The Social Debt Will Have to Wait

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Dec 16 2005 (IPS) - Argentina’s announcement that it will pay off the International Monetary Fund (IMF) earlier than scheduled, following Brazil’s lead, was seen as a historic move. But some analysts doubt that the enormous financial effort will actually lead to progress in resolving the country’s severe social problems.

Opponents on both the right and the left criticised, although on the basis of different arguments, the decision announced Thursday by the centre-left government of Néstor Kirchner.

Earlier this year, Argentina already completed a debt restructuring programme in which private holders of Treasury bonds lost a large proportion of their investment.

Economic analysts are divided in their opinions on the latest move, with some expressing doubts as to the economic and social impact of the unexpected decision, and others stressing the fact that the Kirchner administration will thus escape the conditions imposed by the multilateral lender.

Economist Claudio Lozano, a lawmaker with the leftist Fuerza Porteña alliance and adviser to the Central de Trabajadores Argentinos trade union confederation, told IPS that despite the apparently progressive nature of the move, the spirit of the decision reached by both Argentina and Brazil this week is actually much more in line with the demands of the IMF than what the governments are trying to make it look like.

While some social organisations that support the Kirchner administration applauded the decision to pay off the 9.8 billion dollars that Argentina owes the IMF, groups opposed to the government said the decision had the go-ahead from the multilateral financial institution and transnational corporations.

“The announcement shows that we are right when we argue that Argentina has economic resources that could be used to pay off the internal social debt,” said a communiqué released Friday by the “Autoconvocatoria No al ALCA” (No to the FTAA), an umbrella group of political, social, religious and human rights organisations opposed to the U.S.-sponsored Free Trade Area of the Americas (FTAA).

The Darío Santillán Popular Front, which groups dozens of organisations of unemployed workers, also criticised Kirchner’s plan. “Despite the progressive rhetoric, the debt is paid off with the hunger of the people,” the Front said in a statement Friday.

But economist Alejandro Vanoli, one of the authors of the Plan Fénix – a programme of reforms proposed by a group of prominent University of Buenos Aires academics – described the decision as “positive, because it brings to a close a three-decade cycle in which the IMF played an important role in terms of sharing responsibility for the country’s indebtedness.”

But the economist also warned that it is necessary “to dig ourselves out of the social debt as well, which is as important as the foreign debt.”

When he made his announcement Thursday, Kirchner thanked presidents Luiz Inácio Lula da Silva of Brazil and Hugo Chávez of Venezuela for supporting the decision, thus revealing some degree of coordination of policies on the issue in the Mercosur (Southern Common Market) trade bloc, also made up of Paraguay and Uruguay.

Last Tuesday, the Brazilian government made its own announcement that it planned to pay off, by the end of the year, the 15.5 billion dollars it owes the IMF, by drawing on its foreign reserves. Argentina will do the same.

But by contrast to the heavily attended press conference held in Argentina, the Brazilian announcement was made quietly, through a statement by the Finance Ministry, which said that the decision was reached with the aim of strengthening the country’s macroeconomic fundamentals.

Only Central Bank President Henrique Meirelles publicly celebrated the “historic moment.”

Former Brazilian Central Bank director Carlos Thadeu de Freitas told IPS Friday that “it was a wise decision, an efficient way to use the reserves and reduce the debt.”

He also said that “paying off the IMF leaves us entirely free of the conditions imposed by an accord (with the multilateral lender) and generates a strong image among foreign investors.”

Kichner said the decision to pay off the IMF “will allow us to build a more just future, with greater flexibility in the design and implementation of economic policies, while freeing up resources to better tackle the struggle for growth, employment and social inclusion.”

The debt to the IMF “was a constant vehicle for meddling, because it is subject to periodic reviews and was the source of requirements that contradicted each other and were opposed to the objective of sustainable development,” said the president, stating that paying off the debt would allow the country to save 1.1 billion dollars a year in interest payments up to 2008, which was the original deadline.

Nevertheless, there are many sectors that are not convinced by these arguments. Social movements and progressive economists are sceptical that the decision to pay off the IMF will translate into abandoning all of its economic policy recommendations.

“In the 1990s they told us that after economic growth had been achieved, the wealth would trickle down, and now they’re telling us that after we get out from under the IMF, there will be better distribution of income, but we know it isn’t true,” Laura Cibelli of the Darío Santillán Popular Front told IPS.

This organisation of “piqueteros” – unemployed workers who protest by mounting roadblocks or “piquetes” – points out that according to official statistics, there are almost eight million Argentine children living in poverty, of whom three and a half million are undernourished. There are also 1.8 million unemployed heads of households living on meagre state subsidies.

Nevertheless, the budget guidelines for 2006 that the executive branch submitted to Congress do not foresee any substantial changes to confront this dramatic situation, said Cibelli.

But according to an article published Friday in the Buenos Aires newspaper Página 12, Vanoli stated that Central Bank reserves are never used to attend to social demands, which is why “one decision should not necessarily be judged in accordance with the other.”

“This decision is a historical landmark,” declared the Plan Fénix expert, “and the next challenge is to pay off another debt, the social debt, because if the political will exists it can be done, and it is being demonstrated that it does exist.”

Lozano responded to this kind of optimism by commenting that “placing priority on making payments to the multilateral lending organisations and paying off the IMF debt, without demanding any compensation for their shared responsibility in the process of indebtedness, is a strategy that fully complies with the demands of the IMF itself, and in fact, the announcement was celebrated by its directors.”

He also questioned whether the decision would really give the government greater freedom when it comes to confronting problems like inequality, unemployment, poverty and extreme poverty. And in his view, this will most likely not be the case, at least in the medium term.

Minutes before Kirchner announced the decision at a ceremony in the presidential palace attended by numerous guests, Lozano put forward a motion in Congress for a discussion on how to redirect the funds allocated in the 2006 budget for payments to the IMF totalling 5.08 billion dollars.

Given the decision for the early settlement of the IMF debt, the legislator stressed to his colleagues that the money earmarked for this purpose in the federal budget would be left unaccounted for if the decision were made to pay off the debt with reserve funds, and that now is the time to discuss how it will be spent instead.

The chairman of the lower house budget committee, Carlos Snopek, clarified that this money would not be used for attending to social problems, but would instead be used to start up a fund that the government wants to create to guarantee the payment of debts to private creditors.

The piqueteros emphasised that the draft 2006 budget, which had already passed through one house of Congress the previous day, just as the debt payment announcement was about to be made, does not establish increases in pensions or salaries for public employees, and grants priority to accumulating surpluses to pay off debt commitments “that the people did not contract.”

Lozano also questioned why the government has chosen to use freely available reserves exclusively to pay off the debt to the IMF without consulting other branches of the state, which could recommend that the funds be used for other purposes, more closely related to still pending internal social needs.