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Rich Bankrupt Argentina



Argentina is racked by cruel contradictions, it is a rich country whose government claims it cannot pay its debts.

More than two of the four months of this year´s trip were spent in Argentina.  The last time I was here, the peso was worth one US dollar. Argentina was expensive so I did not linger...  Now that the peso is down to three to the dollar, travel here is no more expensive than in the neighbouring countries so I stayed longer to try to understand how this confused and disorderly country got itself into the mess it is in today.

At the turn of the 20th century Argentina was the richest and most developed of Latin American countries. It could aspire to a future comparable to that of Canada and Australia (GDP 22 500 & 20 200 $US/H   HDI: 0.932 & 0.922). Instead, it has remained a third world country with 54% of the population below the poverty line, an average GDP of only 10 300 $ US/H and a low Human Development Index of 0,827.

It is difficult for me and even for Argentines to understand what went wrong but several of them  have expressed the opinion that their highly individualistic character is partly responsible. A review of the country's history shows that most if not all of its politicians have better served their personal interests than those of the nation and that the people let them as long as their own individual interests were not involved. This egocentric attitude is visible everywhere. Social discipline is not common. To the average Argentine, a queue presents the irresistible challenge to try to pass in front of the others; everybody complains about widespread corruption but no one hesitates to give a cop a small “coima” to avoid a speeding ticket; avoiding to pay the high value added tax of 21% is not only acceptable, it is even fashionable as a sign of “viveza”! A traditional culture of corruption is deeply rooted in all levels of society (rank of 92 of 133 on Transparency International´s corruption index).

It is not easy to sort the truth from all that is published in the argentine media about the ongoing tug of war between president Nestor Kirchner and the director of the International Monetary Fund, Anne Krueger, who insists that the matter of  the 88 billion dollars of private debt in default be settled before considering to refinance the 15 billion owed the IMF by Argentina.

After having created several new currencies to hide the chronic inflation that was wearing it out for decades, (the peso ley in 1975, the peso Argentino in 1978 and the Austral in 1985), the government of Argentina thought it could eliminate inflation by establishing convertibility at par between the peso and the dollar in 1992.  That made Argentina the most expensive South American country but it flattered the national pride (which is considerable), to see the peso equal to the US dollar.

More importantly, at par convertibility meant that the government could no longer print banknotes at will to cover its deficits. That did not prevent the corrupt Mennen government from living beyond its means. It financed its generosity towards the establishment by further increasing the already heavy public debt and by privatising all state enterprises (including the postal service). It must be noted here that these massive privatisations in a corrupt country led to the massive enrichment of the political class and of their cronies just as it did in Russia. Exports became non competitive, unemployment soon went over 20%, the country went into recession and the heavily taxed middle class was decimated.

The bubble finally burst in 1998 when the central bank could no longer honour convertibility Instead of dollars,  bank depositors were given various bonds labelled in pesos and payable over a decade. In 1999 Fernando de la Rua was elected for his promises to eliminate corruption and to balance the budget but his austerity measures and harsh restrictions on bank withdrawals led to economic and political turmoil that came to a head when the country defaulted on a132 billion US$ of loan repayments in December 2001.  The rioting, looting and civil chaos that ensued forced him to resign. He was replaced by Duhalde who promptly devalued the peso by 50% causing holders of bank deposits and peso bonds to loose half of their savings overnight.

The country is bankrupt. In politically acceptable terms, we say that it is facing a serious financial crisis. The Argentine debt of 180 billion dollars almost one and a half times the its GDP of 125 billion dollars in 2003.. It includes roughly, 40 billion due to Argentineans, 50 billion due to governments and international institutions (of which 15 to the IMF), and 90 billion due to private banks and lenders that whose deadline has passed more than two years ago.

The can of worms was then put in the hands of a crafty politician from Patagonia, Nestor Kirchner who enjoys a certain charisma and who does not hesitate to manipulate reality. Kirchner claims that the lenders are as responsible of the debt as are the previous governments of argentine that have contracted it. In my opinion, this is as immature and irresponsible as are the overweight teenagers who sue the McDonalds food chain for having made them obese! Kirchner admits that governments and international institutions (of which the IMF) must be reimbursed at 100% but he refuses to reimburse more than 25% of the 90 billion dollars due to private banks and bond holders. This discrimination is contrary to the most fundamental rules of equity.

The wildest arguments seem valid for him and the media that support him (controlled by the establishment of course). Press conferences of so-called “experts” regularly seek to justify the non-payment of the debt (Argentina is absolutely incapable of reimbursing such a heavy debt,  part of it was contracted by the illegal military dictatorship,  the lenders who demanded high interest rates because they knew that Argentine debt was risky should now accept their loss like in a lottery, etc.). The reality of the debt is minimised by referring to it as “some symbolic numbers in  computers kept in foreign capitals”. Kirchner goes further and demonises holders of defaulted bonds by calling them « buitres », vultures who wish to shred poor Argentina to pieces now that it is worn out from trying to comply with all the requirements of the IMF (of sound financial management). He is so good that he has his Argentine audience pulling out their handkerchiefs but I doubt he will get the same reaction from the international financial community.

It is astonishing how a clever politician served by compliant media can brainwash the majority of the population into believing that it is quite all right and honourable for Argentina to default on 90 billion dollars of debt while privileged Argentine citizens (landowners, industry magnates and politicians) have salted away more than 100 billions in foreign banks and fiscal havens.

