Tango on a Tightrope

Default, Dollarization, or Knockout: Argentina Approaches the Abyss

El que no llora, no mama,
y el que no afana es un gil

If you don't cry, you don't get fed,
and if you don't steal, you're an idiot.

—Argentine tango composer Enrique Santos Discepolo, “Cambalache” (“Junk Shop”), circa 1935

Youths protesting budget cuts block a street in front of the Provincia Bank in Buenos Aires, Argentina, July 31, 2001 (Photo: AFP).

Groggy, dizzy, limping, and licking its wounds, this country known for gauchos, juicy beefsteak, soccer cracks, and an unpayable US$130 billion foreign debt seems to be forever rewriting a surrealist novel with an open ending.

While local and international bankers, the International Monetary Fund [IMF], the U.S. Treasury Department, money lenders, stock market brokers, speculators, businessmen, and politicians talk about standy-by loans, bail-outs, zero deficit economic policies, dollarization, devaluation, or default, new beggars sprout like mushrooms, unemployment haunts more than 15 percent of the population, crime hits record heights, and, incongruously, expensive restaurants flourish.

“The problem is not economic, it’s political,” says Diego, a taxi driver whose wife has cancer and whose son is unemployed. He asked to be identified by his first name. “This is a rich country. Look at all the land we have, all the resources. It's a shame. Everybody steals. The politicians are all corrupt. There’s no leadership.”

Darío, who worked as a senior executive in a computer company, before he was laid-off without notice, also blames Argentina's financial woes on governmental mismanagement. He also asked that his last name not be used because he is currently looking for a job. “We have everything and nothing: fertile land, oil, minerals, important tourist attractions... and politicians who don’t know what to do with the country,” he complains. “Under the dictatorship the government borrowed right and left, under [former Argentine president Carlos] Menem we privatized but did nothing to improve infrastructure. With President [Fernando] de la Rúa nobody knows what’s going to happen from one day to the next.”

The anti-communist military junta that seized power in a 1976 coup and ruled Argentina until 1982 propelled the country’s foreign debt to unheard-of levels. Left-leaning Argentines assert that much of the money lent by international banks was side-tracked to tax havens, placed in secret bank accounts, or ended up in the swollen pockets of the rich.

Likewise, they argue, much of the foreign aid Argentina received during this period was squandered on the military junta's disasterous war against the Falkland Islands. A statement from the Maoist Revolutionary Communist Party printed in the Nov. 18 edition of left-wing Buenos Aires newspaper Hoy asserted that "there is no other way to avoid the total emptying out of the country, no other way to deal with hunger and unemployment than to default on [Argentina's]... fraudulent foreign debt." Conservative observers admit that the loans did little to develop the Argentine economy.

“What do I think about the situation?” José, a high school student in Buenos Aires, asked rhetorically. “What can you expect if an elected government puts Domingo Cavallo as Economy Minister?” Cavallo worked for the military junta as an economic adviser and was the author of a program that converted the debt of private companies into government debts. He then reappeared in 1989 as Economy Minister under the civilian administration of Peronist Carlos Menem.

A Muslim who converted to Catholicism as a young adult, Menem led the Peronists to power on a campaign strongly critical of the IMF. In what seemed an echo of the nationalistic regime of Juan Domingo Perón in the 1950s, Menem also promised to revolutionize Argentine industry, and with it, Argentine society. But once in power, Menem's main economic legacy was his sale of cumbersome government-owned enterprises at bargain prices. Despite the influx of fresh capital from those sales, the government failed to initiate badly needed infrastructure projects. Instead of the industrial “revolution” Menem promised, Argentina got such a severe liberalization of import barriers that those industries that remained intact began tottering during his term.

Menem was only recently released from jail, held on charges that he profited from arms smuggling to Croatia during the 1999 war in the Balkans. Before leaving office two years ago, he spent considerable sums attempting to get re-elected. During his last year in power, the Argentine economy was already slipping into recession. To deal with the economic downturn he advocated—and continues to advocate—dollarizing the country’s economy.

To keep the Peronists from winning yet another term in office, Fernando de la Rúa patched together a coalition of centrist and left-wing parties and campaigned on promises to rid the government of corruption. But De la Rúa quickly ran into trouble. Multi-million dollar interest payments on Argentina's debt were coming due. Brazil, Argentina's largest trade partner, devalued its currency. There were few state-owned enterprizes left to sell. The coalition began to crumble.

President de la Rúa first tried increasing taxes to pay the sky-rocketing interest on the foreign debt. The economy responded by going into an even deeper slump as consumer spending fell. Argentina's creditors bailed the country out with a US$40 billion loan package. But the bailout came with the proviso that Argentina make strict fiscal reforms. In March, 2001, the government announced that it would cut its spending by more than US$1.9 billion this year, almost US$2.5 billion next year, and by US$3.5 billion in 2003. In July, 2001, faced with an even bleaker economic outlook, Economy Minister Cavallo announced that he would spend only as much the government collected in taxes to avoid going deeper into to debt. The resultant spending cuts have led to angry protests in Buenos Aires. To make matters worse, as unemployment rises and the recession deepens, Argentina's tax income is shrinking, forcing Cavallo to cut spending even more deeply to avoid forcing Argentina to borrow still more. These days, in an attempt to raise wages for public servants and increase their spending, the government is trying to postpone payments and cut interest rates on US$4 billion of its foreign debt obligations. Critics charge this amounts to a “virtual” default on Argentina's debt.

De la Rúa has scolded Argentines for saving rather than spending more to spur the economy. “How am I supposed to save my US$120 monthly paycheck with an unemployed son?” asked a mother on a recent Buenos Aires talk show, when asked her response to the president's pleas that she stop saving her money.

But Enrique Pescarmona, owner of IMPSA, a large Argentine industrial and energy company, is hopeful: “Argentina has made a great effort to solve its problems. I think the people are winning this battle. But it is necessary to have a strategy backed by popular support.”

Argentina's economic situation recalls Argentine composer Enrique Santos Discelpo's famous tango, “Cambalache” (“Junk Shop”), which was banned under the military junta. “Hoy resulta que es lo mismo ser derecho que traidor,” the tango laments, “Today it is the same to be decent or to be a traitor, to be an ignoramus, a genius, a pickpocket, a generous person or a swindler. All is the same! Nothing is better! They are the same, an idiot ass and a great professor... If you don't cry, you don't get fed, and if you don't steal you're an idiot.”

As Argentina's leaders and businessmen falteringly tango on a tightrope, ordinary Argentines now become impassioned about previously unfamiliar terms like “country risk assessments,” and “devaluation.” But in the final analysis, two economic terms mean still mean more to them than any others: “employment” and “decent wages.”