“There is no alternative” has always been wishful thinking at best, at worst a deliberate lie, on the part of the ruling powers. From out of the ruins to which neoliberalism has brought Argentina, its onetime much-heralded model of success, now come the unsilenced voices of radical economists. We present here an English translation of a proposed alternative solution to the Argentine crisis. The proposal was set out on January 24, 2002, by Argentine economists as a starting point for discussion within the emerging popular movement.
Against the background of Argentina’s dramatic economic downfall, a meeting was held in January 2002 at the Faculty of Economic Sciences of the University of Buenos Aires. The focus of the meeting was the need to work on alternative proposals to deal with the crisis.
The following document, the product of that meeting, aims to open the debate. It raises initiatives that are based on the principle that the extraordinary weight of the disaster has to be placed upon those who have bankrupted the country, and not on workers, the unemployed, professionals and small producers, traders, and depositors.
The crisis that grips Argentina far exceeds those of 1975, 1981, and 1989. It is marked by the spiraling growth of poverty, the dismantling of Argentine industry, and the breakdown of the elementary functions of regional government. The cause of Argentina’s depression is not solely the “convertibility” scheme (the now collapsed currency board in force since 1991 that sought to guarantee an equal exchange rate of the peso to the U.S. dollar). An explanation must consider the “model” of “trade opening” that was imposed alongside the fixed dollar exchange rate with no regard for the effect of periodic convulsions of world capitalism, the country’s peripheral position in the global economy, and, above all, the last decade of neoliberal policies.
Our initiative is in harmony with the popular revolt that overthrew a retrograde government, and that continues to assert itself through daily protests and the banging of pots and pans (known as cacerolazos). We actively participate in the popular movement, and we reject the current political regime based on rule by executive fiat, the irresponsible legislative delegation of its powers to enable the imposition of harsh measures by decree, and the continued existence of a Supreme Court that guarantees impunity to those who have robbed the national treasury. We support public gatherings at the doors of banks and privatized public services firms. We encourage the ongoing debate in popular assemblies, in cities, and in neighborhoods all over the country that searches for solutions to overcome the reality of social catastrophe. Our starting point is a total opposition to the measures that are being introduced by an illegitimate government rushed into existence through shady collusion in the Legislative Assembly.
The following is but an outline of the direction of our proposals, an initial contribution toward the program we aim to promote. We are conscious that these goals can only be put into practice through a robust strengthening of the popular movement that has developed since last December. We believe that protests must confront and change the trend of ever further thefts from the vanishing resources of the majority of the people. Capitalists must bear the cost of their own disaster. This vision has to give direction to a struggle for an increase in salaries, for unemployment benefits, and for the full return to depositors of savings that the regime openly intends to confiscate. In any case, we believe it to be crystal clear that the goal of a just solution to the catastrophic problems of Argentine society will only be reached in the context of a socialist transformation.
1. The peso devaluation was introduced to make possible a new regressive transfer of income from the great mass of the people in favor of the dominant sectors. Its effect will be seen in price increases in food products, medicines, and all basic consumption items. If the peso keeps falling against the dollar, an intensification of inflation will cause major suffering. The prospect is terrifying. More than fourteen million persons are in families whose monthly incomes are less than 460 pesos (at the time of this writing, the free market exchange rate was approximately 1 USD=2 pesos). Food sufficient to avoid famine requires at least 70 pesos per capita per month. Today, four and a half million indigents are at this limit and are not able to buy necessary foodstuffs. It is now estimated that if prices rise 10 percent, this extreme poverty will extend to an additional 1.3 million persons, and if price increases reach 30 percent, total pauperization will affect an extra 3.7 million people
Such a fall into the hellhole of misery cannot be avoided by any aspect of the program set out by this government. Price controls will be totally ineffective to counter-balance the growth in prices of industrial and agricultural products, given the existing shortages of essential products and materials. There is an open and strong resurgence of currency speculation, financed by the Central Bank itself through subsidized sales of dollars to private foreign exchange houses. Provisions to limit unemployment by requiring large severance payments are meaningless against the background of existing hyper-unemployment and the wage freeze approved by all the dominant parties in Parliament.
An unemployment subsidy for “employment and training” of 150 pesos that the government is now promising for one million heads of families is a mockery and insult in response to recent massive petition efforts.
