Why Argentines are wrong to scapegoat the IMF
IN THE early months of 2002 Argentines were gripped by rage, fear and a deep sense of loss. They had suffered years of austerity and slump and finally the corralito, in which the government halted a run on the banks by barring savers from withdrawing their money. None of this could save “convertibility”, as Argentines called an arrangement under which the peso had been pegged at par to the dollar since 1991. As four presidents came and went in a week over Christmas 2001, Argentina devalued and defaulted on $82bn of bonds, the largest sovereign default in history. Incomes plunged, unemployment soared and the poverty rate rose to 56% in a country that a century before had been one of the ten richest in the world.
These events seared the Argentine soul. Many blame the IMF for them. That is why the decision by Mauricio Macri, Argentina’s president since 2015, to counter a run on the peso this month by seeking a standby loan from the IMF, though economically sensible, is politically very risky. “We Argentines have a very bad collective memory of the fund,” said Miguel Ángel Pichetto, the leader in the senate of the opposition Peronists, in an interview with Clarín, a newspaper.
But are they right to fear the fund? Since the 1950s Argentina has repeatedly turned to the IMF to finance stabilisation plans that failed because of political resistance to the short-term pain involved. Today, when Argentines criticise the IMF for its role in the traumas of 2001 and 2002, they give contradictory reasons. They blame the fund both for backing convertibility and for pulling the plug on it.
Convertibility was a purely Argentine invention—by Domingo Cavallo, the economy minister under Carlos Menem, the president from 1989 to 1999. The IMF had qualms about it, but was won over when the scheme succeeded in killing hyperinflation and promoting rapid economic growth. Since convertibility meant forgoing exchange-rate flexibility and an independent monetary policy, fiscal discipline was all-important for its success. The fund was remiss in not objecting when Mr Menem tried to spend his way to a third term in the late 1990s, just when money was flooding out of emerging economies.
The fund’s second mistake was to be browbeaten by Mr Cavallo, brought back by Mr Menem’s successor, into giving a second loan to Argentina in 2001. Inevitably, the conditions attached to it included the austerity needed for the “internal devaluation” that convertibility required. It was clear to many that the country should have devalued and defaulted. After Mr Cavallo imposed the corralito, undermining his own programme, the fund refused to disburse the second tranche of that loan. Right to the end, convertibility was very popular. That is why many Argentines were shocked when the fund withdrew its support. “Argentina obeyed, but was punished,” Juan Carlos Volnovich, a psychoanalyst in Buenos Aires, said at the time.
In 2002 Argentines were angrier with their own politicians. “Society blames the political leaders for the situation, the main parties without distinction,” Cristina Fernández de Kirchner, then a senator, told this columnist in February of that year. Her husband, Néstor Kirchner, turned the fund into a scapegoat after he became president, initially with a weak mandate, in 2003. Buoyed by a surge in world prices for Argentina’s farm commodities, in 2005 he repaid Argentina’s debts to the IMF early, accusing it of being “the promoter and vehicle of policies which provoked poverty and pain”. That was unfair. The fund had not imposed convertibility. It was an accessory to, rather than the author of, those policies.
Argentines mainly have themselves to blame for their economic decline. Their governments rarely live within their means, as Mr Macri’s aspires to. Ms Fernández, who succeeded her husband as president in 2007 and governed until 2015, resorted to inflation to avoid fiscal discipline. Argentines are historically unwilling to accept that the peso may be worth less than they would like. The central bank erred this year in intervening to try to prop up the currency, although it is overvalued. Armed with a prospective IMF loan, it now appears to be letting the currency depreciate, as it must.
Mr Macri’s attempt to stabilise the economy gradually after Ms Fernández’s populism was well intentioned. He bought time by issuing foreign debt. With the era of cheap money in the financial markets now ending, Argentina must speed up its adjustment to reality after the pretend economics of concealed inflation, parallel exchange rates and unaffordable subsidies. Argentines should come to understand that the IMF is their best hope of softening the blow.