The overwhelming influence of the mass media on public opinion in Argentina shows how vulnerable "democracy" can be to a well orchestrated propaganda campaign. The concentration of media ownership in the hands of a few groups make it possible now to market political ideas as efficiently as consumer goods. And it works! Just look at how the establishment controlled media used Bush's lies and deceptions to sell his Iraq war to American citizens. The truth is no longer relevant, getting results is all that matters. It is easier to see the crucial role the media have had in shaping public opinion in Argentine and in the US from the outside than from the inside. When I realise that, I wonder to what extent my own political views are memes manipulated by media experts.

The Argentine middle class has all but disappeared under Menem´s regime leaving the dominant oligarchy with a majority of the population surviving under the poverty line.  Personal income tax, capital assets tax and inheritance tax which are used to redistribute wealth in socially advanced democratic countries, does not exist in Argentina. The various taxes and contributions that finance the federal and provincial budgets are applied the same way to the rich and the poor.  Because of that and of a corrupt the fiscal bureaucracy, the fiscal load of the privileged is proportionally much lighter than that of other citizens. It is therefore not surprising that Argentine is a champion of social inequality, its "gini" coefficient of 0.65 is among the highest in Latin America.

Argentine´s debt is not an abstract number like Kirchner claims, it represents the savings of lenders, the amounts loaned were used to carry out projects and import goods that benefited some Argentines. The problem is that those who benefited most pay little if any taxes and that part of these funds have now found their way into numbered accounts outside of the country.

I recognise that reimbursing the debt would be difficult for the country´s indigent majority under the present fiscal regime but I think it would be different if the privileged were forced to contribute. One hundred and eighty billion dollars is a lot of money, it doesn´t disappear in a puff of smoke, it leaves traces that should be tracked to determine who should reimburse the debt and how. That however is just my private opinion. The majority of Argentines seem to think that not paying the debt would be just fine.

For me, the non-payment of debts is shameful but that does not seen to make a dent in the enormous self esteem of Argentineans who generally think they are smarter, more handsome and intelligent than their South American neighbours. Argentines take themselves for Europeans but they lack the discipline, solidarity and respect of the common interest without which the European Union and the Euro would not have been possible.

The short term stakes of the debt problem are considerable. If Krueger manages to force Argentine to pay its debts, the government will have to implement fiscal reforms compelling the wealthy dominant oligarchy to contribute because that's where the money went and because the impoverished majority could not honour the country's commitments alone. In my opinion important new taxes on the rich are unlikely considering the control the oligarchy has on public opinion and the government through the media. If Kirchner manages to weasel out of the country's commitments, it will be the victory of manipulation, of corruption and of the spoliation of a country by its elite. The same situation, transposed into the business world would be a fraudulent bankruptcy liable to criminal charges.

More importantly, it would be a hard blow for the international financial system that depends primarily on trust...

Long term, I cannot see how Argentina can find a durable solution to its financial problems without a serious reduction of the excessive individualism of its citizens, and the development of a sense of collective responsibility that I think are required to win the struggle against the corruption that I feel is the principal cause of the country´s problems.

Nations don´t change their national characteristics easily. The northern Europeans persist being reserved and those of the south remain expansive.  North Americans are still chauvinistic and manicheist, the Chinese remain industrious, the Japanese, workaholics, and so on...  It is not very likely that the egocentric Argentines will suddenly discover the collective values, civic discipline and sense of nationhood that would be required for their country to rid itself of the corruption and extreme social inequality that prevent its development. It will not be easy for the Argentine people to escape the Spanish absolutist heritage that legitimate power comes from the top of the pyramid and not from its base. As seen from the outside, the country seems to be fated to remain as unstable and vulnerable to periodic military dictatorships as it has been since its independence from Spain.

The Argentine Character

In two months I met a lot of people in 16 towns and cities but I met none of the powerful oligarchy that control the country. The ordinary citizens I met from upper middle class to poor reminded me of frightened adolescents in a strict boarding school trying to look brave but secretly terrorised by the headmaster. I have come to see them as victims of the greed of the elite to whom they look for leadership. A succession of cruel dictatorships has undoubtedly left its trace on the national character. Argentine egocentrism, seen as the manifestation of a survival instinct, draws understanding and sympathy.

Now that argentine egocentrism has been examined it is only fair to mention two other widely recognised components of their unique personality; their considerable self esteem and their marked tendency to be hospitable to strangers.

Argentines like to joke about their inflated ego. I have heard dozens of these jokes but I'll share only one with you “What is the most common mode of suicide in Argentina?” – “To jump into into the void from the top of one´s ego!”  Unfortunately the South American neighbours who are the object of  Argentine disdain do not appreciate this trait at all and qualify Argentines of being haughty, aloof, superb and a number other less printable expressions.

After all these critical comments on their character,  I am pleased to emphatically mention the remarkable cordiality and hospitality with which Argentines spontaneously greet strangers.  This tradition of hospitality is said to come from the early  gauchos that roamed the pampas living off wild cattle before the land was partitioned to landowners. Somehow it was transmitted through the ages and maintained even in city life. I have visited many people in many places but few have greeted me as warmly.

Finally, sharing with you the analysis of the Argentine Character emailed to me by argentinean reader of this page might help understand the contradictions that hamper the development of this country. Let me add however that people are more loveable through their defects than through perfection and that Argentina is definitely a country I will be happy to visit again.


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