In our opinion, the immediate eradication of poverty is possible; it can be done. But this depends on the planned reorganization of production and a drastic redistribution of incomes, and not on uncertain hopes of a future turn in the business reinvestment cycle. The workers themselves, not the dominant sectors, can be craftsmen of a “virtuous cycle” of growth.
Our proposal to tackle the existing dramatic situation is very simple and powerful: to establish immediately a 500 pesos monthly unemployment insurance payment, while reducing the labor week, redistributing the existing work hours, and recruiting new employees. This measure, along with a minimum 600 peso monthly salary, could begin the repair of purchasing power, with the prospect of reaching in a short period the sum necessary to cover basic family needs, today estimated to be 1,030 pesos. In addition, minimum pensions should be increased to 450 pesos and should extend to all old people, including those without access to social security.
Obviously this plan puts at issue the problem of how these measures can be financed. We propose three distinct means of funding this proposal: the total suspension of foreign debt payment; an immediate introduction of levies on big fortunes; and the reinstatement of a single public social security system.
The previous national budget designated nine billion pesos for debt payment, and more than five billion pesos are proposed for this purpose for the year 2002. As far as raising funds through tax levies are concerned, an emergency 10 percent tax on assets of the largest 100 firms by sales could be imposed along with a 5 percent levy on assets of those companies with incomes surpassing 5 million pesos, and a special impost on rents and profits. If needed, and also as a means to prevent evasion, the assets tax may be replaced by an extraordinary supertax on corporate profits or sales. These levies could make possible the collection of twenty billion pesos. A 30 percent tax on capital that has been placed abroad and not registered as direct investment, should be established. In case these obligations are not fulfilled, the tax should be collectible on property registered in Argentina. The third proposal is the immediate elimination of the private pension funds scheme, called AFJP, and the unification of all pensions into a single system of social solidarity. The restoration of previously eliminated employers’ contributions could facilitate the annual recovery of at least four billion pesos. In the same way, all tax exemptions, postponements, and subsidies favoring big economic groups and privatized firms should be eliminated.
This combination of sources of collectible funds, along with other proposed measures, will be more than sufficient to finance the initial payments needed to cope with the social emergency.
2. The freeze on deposits in banks (popularly called the corralito, or playpen) was introduced by the deposed Minister of Economy, Domingo Cavallo, as a way to relieve, at the expense of small depositors, extreme pressure on the bankers. It has been transformed into an unmistakable instrument of expropriation of the middle classes.
To protect banks, at first all financial activity was suspended and all withdrawals severely limited. President Duhalde openly lied when he asserted in his inaugural speech that all deposits were going “to be restored in the original currency.” Not a single dollar can now be recovered from the banks, and a compulsory “pesofication” is under way, meaning, in fact, an explicit confiscation. As the peso devaluation deepens, the fraud on small depositors grows. Depositors shall be receiving from banks—most of them in theory “international institutions”—devalued pesos or depreciated certificates. A first conservative estimate indicates that the expropriation will reach 50 percent of the value of actual total deposits in the Argentine financial system, around $23 billion.
The same financial institutions that, during 2001 alone, channeled abroad over $20 billion in capital flight, must be compelled to restore the deposits in full. This could be achieved through the collection of credits outstanding to big firms (the total debts big companies owe to banks easily cover the value of small and medium deposits), and through recapitalization by the banks’ own head offices. The net equity of foreign banks alone has been declared to be in excess of 6,200 million pesos. It has been argued that if any firmness is shown, foreign banks could leave the country and national ones could go bankrupt. If these institutions were to opt for this course of action, all local assets of these institutions should be confiscated. Those who go away should leave their assets, including direct, associated, and hidden ones.
We assert that in no case should the society assume the cost of banks’ failure through the dishonest means of their liabilities “evaporation” through inflation, or a ruinous nationalization where the public assumes the banks’ obligations, while their assets are sold off to foreign groups at bargain prices. This last solution is as damaging as an outright transfer of the whole to foreign interests (known as “offshorization”), promoted by other financial groups. Its cost could be gigantic for the entire country. Public assistance to banks meant a total charge equivalent to a quarter of Mexico’s GDP in 1994, and 16 percent for Korea and 40 percent for Indonesia after the 1997-98 Asian crisis. Argentina suffered a recent similar experience after the “Tequila effect” (Mexican crisis of 1994–1995), but in the existing dismal conditions of Argentina’s current public finances, the results would be, without doubt, a further catastrophe.
