June 1, 2003

PAKISTAN owed $2.07 billion to the IMF at the end of March, 2003. This represents a sharp rise from $1.55 billion in June, 2000. The power that the IMF exerts on our policy formulation as a result of this immense and increasing indebtedness cannot be underestimated. Almost everyday newspapers report the pressure that the IMF is exerting on Pakistan to make policy decisions that have become a dogma with the IMF, and are recommended to country after country regardless of its particular situation.

Just in the month of May, the IMF linked the disbursal of loans in Pakistan to the privatization of HBL, submission of fiscal responsibility law in parliament, elimination of exemptions from the withholding tax on interest income, and the establishment of formulaic link between the rates of return on GP fund and PIB yield. The IMF has also asked Islamabad to impose 15 per cent GST in the budget of 2003-04 on bricks, cement blocks, computer hardware, software, specific machinery etc.

Predictably, a recent World Bank and IMF Joint Staff Assessment (JSA) report identifies four risks to the implementation of reforms in Pakistan: political opposition to reforms, lack of continuity, insufficient institutional capacity, and exogenous shocks. No mention has been made of the failure of these policies in countries all over the world, from Latin America to South East Asia.

Argentina is a prime example of a country that followed the policy recommendations of the IMF to the letter and now that the country is economically, politically and socially a complete basket case, the IMF has, as in other cases, abdicated all responsibility. We can do no better than to learn from the experience of Argentina to temper our enthusiasm for the IMF and a blind obedience to its dictates.

When Argentina erupted on the international news scene in 2001 for committing the biggest default by a sovereign country on an international loan, corporate media focused on fixing the blame on Argentina.

In reality, Argentina’s case is a particularly good illustration of how a healthy, rich country was devastated under IMF tutelage. Conversely, Argentina today can also be an inspiring example of how ordinary citizens can organize themselves to rise above the problems created for them by local and international elites.

Argentina’s economic and political health was dealt a deathblow not because it did not follow the IMF dictates closely enough, but because it was, indeed, doing everything according to IMF agenda. All through the 1990s, opinion-makers like the Financial Times hailed Argentina as the ‘star pupil’ of the IMF.

The GDP rose by 60 per cent over the decade, and foreign investment poured in. However, this glorious facade hid a crumbling edifice. The wealth flowing into Argentina during the 1990s was a combination of speculative finance and one-off sales: the phone company, the oil company, the post, rails, and airline. Between 1989 and 1999, the national debt rose by $80bn and un-employment soared from 6.5 per cent in 1989 to 20 per cent in 2000. Today, 57 per cent of Argentina’s population lives below the poverty line.

Just before the default and right afterwards as well, mainstream economics machinery pounced on the country for plunging itself into international isolation, a sin beyond redemption as far as the gods of globalization are concerned. The real fear underlying this hysteria was that Argentina might set a bad example for other countries caught in the debt spiral. Other indebted countries could also default, and use default on multilateral debt as a bargaining chip with creditors.

THE FALL OF ARGENTINA: Arguably, the most developed country in Latin America, Argentina had an adult literacy rate of 91 per cent in the 1960s. It has also been, historically, a highly politicized and unionized country. During World War II, the country reaped huge gains from commerce with Allied and Axis powers.

Peron, a left-leaning politician, became president soon afterwards. His politics was laden with nationalist and anti-imperialist demagogy, and although his achievements in office did not match up to the rhetoric, his rule did result in significant gains for the working and middle classes in Argentina. Popular demands not completely satisfied, unrest in the country, however, continued. Ultimately, a military coup in 1976 led to a fierce clampdown. This was a period of immense brutality in which at least 30,000 activists, students, teachers and workers ‘disappeared’.

Argentina’s dictators, instead of being shunned by ‘democratic’ institutions like the IMF, in fact, received massive doses of loans and advice on how to re-organize the economy. In 1977, Rodolfo Walsh, an investigative journalist, published an Open Letter From A Writer to The Military Junta, which became one of the most famous pieces of writing in modern Latin America.

In the letter, Walsh declared that the physical terror and the ‘disappearance’ of dissidents, was not “the greatest suffering inflicted on the Argentinean people, not the worst violation of human rights which you have committed. It is in the economic policy of this government where one discovers not only the explanation of the crimes, but a greater atrocity which punishes millions of human beings through planned misery”.

The crimes he lists include: “Freezing wages with rifle butts while prices rise at bayonet point, abolishing all forms of collective bargaining, prohibiting assemblies and internal commissions, extending working days, raising unemployment, ... an economic policy dictated by the IMF, following a recipe applied indiscriminately in Zaire or Chile, in Uruguay or Indonesia”. Soon after posting copies of his letter, Walsh was shot dead by the police in Buenos Aires.

The generals, in contrast, were rewarded handsomely for their policies. In 1976 and 1977, Argentina received more than $2bn in foreign loans, which was more than the country had received in all of the preceding six years combined.

