Argentina: The Problem is Not the Debt

by Juan Kornblihtt.

Editor’s note:  We were sent the following article by the Argentine organization Razón y Revolución (Reason and Revolution), which published it January 21, 2010. We enjoyed extensive discussions with RyR’s Marxist scholar-activists last December, when Andrew Kliman spoke at their Buenos Aires conference. Our translation of this article is by Carlos Saracino. The notes are his and the editor’s.

The accumulation of capital in Argentina is in crisis. The government and the opposition quarrel, but they have the same economic program: a return to the indebtedness cycle of the 1990s.

The dispute between the government and the opposition party over the so-called Bicentenary Fund and where the money is going to come from to pay off the debt, reveals that the policy and interests of both parties are in agreement. The only distinction between them is tactical. Both the government and the opposition agree on returning to the indebtedness cycle of the 1990s. The difference is that the government aspires to imitate [Carlos] Menem and [José Alfredo] Martinez de Hoz, but without ending up like Raúl Alfonsín or Celestino Rodrigo.1 As far as it is concerned, the opposition wishes to be Menem starting in 2011, but wants the government to institute the adjustment prior to that date (that is to say, they want the government to assume the role of scapegoat). Both parties to the dispute agree on taking on more debt and on favoring foreign lenders and domestic firms at the expense of the workers, who will bear the burden of the consequences of this policy.

From Resolution 125 and Nationalization of the Retirement and Pension Funds (AFJP) to the Bicentenary Fund

Despite the official narrative, the stage for a general crisis of capital accumulation in Argentina has been set. After the devaluation, what supported the recovery was the rise in agricultural income, driven by the rise in the price of soy. This allowed the establishment of a protectionist scheme based on an undervalued exchange rate and on subsidies that compensated for the low competitiveness of local industry, whether nationally or foreign-owned. This explains the recovery of industrial activity and employment following the debacle of 2001. Yet protectionism involves transferring real resources, and if the vast majority of firms receive more than what they produce, it becomes necessary to seek out new sources [of funds].

Part of what was spent on keeping the dollar strong [relative to the peso] and on subsidies came from land rent (obtained via withholdings) and from the surplus-value generated by a rise in the rate of exploitation of workers (obtained through taxes, primarily the value-added and income taxes). Nevertheless, another significant part had no real basis. The pesos used to buy dollars, the loans from bond issues, and the subsidies were all paid for in great part with freshly minted currency without backing, which accelerated the rate of inflation. In this manner, the protectionist effect of the 3 to 1 exchange rate was gradually lost. Moreover, the government’s fiscal problems became ever more evident-particularly in the provinces, but also, and ever more pressingly, at the national level. The sought-after solutions all pointed in the same direction: finding fresh funding sources in order to transfer funds to the local and foreign bourgeoisie via exchange rate protectionism and subsidies. [These sources were found,] first by raising the withholding rate, and then by nationalizing the AFJP. But the plan behind this new search was, from the start, to find a new way to get into debt.

In fact, Cristina’s2 presidential campaign was conducted by flirting abroad with future lenders, promising “juridical safety” and exchange rate and tariff adjustments as an offering in order to obtain fresh cash. Cristina’s plan to return to the 90s is implicit in her electoral platform, if we look beyond her speeches. That is why the cover of issue 39 of the newspaper El Aromo, in November 2007, showed a picture of Cristina face to face with Menem under the title “Results and Perspectives.” Despite the polemic that it generated, the comparison was and remains pertinent. Nevertheless, that plan could not be implemented exactly as Cristina wanted. Although she replaced every vestige of Keynesianism with the most long-established elements of neoliberal orthodoxy (Minister [Amado] Boudou comes out of the bowels of CEMA [University], while the now-repudiated Martín Redrado and his successor, Mario Blejer, have an even worse lineage), this was not sufficient to induce the international banks, which are not satisfied with mere symbolism, to lend money. Despite all the gestures (or self-abasements, to be more precise), the primary problem with Cristina’s plan to become Menem is that it ran into the financial crisis and the credit crunch. It is for this reason that the payment to the Paris Club3 could never be concretized, despite multiple negotiations, and that the situation with the bonds in default could not be fixed, despite the official will to do so. The key is not the lack of a strong will or of a strong negotiating position by the government, but rather the scarcity of credit.

The Conditions of the Kichnerist Menemization

The objective behind paying off [the debt] is to borrow again, and thereby to cover up the increasing problems. In order to do so, the government has to satisfy two conditions. The first and fundamental condition is credit availability at the international level. The second condition is solvency, even if it is only apparent solvency. For this reason, the government cannot use its own funds, given that, beyond Indec’s [National Institute of Statistics and Censuses] manipulations, it is evident that [tax] revenues will not be accepted as collateral by any lender. Hence, the use of the reserves is key to the scheme.

