Incessant Monetary Frustration: the IMF and Argentina

My series of provincial electoral previews in the first half of this year was always going to be finite – even adding an introduction and the Federal Capital to the 23 provinces, as well as giving Greater Buenos Aires its own column, it could never have more than 26 parts (plus last Saturday’s epilogue). By reversing that focus – looking outward to the world at large instead of inward into Argentina’s hinterland – the series beginning today stands to run much longer.

This series will start at the global level with the dozen or so most important international organisations before proceeding to study Argentina’s relations with continents and regions, only then turning to key countries – a series already potentially topping 200 columns if including all 193 members of the United Nations (obviously not).

But the complexity does not end there. For weeks to come this will be a historical series written strictly in the past tense. If the International Monetary Fund (which kicks off this series today) was going to send its monitors last week, while the Council of the Americas annual talk fest was scheduled for last Wednesday and nothing happened with everything in limbo, what possible sense is there in talking about the present, never mind the future? Once Argentina’s next government is in place with its direction more or less defined, there will be a rewind to add the future outlook to the organisms previously described before proceeding further. - - -

The IMF was born just after the Christmas of 1945 but conceived 75 years ago last month, at the Bretton Woods Conference in the riotously colourful forests of New England (the haunt of Dr Hale for readers who remember my 2017-2018 columns – such a relief no longer facing his challenging questions amid the current economic disarray). Within a year, 39 of the 45 Bretton Woods countries had joined the original cast of 29 – a fairly global organisation even then because the dozen European and North American countries were already a minority of the founding members who also included 10 Latin American nations (but not Argentina whose wartime Axis leanings were not easily forgiven). Today the IMF has 189 members, almost as many as the United Nations.

Bretton Woods conceived the IMF’s main mission as surveillance of the world economy, to guard against the closed economies of the pre-war decade. But the United States quickly imposed a more specialised role as a bank for nations with balance of payments problems – the first loan was to France’s Fourth Republic in 1947 (interestingly enough, the IMF’s managing director has been French for 44 of its 74 years and always European). As from 1971 (when the glut of petrodollars prompted Washington to suspend convertibility into gold) the IMF started to delve increasingly into the domestic economic policies of borrowers. Mexico’s tequila crisis of 1982 and the 12-digit Greek bailouts since 2010 have been two milestones taking IMF lending into new orders of magnitude – an escalation in which Argentina figures prominently. So much could be written about the IMF’s track record and controversial image worldwide, but it is time to concentrate on its relationship with Argentina.

That relationship began in 1956 (the year after the overthrow of Juan Domingo Perón, thus placing the IMF on a collision course with Peronism from the very start), when Argentina joined the IMF as its 61st member, at the same time as South Vietnam. The military junta ousting Perón had at least two motives for this move – the country was broke after nine years of populism while such policy aims as privatisation and multilateralism overlapping with IMF recommendations could thus conveniently seek justification there. But the first president in hock to the IMF was Arturo Frondizi (1958-62), who signed the first stand-by arrangement (for a now paltry US$75 million) in late 1958 – four more nine-digit stand-bys followed annually to fund his Desarrollismo development policies.

For over a decade (1963-76) Argentina was largely independent of the IMF although the military preference for private investment and borrowing could not be sustained beyond 1967 with two stand-bys that and the next year. There were two more stand-bys in both the first and final year of the 1976-1983 military dictatorship (to the tune of US$260 million and US$1.5 billion respectively) but there is a case for saying that there were too few rather than too many such arrangements, if the latter had come with the imposition of more fiscal discipline. Instead the tyranny gorged itself on petrodollar overspill (even scorning to collect the US$160 million agreed with the IMF in 1977), quadrupling the foreign debt in the process – here the IMF could be faulted for indulgence rather than intervention, although its role in massively deindustrialising the country by sustaining an overvalued currency so long is a prime factor in making it such a dirty acronym in Argentina.

Upon the return to democracy in 1983 the dire inheritance of virtual default forced the Raúl Alfonsín presidency to borrow over US$2 billion from the IMF to keep debt service on track, but 1989’s hyperinflation forced the new president Carlos Menem into disguised default on domestic debt at least in the form of the Bonex Plan. Convertibility and Brady Plan debt-bond swaps seemed to restore financial stability along with IMF assistance (here Menem preferred the longer-term Extended Fund Facilities totalling over US$6 billion although two stand-bys in 1991 and 1996 also brought in US$1.5 billion) but this only permitted heavy borrowing and deficit spending over a longer period than ever with the usual alternative of printing money unavailable.

Thus far Argentina had been a relatively minor footnote in IMF history but this century has seen one epic after another. The largest IMF loan ever to a Latin American country (over US$23 billion); caretaker President Adolfo Rodríguez Saá’s applauded default on some US$100 billion, at the time the biggest sovereign default in history; Néstor Kirchner severing ties with the IMF by paying the remaining arrears of almost US$10 billion out of Central Bank reserves, after drawing less than half of a 2003 stand-by of nearly US$9 billion. And that’s not to mention last year’s US$56 billion granted to Mauricio Macri, the largest-ever IMF rescue package ever – an ongoing story to be covered more fully and perhaps concluded next time.

No more space for this or for the huge debate long revolving around the IMF but no matter – all this except perhaps the less recent history will be picked up again, whenever we are also able to write in the present and future tenses.