3. The other face of the corralito includes relief for those obligated to make current payments to the banks on their debts. Nonetheless, as indicated above, the greatest part of bank debts is owed by big firms that claim that they are not able to meet their obligations due to the recession that has now lasted for four years. The government asserts that if debts owed by these large firms are collected (to make it possible to give depositors access to their funds), the result could be extensive bankruptcies of private firms. But if companies cannot meet their obligations, who must bear the cost? The owners or the entire community? Why must the public be responsible for the losses of proprietors and managers? Why must big capitalist firms be considered in the same way as small companies?
As with the banks, the government is preparing the way to make the people pay these burdens. Through devaluation, corporate liabilities shall similarly “evaporate.” The beneficiaries of Mr. Duhalde’s so-called “new productive alliance” are the big local economic groups such as Macri, Soldati, Eurnekian, Techint, Bridas, Pérez Companc, and all those who made big fortunes cleansing the liability side of their balance sheets through the hyperinflation of the 1980s.
Many of these capitalists sold their firms over the last decade, invested the proceeds overseas, and are preparing to seize some big profits buying devalued assets from the bankrupted smaller fry. All these groups are secretly negotiating at the highest level the “pesofication” of their debts. While this rescue is prepared, the government is leaving aside the small debtors who owe mortgage or consumer debts. In this way, small debtors can expect the same confiscation that has been prepared for the small depositors. Both are part of the same middle sector squeezed by a government whose central aim is to relieve the big capitalist firms.
To tackle this situation, we support the same equitable treatment we proposed for bankers, that is to say, that firms should be made to be responsible for their financial debts with their assets, their investments abroad, and their owners’ personal fortunes and those of their front men. If firms threaten shutting down or mass dismissals, they should be nationalized and incorporated into a new public sector. This new public sector should be characterized by collective ownership and democratic administration under the control of workers and the people, with clear investment, saving, and consumption priorities that are democratically debated and approved by the population.
4. Argentina’s default demonstrates the total futility of the many years of sacrifices by the population to enable payments to be made on the public debt. The crisis has made palpable the impossibility of coping with interest payments three times greater than the total costs of public administration, six times bigger than social assistance payments, and twenty-three times more than employment plans. In any case, the public debt can’t be refinanced again as it was in the 1990s through privatizations, as all readily salable public assets have by now been auctioned off at absurd bargain prices.
Many serious investigations have demonstrated that the largest part of the debt has its origin in fraud, lacking any counterpart in real investments. This debt was the result of speculative maneuvers that enriched the public creditors and their local associates. That is why we reiterate the basic claim advanced by most of the population of Argentina: immediate suspension of debt payments. Much of this debt is now directly or indirectly in the hands of the very groups whose fraud created the debt. The suspension of debt payments must be accompanied by the total withdrawal of negotiations with the IMF, the definitive rejection of all liabilities that originated in fraud, the renegotiation of credit lines for certain essential foreign trade operations, and the establishment of a payment schedule to small holders of national obligations.
All proposals intended to avoid this repudiation of fraudulent debt are but variations of the course that has brought the country to calamity. The Brady Plan and the various interest reductions and principal payment postponements have only contributed to an ever greater increase in liabilities, and serve to regulate all economic activities in Argentina by the demands of public creditors. The same flawed path is now being followed by Mr. Duhalde’s government. At the very moment of default it started negotiations with the IMF to fix a new rescheduling. It wants to return to the path of former Minister Cavallo, creating new bonds to be delivered to AFJP funds and local banks. As if to give a pledge for continuity on this disastrous course, Mr Duhalde has placed a direct representative of the IMF, Mr. Mario Blejer, in charge of the Central Bank.
We must now recognize that whatever difficulties would follow from repudiation of debt would be much less than those caused by continuing with payments. What scenario worse than the actual one could result from default? Major cuts of international credits that, in any event, have been interrupted for the last year? The absence of non-existent new foreign investments? A major rise of Argentine “country risk”? Seizure of minimal and irrelevant public assets abroad? All the evil phantoms supposed to be the inevitable consequences of default have happened. The moment has come to initiate a new way: an emancipation from external debt and from superwealthy creditors—including those resident in Argentina—that surely will receive the solidarity of people all over the world suffering the same chains. The popular upheaval in our country has provoked a big international commotion and fear of the “political contagion of the Argentine example” among creditors. These conditions favor taking sovereign decisions that place the interests of the Argentine people first.