In the context of the last two years, beginning with the mortgage crisis in the U.S., access to foreign credit was almost entirely cut off. That is the reason why Cristina’s plan had to be postponed, and why the loans came, not from American or European banks, but from Venezuela. This is the reason why Cristina flirted with supposed positions on Latin American unity, despite her clear pro-Yankee and pro-European profile during the election campaign. The global crisis, although far from being overcome, finds itself in a short lull produced by a new phase of expansion of fictitious capital, this time at the hands of a growing government deficit.  A consequence of this new bubble is a certain availability of international loans. Faced with this changed reality, Cristina is going to the sources and trying to rush through the deal with the Paris Club, and in particular, with the unruly bondholders who did not accept partial re-payments of their bonds in previous exchanges.

The latter are the biggest headache for the government and deserve their own paragraph. While there are no problems with the large lenders like the World Bank and the IMF, since the debt has been settled and because almost everything has been arranged with the Paris Club, the situation is much more complicated with regard to the thousands of smaller bondholders. Standing to gain less should Argentina take on more debt, and being more worried about their individual finances, this sector has appealed to justice and sought to seize Argentina’s funds abroad. The U.S. justice system even acted in their favor in various partial rulings, a fact which has been the basis of Martín Redrado’s argument against using the reserves: since the latter are in large part located abroad, they risk being seized. However, this threat does not seem too real, since the countries where these bondholders live are also those that are primarily interested in seeing Argentina take on debt. In fact, a large part of the rulings in favor of seizures were later appealed and suspended.

But the primary problem is this: Where is the money going to come from in order to back the new debt? This is what is hiding behind euphemisms about “paying” the debt and what is behind the dispute as to whether or not to touch the reserves. The government explicitly presents its proposal for using 6,500 million dollars of the reserves as a guarantee against new debt, as a way to obtain loans at a lower interest rate. As we will see in the next section, nobody (much less the world’s economic powers) lends without asking for something in return.

The opposition wants to use its parliamentary veto, arguing for the autonomy of the Central Bank of the Republic of Argentina (CBRA), in order to obtain a guarantee that repayment of the new loans will come out of the government’s operating budget. In order to do so, some opposition economists propose limiting subsidies and reducing government expenditures. In order to compensate for these measures, they also propose liberalizing public utilities’ prices and revaluing the currency even more, in order not to affect the capitalists’ profits. Of course, they say little to nothing about what will happen to expenditures on social services and to employment-although it is obvious that the answer is “nothing good.”

The Consequences of the New Cycle of Debt

Compared to the proposal by the opposition to use government resources rather than the reserves, the government’s position appears more progressive. Rather than cutting the budget deficit in order to use the extra funds as guarantees for the new debt, the government proposes to maintain governmental expenditures at present levels and to use resources that are not currently being well spent. It is in these terms that a dichotomy between the opposition’s neoliberal adjustment and the government’s Keynesian expansion of expenditures appears-but it is a false dichotomy. We repeat: both parties want to take on debt. If the government has its way and keeps the reserves as a guarantee, the result will be a massive influx of dollars. This, in turn, will lead to a new overvaluation of the currency, nearing the 1 to 1 [exchange rate] of the 90s, just as is currently happening in the majority of those Latin American countries that have privileged debt as a means to growth. Brazil, Colombia, Chile, Uruguay and Peru all currently have much stronger currencies than Argentina, and, with the exception of Brazil, they practice importers’ behavior of the “give me two”4 style exemplified by Martínez de Hoz and Menem in Argentina.

The re-entry into the international financial circuit has as its counterpart the favoring of creditor capital. Again: nobody lends without asking for something in return. The first thing that the creditors will want will be a stronger peso, both in order to increase the country’s importing capacity, and so that foreign companies operating in Argentina can remit greater profits in dollar terms. The result will be a contraction of economic activity, less tax revenue, and less employment. This, in other words, is the same as what [Elisa] Carrió, [Eduardo] Duhalde, [Julio] Cobos, [Francisco] De Narváez and [Mauricio] Macri (among others) propose.

The transition from an undervalued to an overvalued economy has always taken place by means of economic adjustment. From [Héctor José] Cámpora to [Jorge Rafael] Videla, it was the Rodrigazo;5 from [Raúl] Alfonsín to Menem, hyperinflation. It was not a matter of a lack of political skill, but a matter of the conditions necessarily imposed by the cycles of accumulation in Argentina. The idea that the Kirchners will be capable of doing it a different way is doubtful. Meanwhile, the opposition does not really oppose the underlying matter, but intends to let the current government assume responsibility for the crisis. That is why it is trying to rush the adjustment in such a way as to leave the reserves intact. In other words, the opposition wants Cristina to be their Alfonsín or their Rodrigo.

