[News] Argentina’s New $50 Billion IMF Loan is Designed to Repay Its 2001 Crisis

[Anti-Imperialist News]

counterpunch.org 
<https://www.counterpunch.org/2018/07/27/argentinas-new-50-billion-imf-loan-is-designed-to-replay-its-2001-crisis/> 



  Argentina’s New $50 Billion IMF Loan is Designed to Repay Its 2001 Crisis

by Michael Hudson - Sharmini Peries 
<https://www.counterpunch.org/author/llellelcl3l3l4l/> - July 27, 2018
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/
The recently elected neoliberal government of Mauricio Macri has decided 
to seek a $50 billion IMF credit line, which will only enable more 
capital flight for the upper class and greater unpayable debt for the 
rest of the population, says the economist Michael Hudson./

/SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries, 
coming to you from Baltimore./

/For several months now, Argentines have been taking to the streets to 
protest against neoliberal austerity measures of President Mauricio 
Macri. The most recent such protest took place on July 9 on Argentine’s 
Independence Day. There have also been three general strikes thus far. 
In the two years since he took office, President Macri has laid off as 
many as 76,000 public sector workers, and slashed gas and water and 
electricity subsidies, leading to a tenfold increase in prices in some 
cases./

/The government argues that all this is necessary in order to stem 
inflation and the decline of the currency’s value. Last month, Macri 
received the backing of the International Monetary Fund. The IMF agreed 
to provide Argentina with a $50 billion loan, one of the largest in its 
history. In exchange, the Macri government will deepen the austerity 
measures already in place./

/Joining me now to analyze Argentina’s economic situation and its new 
IMF loan is Michael Hudson. Michael is a distinguished research 
professor of economics at the University of Missouri Kansas City. 
Welcome back, Michael./

MICHAEL HUDSON: Good to be back, Sharmini.

/SHARMINI PERIES: Michael, why is it that Argentina needs such a huge 
credit line from the IMF?/

MICHAEL HUDSON: For precisely the reason that you explained. Its 
neoliberal policy aims at rolling back the wage increases and employment 
that Mrs. Kirschner, the former president, achieved. So it’s part of the 
class war to shrink the economy. To lower wages, you have to cut back 
business so as to cut back employment. Like almost all IMF loans, the 
purpose is to subsidize capital flight out of Argentina before this 
austerity occurs, so that wealthy Argentinians can take their money and 
run before the currency collapses.

The loan will indebt Argentina so much that its currency will continue 
to go down and down, chronically wrecking the economy. That’s what the 
IMF does. That’s its business plan. It makes a loan to subsidize capital 
flight, emptying out the economy of cash, leading the currency to 
collapse, as it has recently collapsed. As soon as the $50 billion was 
expended, wasted in letting wealthy Argentinians take their pesos, 
convert them into dollars, move them offshore – to the United States, to 
England, to the Dutch West Indies, and offshore banking centers – then 
they let the currency collapse.

The IMF model’s basic assumption, which it’s announced for the last 50 
years, is that when you depreciate a currency, what you’re really 
lowering is the price of labor. Raw materials and capital have an 
international price. But when a currency goes down, it makes imports 
much more expensive, and that causes a price umbrella over the cost of 
living. Labor has to pay a higher domestic price for grain, food, oil 
and gas, andfor everything else.

So what Macri has done is to agree with the IMF to wage class war with a 
vengeance. Devaluation leaves Argentina so hopelessly indebted that it 
can’t possibly repay the IMF loan. So what we’re seeing is a replay of 
what happened in 2001.

/SHARMINI PERIES: Exactly. I was going to ask you, now, that was only 17 
years ago, Michael. Argentinians do have memory here. They know what 
happened. They experienced it as well. Now, that was back in 2001 during 
the economic crisis when unemployment had increased so dramatically. 
That country went through a series of presidents and went through a 
series of crises. And we saw images very similar to what we have seen 
in, in Greece not too long ago. Now, tell us more about that history. 
What exactly happened during that crisis, and then eventually how did 
Nestor Kirschner relieve the economy and come out of that crisis?/

MICHAEL HUDSON: Well, the IMF staff said, “Don’t make the loan. There’s 
no possible way Argentina can pay it. It’s all going to be made to the 
oligarchy for capital flight. You’re giving the IMF money for crooks, 
and you’re expecting the Argentine people to have to pay.” So Argentina 
very quickly was left broke.

Although that was 17 years ago, for the last 17 years the IMF has had a 
slogan: “No more Argentinas.” In other words, they said, they were never 
going to make a loan that is only given to oligarchs for capital flight. 
That’s what happened when it lent to Ukraine, to the Russian 
kleptocrats, and to the Greek banks to move offshore. Yet here again, 
we’re having a replay.

After Mrs. Kirschner came in, it was obvious to everybody, as it had 
been to the IMF staff (many of whom had resigned) that Argentina 
couldn’t pay. So about 80 percent of Argentina’s bondholders agreed to 
write down the debt to something that /could/be paid. They saw that 
either it’s a total default because they can’t pay, or they would write 
it down very substantially to what could be paid, because the IMF really 
made an incompetent – not incompetent, but outright corrupt – insider deal.

