ARGENTINA: The Fall of the Neo-liberal Model

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Dec 22 2001 (IPS) - The ouster of Fernando de la Rúa as president of Argentina signified the failure of the neo-liberal model that was already floundering when the government that collapsed Thursday took office two years ago, according to local analysts.

De la Rúa’s “resignation marks the end of a cycle of history that began in 1976, when a fundamentalist vision of neo-liberalism was adopted, which lasted until today,” former economy minister Aldo Ferrer, the author of the book “The History of Globalisation”, told IPS.

The fall of De la Rúa was the culmination of a protracted crisis marked by a steady fall in economic growth over the past 41 months, an 18.3 percent official unemployment rate, a public debt that has soared to 132 billion dollars, a very real threat of default, and a nationwide social eruption.

When he was sworn in back in 1999, de la Rúa promised to pull this Southern Cone country of 36 million, Latin America’s third- largest economy, out of the crisis into which it had fallen in the last stretch of the government of Carlos Menem (1989-99).

But he was sucked into a spiral of conflicts crowned by two days of rioting and looting Wednesday and Thursday, which left a death toll of 26.

Ferrer said that no economic crisis in Argentina’s history had lasted as long as the current one, which has dragged on for a quarter century. The brief intervals of recovery, he said, were the result of “passing circumstances,” like in the early 1990s, when the currency-board scheme that pegged the peso to the dollar put an end to runaway inflation.

But today’s collapse “paves the way for great prospects” in a country that has enormous potential, said Ferrer, who pointed out that “Argentina is one of the few economies in the world that is self-sufficient in food and energy and has surpluses to boot.”

Ferrer’s interpretation is in line with the view of academics like Ricardo Sidicaro, who said de la Rúa’s downfall not only represented the failure of an administration, but the debacle of the neo-liberal model that Argentines had voted against in the 1999 presidential elections.

In that poll, voters chose de la Rúa of the centre-left Alliance, made up of his Radical Civic Union (UCR) party and the leftist Frepaso, whose platform was “Change”, over Eduardo Duhalde, who represented Menem’s Justicialista (Peronist) party.

The frustrated expectations of voters who were already tired of waiting for the fruits of the neo-liberal reforms and austerity measures triggered a spontaneous outburst of protests that targeted the entire political class and even trade union leaders.

“They better not think it was them who ousted (economy minister Domingo) Cavallo and de la Rúa, because we did it,” one caller to the Radio Mitre station in Buenos Aires, Ariel González, said Friday, alluding to the leaders of the Justicialista Party, who emerged as the heirs to the presidency.

Cavallo, the architect of Argentina’s currency-board scheme or “convertibility law” and a driving force behind the wave of privatisations and structural reforms pushed through by Menem, resigned Wednesday as economy minister, a post he held under Menem and was named to once again in March.

A protester who joined the crowds outside the presidential residence Thursday, where de la Rúa had taken refuge, said that whoever took over the reins of government “better watch what they do, because we’ll take to the streets again.”

Argentines look determined to exercise direct control over their leaders for the first time, after toppling their government Thursday.

Parliamentary Deputy Elisa Carrió, who predicted the collapse of the neo-liberal model over a year ago, acknowledged that “it was the citizens” who brought about the government’s downfall.

“We are witnessing a structural crisis of the system” whose origin – as Ferrer indicated – dates back to 1976, she added.

That year, a coup d’etat gave rise to a dictatorship that claimed the lives of at least 10,000 real or suspected opponents, and which began to implement structural reforms and austerity measures that could not have been imposed under a democratic system.

“That was the start of the unjust distribution of income, which is now set to explode,” said Carrió. At least one-third of the inhabitants of this once-rich country have fallen into poverty.

The de facto military regime, which held onto power until 1983, freed up financial transactions. But its decisions also affected the competitiveness of exports, and Argentina began to fall further and further into debt, said Ferrer.

Argentina’s foreign debt, which was already equivalent to the country’s total exports in 1975, skyrocketed until it was five times the total amount of exports in 1983, when the military regime handed over power to Raúl Alfonsín (1983-89).

Meanwhile, interest payments on the debt, which amounted to 10 percent of exports in 1975, had climbed to 60 percent by 1983.

That process, which triggered hyperinflation that peaked at an annual rate of 6,000 percent, and a wave of strikes, rioting and looting, forced Alfonsín to step down, and president-elect Menem took office six months early.

Then-economy minister Cavallo tamed inflation in 1991 with the currency-board dollar peg, which gave rise to a period of price stability and rekindled consumer spending.

But the benefits of the new system had vanished even before de la Rúa was elected. And the economic model that was followed religiously by Menem and de la Rúa alike was destroyed Thursday by the long-expected social eruption. The big question is what comes next.