After the disastrous war in Falklands, it became unsustainable for global finance to support a military dictatorship. The reins of power were handed over to a ruling clique that continued the implementation of IMF-dictated policies. The country’s external debt had increased from $8 billion to $43 billion under the generals. While they were no longer in power, their legacy ensured that the hold of international finance remained firm on Argentinean policy-making.

President Menem, a Peronist, where the insinuated affiliation to a popular regime in the past is just a cover, rather like Bhutto and his daughter in Pakistan, only implemented IMF policies with increased vehemence.

Menem brought in a former banker, Cavallo, to manage the finances of the country. Cavallo followed the directions of the IMF to the letter. Argentina privatized state enterprises (which are now facing bankruptcy), raised interest rates to ward off inflation, cut public-sector salaries by 35 per cent, and then fired 40 per cent of its public employees.

Under President Menem’s rule, class discrepancy increased dramatically. Cavallo, with IMF approval, also imposed fixed parity between dollar and peso, which was to strangle exports. The country entered a recession in the late 1990s. Tens of thousands of firms went bankrupt, leading to mass unemployment. By the time a centre-left president, Fernando de la Rua, was elected in October, 1999, democracy was a charade in this neoliberal show state, ruled by an extremely corrupt government.

In March, 2001, the parliament gave Cavallo special powers, and in July a zero-deficit law was passed. Among other measures, civil service salaries and some pensions were further reduced by 13 per cent; and the draft budget for 2002 proposed to cut spending by 18.6 per cent, $9.2bn less than in 2001. With all these changes, the country was IMF’s prize disciple, with 90 per cent of its banks and 40 per cent of its industry in the hands of international capital.

By this time, Argentina’s external debt stood at $132bn in 2001, and the $40bn that the state collected from privatization had ‘disappeared’. Unemployment had risen to 20 per cent, the number of people in extreme poverty from 200,000 to five million, those in poverty from one million to 14 million, and illiteracy from two per cent to 12 per cent. Purchasing power had almost halved in the five years leading to 2001.

THE LAST STRAW: The final blow was the government’s decision in December, 2001, to limit all bank withdrawals to $250 per week in a country where most salaries are deposited and credit cards carry 30 per cent interest rates. Under increasing international pressure to service the external debt, the government’s move was supposedly intended “to stem the haemorrhage of capital”. The average Argentinean was not to take out more than $250 a week in cash, although more than $136bn had been taken out of the country by the big national and international speculators, the ruling elite.

This move hurt the newly impoverished middle class the most. Small and medium sized businesses could not access their accounts to meet business transactions. Millions among the salaried middle class struggled to buy even food. The strains of this hollowed out economy ultimately led not just the working class, but the increasingly impoverished middle class to take to the streets.

This so-called Argentinazo was a spontaneous outpouring of the people, not organized by any of the main political parties. People just left their homes to gather in the capital, banging pots and pans, or to block highways refusing to go to government officials to negotiate, asking instead for the government to come to them. This started on December 19, 2001. Within the next 12 days, the country went through five presidents, and defaulted on $95bn of its debt, the largest default in history.

IMF’s star pupil: Anoop Singh, the IMF Director of Special Operations, heading the delegation to Argentina, declared in April, 2002: “In our view, failures in fiscal policy constitute the root cause of the current crisis.”

However, a review of Argentina’s economic data shows that the crisis, in fact, could not have been caused by the fiscal policy. Inherent in IMF’s declaration is the view that the government should not have increased public spending, which is exactly what Argentina had done. Not only had public spending not been increased, it had actually been scaled down between 1993 and 2002. The only increase in government spending had been on interest payments on loans.

In reality, the crisis was rooted in many of the policies that the Argentinean government had followed on the recommendation of the IMF, including pegging the peso to the US dollar, which made Argentinean exports uncompetitive, and lifting barriers to capital flow.

The IMF contends that policy decisions are made by the governments of client countries, and are not its responsibility. This argument completely ignores the fact that the IMF actively pressurizes governments into policy directions through threats of loan recalls and such other things. We can see clearly in the pattern of negotiations between the IMF and Argentina’s government since 2002 that the IMF does, and did, refuse to allocate new loans, or even provide instalments of previously agreed loans, unless Argentina agreed to introduce new policies, which included re-writing its laws to interpret the constitution.

The power that IMF exerts stems not just from the loans that it can dole out, but also because of its close relationship with the US Treasury Department, and its role as the head of a creditors’ cartel that can deny any developing country access to sources of credit.

It is assumed that if the IMF is willing to invest in a country, other private investors will also follow suit. Finally, the sister organization, World Bank, is the carrot attached to IMF’s stick. The World Bank withheld previously approved $700 million in loans for social programmes from Argentina until it agreed to IMF’s new conditionalities after the default.

