Fri | Aug 17, 2018

Argentines haunted by memories of crisis oppose IMF help

Published:Sunday | May 27, 2018 | 12:00 AM
In this March 23, 2018 photo, Jorge Josifovich, a farmer and agricultural engineer who provides advice to growers, looks at drought-affected soy near Pergamino, Argentina. Drought, inflation and other factors are weighing on the Argentine economy. (AP Photo/Sebastian Pani)
President of Argentina, Mauricio Macri.
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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.

"Historically, the image of the IMF has been something very traumatic for us Argentines," Jorge Fidler, a 72-year-old accountant, said of the economic crunch, which included government turmoil with five presidents in just two weeks. "This really is a bitter pill to swallow."

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. A survey by Argentine pollsters D'Alessio Irol/Berensztein said 75 per cent of Argentines feel that seeking assistance from the IMF is a bad move. The survey of 1,077 people in early May had a margin of error of three percentage points.

 

QUASI-TOXIC WORLD

 

"The IMF is the last instance lender. It's a quasi-toxic word here," Sergio Berensztein, a political analyst and co-author of the poll, told The Associated Press. "It's like when you go to the dentist. You might need it, but you don't want to go."

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. The government sold out an issue of 100-year bonds taking advantage of a low interest rate.

Many people spoke then of an economic miracle and said Macri was practically guaranteed re-election after his coalition scored a decisive victory in congressional elections. Now, the opposition has been emboldened and Macri's political future seems more unsettled than ever.

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.

 

REVIVING STRUGGLING ECONOMY

 

She said that after Macri took office in 2015, he was able to accomplish a lot quickly. He resolved a long-standing 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.

"It helped to give the sense that Argentina is moving forward," De Bolle said. "I don't think markets were wrong - they might have been overly optimistic, but so was the government."

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.

Argentina has long had one of the world's highest inflation rates. Macri, a pro-business conservative, had promised to curb consumer prices, which estimates say rose up to 30 per cent a year in 2015 under his left-of-center predecessor, Cristina Fernandez.

Then in December, officials announced a rise in the inflation target, causing investors to begin doubting Macri's commitment to taming price rises.

The international lender has admitted that it had a made a string of mistakes that contributed to Argentina's economic implosion. A 2004 report by the IMF's internal audit unit concluded it failed to provide enough oversight, overestimated growth and the success of economic reforms, while it continued to lend Argentina money when its debt burden had turned unsustainable.

"The IMF did not press the authorities for a fundamental change in the policy regime and in December 2001 effectively cut off financial support to Argentina," the report said.

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. She said it has loosened policy prescriptions that forced austerity on borrowing nations and now puts more focus on inequality and social issues.

"It was nearly 20 years since the fund was involved with Argentina," she said. "That's a long time. It's now a different institution."

-AP