The government does not want to play the role that the opposition wants it to play, and instead puts itself forward as the guarantor of the national and popular interests. Nevertheless, even if it succeeds, the adjustment will take place anyway, only a little later, given that it will be necessary to keep pleasing the creditors in order to obtain more cash. No speech can obscure the fact that the Kirschner myth is over. Even for the most recalcitrant nac&pop [the so-called National and Popular Blogs of the Peronist Bloggers Movement], it will be difficult to justify the “new” policy and its related homage to the IMF and the World Bank.

The Problem is Not the Debt

Parsing out the terms of the dilemma, we see clearly that neither party to the dispute represents a way out that favors the workers, not even in partial terms. There is no lesser evil in either of the factions because both have the same objective. But there is another important conclusion. Indebtedness is a permanent policy of the Argentine bourgeoisie and of every single one of its factions. It is the way that, in the face of insufficient income, fictitious capital temporarily compensates for the systematic backwardness in the productivity of local labor. When the situation proves unsustainable, a default is proclaimed in order to regenerate the conditions in which the local economy operates: devaluation serves as a means to devalue labor-power, which promotes exports and facilitates the influx of currency again. Once the economy has recovered on those precarious bases, the advantages that were obtained disappear, and the revaluation of the peso must be compensated for by a new cycle of debt.

The debt, then, is not the central problem of the Argentine economy, but is the way in which its generally insufficient competitive capabilities manifest themselves. As we have seen, the refusal to pay is merely a precursor to renewed payments, which in turn are the preceding step to the return to “good conduct.” For the same reason, even if the debt could magically be repaid all at once, it would reappear again within a short while. Debt is not the cause, but rather the consequence, of the historical and structural defects that correspond to the capitalist nature of the country and the place that the country occupied (and continues to occupy) in the global process of accumulation; this has no solution under the present social form.

This is the reason why the slogan “no to debt payment” is substantially correct, but incomplete. The slogan is correct not because, as is sometimes heard, the debt was acquired fraudulently: all debt, even that which is ostensibly “legitimate” in accordance with bourgeois criteria, is nothing but a mass of surplus-value produced by capitalist exploitation. The refusal to pay it is justified as a limitation on exploitation and not as “indignation” over theft “of the nation.” We do not want to pay the debt for the same reason that we do not wish to continue producing surplus-value. Supporting the non-payment slogan upon any other basis gives room to pernicious conciliation with petit bourgeois factions which build illusions around the idea of a “good national productive capital”-as Pino Solana, or even Kichnerism itself, has done.

When this (properly justified) slogan is accompanied by the demand on behalf of the working class for the wealth that it has produced (for this is what the reserves really are), one’s political perspective points in the right direction. It is necessary, however, to dig deeper. It is not the debt that is at stake, but rather the reserves. The Left should not let itself be carried away by the petit bourgeois nationalism that Solanism represents. In fact, it must advance a step further and deny the right of either of the political factions of the bourgeoisie to make decisions regarding the fate of that mass of social wealth. In order to do this, the slogan must be concretized through organizational means that point in this direction: a convocation of all popular social and political organizations to a national assembly that demands the right of the proletariat to participate in the discussion over the fate of the social product.

The accumulation of capital in Argentina is in crisis. Firms operating in the country are incapable of surviving on their own without state support, or else they must increase the rate of exploitation to unprecedented levels. Unemployment and poverty, far from having been eradicated, are latent and growing. The issue that this crisis puts on the table is that neither of the bourgeois alternatives (whether the parliamentary or the presidential) has a solution that can avoid unlimited suffering for the masses. Therefore, it is time to move toward the control of wealth by those who produce it. Faced with the demand from the Right for the autonomy of the BCRA [the central bank of Argentina], we must demand instead its democratization and popular control. Faced with the government’s wish to use the reserves as a guarantee in order to incur more debt, we have to demand that it be made available for social programs, public works, and general worker-controlled committees for wage increases. In short, we have to move toward acting on the real cause of misery and unemployment–capitalism–and preparing the ground for worker control of the national wealth.



1.      Former presidents and other government officials, some of whose reigns ended badly.

2.      President Cristina Fernández de Kirchner. She is the wife of former President Néstor Kirchner and continues his policies.

3.      The Paris Club is an informal group of financial officials from countries with some of the world’s biggest economies. It advises and facilitates relations between indebted countries and their creditors. On September 2, 2008, President Cristina Fernández de Kirchner announced plans to pay off the entire debt of approximately $6.7 billion owed to Paris Club countries.

4.      “Ta’ barato, deme dos” (“it’s cheap, give me two”) is a famous phrase in Latin America, referring to the relatively great ability of people who earn money in artificially overvalued currencies to buy foreign goods.

5.      Drastic policies that have the effect of lowering real wages for the working class, named for the economics minister under Isabel Perón. His draconian measures led to the overthrow of the Peronist government in 1976.

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