ECONOMY-ARGENTINA: Putting the Foreign Debt Back on the Agenda

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Aug 7 2000 (IPS) - Although Argentina’s bulky foreign debt has a heavy impact on the most diverse sectors of society, it hardly figures on the government agenda, nor is it listed by opinion poll respondents as one of their most pressing concerns.

According to the latest official data, the public foreign debt ballooned from 50 billion dollars at the start of the 1990s to 140 billion dollars today, despite the annual amortisation of the principal as well as interest payments.

To that is added some 60 billion dollars in private debt, which brings the total to 200 billion dollars — a large sum, especially compared to Argentina’s Gross Domestic Product (GDP) of just under 300 billion dollars, or to its 18 billion dollars in annual export revenues.

Nevertheless, the leading concerns of the population this year have been the unemployment rate, which in the first half grew from 13.8 to 15.4 percent, the government’s aim to reduce the fiscal deficit by slashing public spending — with wage cuts for public employees, for example — and the urgent need for social assistance plans.

The question of the foreign debt has faded into the background, and although it absorbs one of the largest portions of the national budget, it is not one of the central concerns of the government, business, trade unions or even civil society.

The most pressing worries mentioned by respondents to the latest monthly survey by a local think-tank, the New Majority Centre, were — in the following order — unemployment, corruption, crime, education, health, pensions, the poor functioning of the judiciary, drugs and low wages.

The country’s foreign debt, which plays a key role in the performance of the economy and thus has implications for the development of society, did not even appear on the list.

In the first half of the year, Argentina shelled out nearly five billion dollars in interest payments alone, and a similar sum is owed for the second half of the year, besides the cancellation of securities to reduce the principal, for a total of around 20 billion dollars.

The latest rise in short-term interest rates by the United States only aggravated the problem, increasing this year’s debt servicing from 8.5 to 10 billion dollars.

That 1.5 billion dollar difference is greater than the amount to be saved by the government through the controversial reduction of the salaries of public employees.

In recent weeks, legislators with close ties to the Catholic Church and trade unionists have been attempting to put the foreign debt issue back on the agenda, putting a special emphasis on the debt incurred by the 1976-83 military dictatorship, which they claim is “illegitimate.”

The group shares the objective of the international Jubilee 2000 movement promoted by Pope John Paul II, which is aimed at achieving a write-off or rescheduling of the foreign debt owed by countries of the developing South in order to reduce the gap between rich and poor nations.

But in the view of some economists, the call by local politicians and trade unionists for the cancellation of the debt owed by poor countries is aimed at a superficial solution which could even be counterproductive, especially if emphasis is put on the demand that debt servicing be suspended.

Economist Claudio Lozano with the Congress of Argentine Workers (CTA) central trade union told IPS that conceiving of the foreign debt as a mere mechanism for transferring resources abroad which must be curbed oversimplifies the problem.

Lozano, an expert on the question of the foreign debt, says the phenomenon can be analysed from three angles: as a mechanism for transferring funds abroad; as a means allowing multilateral financial institutions to “meddle” in the design of domestic economic policy; and as the accumulation of capital.

The growing concentration of assets in the hands of a reduced number of business groups is inextricably linked to the foreign debt, and to capital flight, and “if that logic is not modified, the problems will not be resolved simply by stopping payments,” he maintained.

Lozano and his colleagues at the University of Quilmes and the Latin American Faculty of Social Sciences (FLACSO) say the process began in the 1980s when local companies contracted debt abroad in order to invest at home.

The experts point out that the investment was not productive, but merely speculative.

The companies won foreign credit at low interest rates, placing the capital in Argentina at much higher rates. The revenues, meanwhile, were sent abroad, where they once again obtained favourable returns, Lozano and his colleagues explain.

That mechanism for accumulating capital was partially eliminated in the first half of the 1990s, with the restructuring of the Argentine economy, which brought runaway inflation under control, made possible the refinancing of the foreign debt, and led to privatisations and an opening of the economy.

During that period, local companies placed bids in the tendering of public enterprises, in which foreign investors also took part, in order to take advantage of the government of Carlos Menem’s (1989-99) aim to capitalise Argentina’s foreign debt by selling off public assets.

But the mechanism was revived, and by the late 1990s, the foreign debt had grown by nearly the same amount again, even though the state had shelled out more than 70 billion dollars to service the debt in that period.

“The transfer of resources to foreign creditors in the past decade constituted an important phenomenon, but of less relative significance than the outstanding financial returns attained by the economic groups,” wrote FLACSO economist Eduardo Basualdo in his book “Concerning the Nature of the Foreign Debt”.

Lozano, Basualdo and others thus believe Argentina’s foreign debt problem can only be tackled if the debate takes into account the need to regulate the power of this highly concentrated sector of local and foreign companies, and to put a curb on that mechanism for the financial valorisation of the principal.

“The relationship between the foreign debt and the rise in poverty and unemployment is not clearly perceived, nor are there many sectors that want that relationship to be discerned because the government needs the capital of the very consortiums it should be calling into question,” according to Lozano.

He added that it was improbable that a government like that of Fernando de la Rúa — in office since December — which has evidenced difficulties in collecting taxes and regulating capital, would turn to the international financial system with a unilateral proposal for rescheduling Argentina’s debt.

Lozano believes the state’s capacity to curtail the accumulation of capital in a few hands should be reinforced, and that a common strategy should be hammered out with other indebted countries in the region, like Argentina’s partners in the Southern Cone Common Market (Mercosur) trade bloc — Brazil, Paraguay and Uruguay.

“There would be a long road ahead if such a strategy were adopted, but it could be viable if it were accompanied by an internal restructuring of the concentration of capital,” according to Lozano.

On the other hand, he warned, “the proposal to directly cut off debt servicing payments is an unviable route, because it would imply taking on the global financial system.”