Many economists have argued that Argentina had a good chance of stabilizing its economy without assistance from the IMF. The country had in 2002 a sizeable balance of credit due to massive shrinkage in imports. The devaluation of peso had made their exports more competitive, and the country could invest its surplus in public works to reduce unemployment. Once the economy had started to recover, foreign investment would have flown in since investors no longer needed to fear a breakdown. In fact, this is precisely what the US government itself has done in recent recessionary times.

However, to make this a reality, the government needed to stem the flow of capital outflow, which would have meant some kind of currency control. This was in direct conflict with the IMF’s dogma, which places financial deregulation at a high priority. This means, in fact, that the so-called assistance from the IMF, given its terms and conditions, is likely to slow or even negate the recovery that Argentina is capable of.

LIFE AFTER THE DEFAULT: More significant than Argentina’s decision to repudiate the IMF, to whose fold its hapless politicians are moving again, and its ability to get some debt written off, are the changes going on in society that are likely to have a much longer lasting influence.

As middle class Argentineans lost their purchasing power and their illusions about growth in an economy at the mercy of international capital, the search for alternatives intensified. Argentineans have started re-organizing from the smallest scale. Asambleas barriales, or neighbourhood meetings, take place as frequently as every two days or every week, not just in working class areas, but also in middle class localities.

These meetings discuss everything from how to run the collective kitchen, to what the effect of years of de-politicization has been. Most significantly, a generation of young activists has been politicized almost by necessity. A vibrant underground barter economy is also flourishing in neighbourhood markets where people are allocated credits for goods and services they can provide. The paucity of resources available to these millions in poverty is alleviated by their creativity and spirit of solidarity.

The movement of the unemployed workers, called piquesteros, is gaining momentum. Workers have taken over several businesses that went bankrupt during the current crisis, and are themselves managing them. Often the items produced are bartered for other goods or services. They are finding larger and larger networks to barter with.

By 2002, around 150 factories had been taken over by their workers and turned into cooperatives or collectives. These include tractor plants, supermarkets, printing houses, aluminium factories and pizza parlours. Decisions about company policy are made in open assemblies, and profits are split equally among the workers.

In recent months, the fabricas tomadas (taken factories) have begun to network among themselves and are beginning to plan an informal ‘solidarity economy’. For instance, garment workers from an ‘occupied’ factory, sew sheets for an ‘occupied’ health clinic; a supermarket in Rosario, turned into a workers’ cooperative, sells pasta from an ‘occupied’ pasta factory.

Most neighbourhood assemblies and the various small-scale political groups decided not to participate in the elections that concluded on May 18, with the appointment of Nestor Kirchner, a relatively unknown governor with links to previous regime, as President. It is important to realize that unless the Asambleas barriales and the piquesteros do not form a cohesive front at the political level, their potential for radical change will remain limited. The government has increased the violent crushing of the piquesteros recently.

THE RELEVANCE OF THE ARGENTINA’S EXPERIENCE: The Argentinean citizens — or Pakistanis, for that matter — are not unique in having military/civilian dictatorships imposed upon them, which are then sustained by massive doses of international loans.

Around the world, this recursive relationship between dictators and global capital serves the purpose of enslaving people through increased indebtedness while forcing them to open up their markets for increasing the profits of large multinationals through threats of loan recalls etc.

The insecurity of dictators and their need to silence all opposition is a well-calculated advantage in this relationship to international capital. An added advantage is that once the dictators have been deposed, the people of that country remain indebted as the loans were taken in their name, regardless of the fact that beyond lining the pockets of the ruling junta, these loans served little developmental purpose.

As the IMF imposes devastating demands for the privatization of public resources that will increase social polarization, our government only responds with pleas for patience. The IMF pushes through the sale of HBL, and the only resistance the Pakistani government can offer is that the process cannot be completed within the deadline specified by the IMF, that is June 30. At the same time, we are told that the government is set to increase the budget for ‘law and order’.

The increased violence in our society is a direct result of the incredible polarization that has gone on, as schools, hospitals, two square meals and the prospect of employment have moved out of the reach of an increasing number of Pakistanis. The service that our public hospitals and schools provide in spite of a pitiful budget allocation, barely five per cent for health and education combined, is remarkable (51 per cent of our budget is used to service loans).

We can only imagine how much better the system could be with adequate funding. Throwing more people in jails, and more policemen on the streets is likely to only increase the magnitude of the problem.

Delia Garcilazo de Rmos, whose son was killed by prison guards 10 years ago, is now involved with the piquesteros. She reflects, “Police repression and low salary are forms of having social control. When the people ask for things in a blockade or in a march, and there is a kid who breaks a window, we are violent. But I ask, what is more violent; a youth dying of starvation, a kid being shot from behind, or if we break a window? A window is a material thing, you can fix it. Life, you can’t ever get back.”

Please Visit our Sponsor (Ads open in separate window)