IT seemed like a collective moan could be heard across Argentina as President Mauricio Macri uttered three words that many in this country associate with the worst of times: International Monetary Fund.

Macri surprised Argentina by announcing this week that he will seek a financing deal with the IMF following a sharp devaluation of its currency and a tough global outlook. The move has brought back bad memories for Argentines who blame the IMF for encouraging free-market policies that led to the country’s worst economic crisis in 2001.

The crisis 17 years ago resulted in one of every five Argentines being jobless, millions sliding into poverty and some reporting going hungry. The peso, which had been tied to the dollar, lost nearly 70 per cent of its value.

Banks froze deposits and put up sheet metal barricades as thousands of protesters unsuccessfully tried to withdraw savings. At least 27 people died in protests and looting in December 2001 as South America’s second-largest economy unravelled.

Blame has been heaped since then on the IMF for its role in Argentina’s debt default of more than $100 billion.

The crisis 17 years ago resulted in one of every five Argentines being jobless, millions sliding into poverty and some reporting going hungry

In a nationally televised address, Macri said he had begun talks with the IMF as a way to combat economic woes at home and a complex situation worldwide, including rising interest rates, higher oil prices and a depreciation of emerging market currencies. A week earlier, the Argentine peso hit a historic low against the US dollar and prices for Argentina’s bonds sank.

Still, the decision to reach out to the IMF for loans to shore up government reserves and dampen currency pressures caught many off guard. Just a year ago, Argentina was still a darling among investors.

What happened? “There was a lot of optimism and financial markets were looking for any kind of yield anywhere. And any country which looked on the right path, and Argentina certainly did, was attracting a lot of attention and money,” said Monica de Bolle, senior fellow at the Peterson Institute for International Economics.

She said that after Macri took office in 2015, he was able to accomplish a lot quickly. He resolved a longstanding legal dispute with creditors that returned Argentina to the global credit markets for the first time since its record default during the 2001 disaster.

He removed currency controls and other economic distortions, and he ordered the government to publish credible statistics, which had been disputed by the IMF and local analysts under his predecessors.

Macri’s government said from the start that gradual austerity measures were needed to revive Argentina’s struggling economy. He cut red tape and tried to reduce the government’s budget deficit by ordering job cuts and cutting utility subsidies, which sparked labour unrest.

When his Cambiemos (Let’s Change) coalition scored a triumph in the midterm elections, Macri said he would seek even deeper changes in tax and labour rules. But Argentines continued to lose purchasing power from high inflation and many were frustrated with rises in fuel and transportation costs.

Meanwhile, the peso slumped against the dollar as rising US interest rates lured investors to pull money out of Argentina and put it in the US. That caused jitters among Argentines, who are used to stashing away dollars as a cushion since the 2001 crisis. Macri’s government was forced to impose three interest rate hikes and tighten the fiscal deficit target.

But for many Argentines, it spells the contrary. A local TV channel ran a banner this week reading: “Back to the future.” In Congress, opposition lawmakers protested by putting large signs on their desks proclaiming: “Out with the IMF!”

The international lender has admitted that it had a made a string of mistakes that contributed to Argentina’s economic implosion.

Without further IMF support, the government was forced to declare the largest sovereign debt default in history.

Many Argentines still blame the IMF for permissive and heavy lending that led to devaluation of the peso and the debt default.

“It’s very sad,” said Soledad Patane, 29, a university student in Buenos Aires. “What they do is indebt a country until that country can no longer pay the debt and it becomes an indirect colony of those countries that continue to lend us money.”

De Bolle, who worked at the IMF in the early 2000s, finds such sentiments understandable, but she says the international lender has changed radically since Argentina’s crisis. —AP

Published in Dawn, The Business and Finance Weekly, May 14th, 2018