Unfortunately, the oligarchy had a fatal clause put in the original bond 
issue, saying that Argentina would agree to U.S. arbitration under U.S. 
law if there was any dispute. Well, after the old Argentine bonds 
depreciated in price – the bonds that were not renegotiated as part of 
the 80 percent – you had vulture funds buy them up. Especially Paul 
Singer, the Republican campaign donor who tends to buy politicians along 
with foreign government bonds. He sued, demanding 100 percent on the 
dollar, not the 40 cents or whatever they’d settled for. The case was 
assigned to the senile, dying Judge Griesa in New York City. He who said 
there was something about a clause that said investors have to be 
treated symmetrically. Argentina had said, “That’s fine, we’ll pay the 
other 20 percent the same as what the 80 percent of all agreed to. The 
majority rules.” But Griesa said, “No, you have to pay the 80 percent 
all the money that the 20 percent demands. That’s symmetry.” He let the 
hedge funds win. That set Argentina on the road to go bankrupt again, 
wreck the government, and bring back the oligarchy.

That ruling caused turmoil. The United States State Department set out 
to support the oligarchy by doing everything it could to destabilize 
Argentina. The Argentine people voted in a government that was supported 
by the United States, hoping it would be nice to them. I don’t know why 
foreign countries think that way, but they thought maybe if they voted 
neoliberal, the United States would agree to forgive some of its debt.

Well, that’s not what neoliberals do. Macri did just what you said at 
the beginning of the program. He announced that he was going to cut 
employment, stop inflation by making the working class bear all of the 
costs, and would borrow – actually, it was the largest loan in IMF 
history – the $50 billion to enable the Argentine wealthy class to move 
its money offshore. That’s what the IMF does.

/SHARMINI PERIES: Right. So let’s imagine you are given the opportunity 
to resolve this issue. How would you advise the Argentine government in 
terms of what can they do to stabilize the economy, given the 
circumstances they’re facing right now?/

MICHAEL HUDSON: Very simple. I’d say that this debt is an Odious Debt. 
There is no way Argentina can pay. The clause that bankrupted it was put 
in as a result of tens of thousands of professors, labor leaders, and 
land reformers having been assassinated. The United States financed an 
assassination team throughout Latin America after Pinochet in Chile, to 
support what was basically a proxy government. The Argentine loan said 
it would follow U.S. rules, not Argentine rules. That basically should 
disqualify that debt from having to be paid. And it should say the IMF 
debt is an odious debt, given under fraudulent purposes solely for 
purposes of capital flight.

/SHARMINI PERIES: Now, Michael, just one last question. Did you want to 
add something to what you were saying?/

MICHAEL HUDSON: Well, once it doesn’t pay the foreign debt, its balance 
of payments will be more stable. But creditors have always used violence 
in order to get their way. I don’t see how the Argentina situation can 
be solved without violence, because the creditors are using police force 
and covert assassination. They’re just as bad as the Dirty War that had 
that mass assassination period in the late, into the late 1980s and 
early ’90s. There’s obviously going to be not only the demonstrations 
that you showed, but an outright war, because it’s broken out in 
Argentina more drastically than anywhere else right now in Latin 
America, except in Venezuela.

/SHARMINI PERIES: Michael, at the moment, the Fed is gradually 
increasing interest rates and the dollar is gaining in value. This is 
sucking the financial capital not only in Argentina but in many places 
around the world. Also, you know, they’re going to be soon in crisis as 
well. What is, what can the developing economies do?/

MICHAEL HUDSON: Here’s the problem: When the United States raises 
interest rates, that causes foreign money to flow into the dollar, 
because the rest of the world, Europe and other areas are keeping low 
interest rates. So as money goes into the dollar, to take advantage of 
the rising interest rates, the dollar rises. That makes it necessary for 
Argentina or any other country, third world country, to pay more and 
more pesos in order to buy the dollars to pay that foreign debt.

Argentina and other Third World countries have violated the prime rule 
of credit: never to denominate debt in another currency that you can’t 
print. Now, the dollar debts become much more expensive in peso terms. 
As a result, throughout the world right now, you’re having a collapse of 
bond prices of Third World debt. Argentine bonds, Chilean bonds, African 
bonds, Near Eastern bonds. Third World debt bonds are plunging, because 
the investors realize that the countries can’t pay. The game looks like 
it may be over.

The good side of this is that Argentina now can join with other Third 
World countries and say, “We are going to redenominate the debts in our 
own currency, or we just won’t pay, or we will do what the world did in 
1931 and announce a moratorium on intergovernmental debts for German 
reparations and the World War I Inter-Ally debts.” An international 
conference is needed to declare a moratorium and say, what is the amount 
that actually /can/be paid? The aim would be to write down third world 
debts to the amount that should be paid.

The principle that countries have to support is that no country should 
be obliged to sacrifice its own economy, its own employment, and its own 
independence to pay foreign creditors. Every country has a right to put 
its own citizens first and its own economy first before foreign 
creditors, especially when the loans are made under false pretenses, as 
the IMF has made pretending to stabilize the currency instead of 
subsidizing capital flight to /destabilize /the currency.

/SHARMINI PERIES: All right, Michael. I thank you so much. And we’ll 
continue this conversation. There’s so much more to discuss, and so many 
countries here in this situation for that discussion as well. I thank 
you so much for joining us today./

MICHAEL HUDSON: Thanks. I think it’s going to get worse, so we’ll have a 
lot to discuss.

/This is an edited transcript of an interview on the Real News Network 
<https://therealnews.com/stories/michael-hudson-argentinas-new-50-billion-imf-loan-is-designed-to-replay-its-2001-crisis>./

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