5. Denial of public debt payment could make possible the entire restructuring of the budget for 2002, to be debated by the population without the participation of IMF technocrats. The official budgetary project proposed by the government de-emphasizes the “zero deficit” aim, but not the principle that the payment of salaries, pensions, and transfers to provincial governments for basic services be conditioned by the level of tax collection. These elementary payments necessary to the life of the nation are made subject to a priority of making 5.3 billion dollars in payments to multilateral institutions and holders of local bonds (most of them the same international banks). This is the reason why the government continues for the present the 13 percent cut in salaries introduced by the discredited and overthrown De la Rua/Cavallo Administration. In education, the government put aside the teachers’ incentive payments that are for many an essential part of their salaries, and in health, continues to starve of resources the major health care organization for the elderly, PAMI, and the public hospitals. But since devaluation has initiated an inflationary process and as tax collections will keep falling due to the continuing and extraordinary economic depression, public budget cuts during 2002 could be much greater than expected.
We affirm that any fiscal plan needs to be conditioned by the wholly different objectives previously laid out: an increase in salaries and unemployment insurance payments financed by default on public debt and by taxes levied on big capitals.
6. Against the background of the economic sufferings of the country, privatized firms continue to enjoy large returns gained through their control of the strategic resources necessary to the productive process. A tax on petrol companies to aid the banks was announced, but remains a mere announcement. A recent decision of the Parliament requires the renegotiation of privatized public utility tariffs, but has not been yet carried out. Foreign companies and diplomatic representatives (from ambassadors up to presidents) have exerted shameless pressure to eliminate the proposed petrol export tax and have demanded exchange rate insurance privileges and tariff compensations. But a colonial mentality and servile manners are so established among our officials that no one repudiates this open meddling in the country’s economic decisions.
Privatized public utility companies have not abandoned their project of “dollarization” in order to maintain their remittance of profits overseas. Rather, they now stake their hopes on a period of hyperinflationary chaos followed by dollarization based on a new fixed rate, as in Ecuador. Meanwhile as they prepare this new version of “convertibility,” these companies in the immediate present are demanding tariff indexation, a first step to their goal.
The ill-fated consequences of privatizations are evident. The firms achieved inconceivable profits at the expense of the rest of society. The firms were bought with ridiculous bargain payments; in some few cases they made minimal investments, but in others they simply emptied and looted the companies. They appropriated the rent from the extraction of petroleum, destroyed railways, bankrupted airlines, swindled road carriers through toll payments, and greatly increased the prices of telephones, water, and energy. As they have now enjoyed the use and benefits obtained through these fraudulent contracts to the full, the time has come to end this depredation and to begin the country’s economic reconstruction.
An emergency program representing the interests of the population should restore to the public domain the privatized service firms without any compensation. They need to be reorganized to work for the country’s service, with the reduction of the tariffs that today are not payable, and for many customers in fact are not being paid. Profits and rents must be recycled within the productive system and necessary investments made. The recovery of the fraudulently privatized firms is essential, because these firms have become specialists in avoiding all attempts at control and regulation, and because it is impossible to develop an economic plan without state control of strategic companies. To prevent the prior experience in public firms of bureaucratization, corruption, and enrichment of associated private groups, we propose the introduction of new forms of democratic management and administration based on the direct participation of workers and users.
7. Among other complementary measures, an emergency program should assure a centralized administration of foreign trade and exchange controls. Also pressing is the reorganization of regional economies today suffering from the decay of existing plant, destitution, and the asphyxiation of small producers under a mountain of debt. We also believe that an immediate reduction of the VAT (value added tax—today a 21 percent indirect tax paid on all transactions) should be introduced. And last, we affirm that all the direct taxes proposed on capitals and profits be a part of a total tax reform that addresses the shocking evasion, estimated at $20 billion annually, of already existing taxes.
8. All the proposals included in this document must be considered just a starting point set out by a group of economists. We hope this document will encourage contributions, debates, and concrete plans on specific topics.
During the recent years of prevailing neoliberalism, the economics profession has been identified with the activity of financial gurus, technicians, and businessmen periodically produced for interviews by the media to justify the latest outrage against the population. We aim completely to change this image, demonstrating that economists critical of capitalism are present, and are working in open opposition to the “think tanks” funded by the dominant elites. We put ourselves alongside the workers’ claims, unemployed piqueteros’ demands, the youth mobilization, and middle class petitions that have converged in an extraordinary process that will change Argentina’s future.
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