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Reflections Ten Years After The Argentinean Economic Crisis Of December 2001

Reflections Ten Years after the Argentinean Economic Crisis of December 2001

FRIDAY FILE: December 2011 marks the ten-year anniversary of the economic collapse in Argentina, which culminated in civil unrest and political turmoil in the country. The protests and the violent police repression on 19 and 20 December 2001 left several people dead and precipitated the fall of the government. AWID invited Argentinean sociologist Norma Sanchís * and economist Alan Cibils** to contribute their reflections ten years after the crisis.

By Gabriela De Cicco

Sanchís recalls those December days as “a sort of spiral that ended up swallowing absolutely everything and bringing down the De la Rúa government, as well as causing the biggest institutional crisis of the Argentinean Republic, with five presidents being elected one after the other in a single week, and very strong repression of social demonstrations resulting the death of more than 30 people ”.

The crisis and its causes

The crisis that finally exploded in Argentina in December 2001 was the result of policies that were implemented in the ‘90s − a package of neoliberal measures. Cibils explains, “Those policies were designed to remove the State from the economy and let the markets take care of everything because they were supposed to be more efficient.  But there is not a single historical example to prove that this is a viable path to development.”

According to Sanchís, the economic model was based on trade and financial liberalization, with serious social and economic implications and in Argentina, which was also exacerbated by the overvaluation of the peso through currency convertibility[1]. “The indiscriminate trade liberalization, the failure to protect national production, together with the loss of formal jobs (at one time, women’s unemployment reached almost 19%), and the impoverishment of large sectors of the population all combined to weaken the domestic market. The theme of the times was to promote exports and the economy’s main goal was to enable large corporations to export, under the premise that the fruits of those exports were going to pour down to the remaining productive and social sectors[2]. This generated a situation in which local production was scarcely competitive, with companies going bankrupt, particularly small and medium ones”.

In the 90s, under the Carlos Menem presidency, considerable privatization took place, in the midst of corruption and investigations. Public services, like health, many State-owned enterprises, and the whole retirement and pensions system went into private hands, mainly of foreign investors.[3]

For Cibils, “The growth of Argentinean debt during the 90s and its eventual explosion in 2001 can be explained almost solely by the privatization of the retirement system.  And, what the economists call ‘external shocks’ - like the increase in the USA Federal Reserve’s interest rate - made the debt and thus the tax situation unbearable. But I repeat, the debt grew almost exclusively because of that privatization, which besides rendering government accounts unsustainable, also hurt tens of thousands of retirees”.

The effect on women’s rights

Sanchís explains that women’s unemployment was great, open unemployment[4] was very high and under-employment[5] also grew, “But one of the clearest and most visible implications of the crisis for women - and in general of the policies of the 90’s on women - was the State’s withdrawal from the services sector and particularly from the care sector.  That placed a huge burden for the care of dependents in the family and home sphere on women”.

In the North-West and North-Eastern provinces the impact was much higher. Impoverished provincial states with lower budgets were not able to maintain public education,and health and care systems for the sick and elderly. “Women there were most affected, and here is where gender intersects with class. Women had to go to work and also take up greater responsibilities in terms of family care”.

In addition, “A bankrupt State will not meet the demands for sexual and reproductive rights or protection from violence. In these times of crisis, which tend to increase family stress, male desertion and gender-based violence, the State is unable to provide answers to such problems. So, in general, women were greatly affected at different levels, by the policies themselves and by their most evident implications leading up to the crisis”.

People’s resistance to the crisis and the role of women

The people’s resistance was ignited mainly by the bank restrictions – freezing bank accounts and disallowing withdrawals from U.S. dollar accounts and limits on peso’s account withdrawals - known as Corralito, according to Cibils, “This made people go into the streets to protest and I also believe that the significant deterioration of economic activity since 1998, when recession hit Argentina, and the high levels of unemployment, growing poverty and indigence, were all contributing factors.  In urban and middle-class areas, the protest was expressed through big marches, cacerolazos (banging pots and pans) and eventually neighbourhood assemblies where everything was put into question.  There were also other specific protests like those of the piqueteros (picketing against privatisation) that had been already happening for a few years followingthe closing of different industries, oil plants and privatizations, and Mujeres Agrarias en Lucha (Rural Women in the Struggle) in the countryside”.

According to Sanchís, the new climate for social protest that came with the crisis provided women with a space to equally participate as protagonists. “Women had central roles in the piqueteros, the form of protest most commonly used by the poorest urban or peri-urban sectors that stopped traffic on roads. They were also in the frontline in the trueque (exchange) networks - leaving their homes in large numbers with whatever they could sell to or exchange with others.[6] Other forms of participation, particularly in urban middle-class and lower middle-class sectors, were through the neighbourhood assemblies. There, women had a voice, were able to make proposals and speak out on an equal basis with men. Another example was that of the companies that went bankrupt and were then recovered by their workers who kept them operational to protect their source of employment”.

Can we speak of economic recovery in Argentina?

Sanchís and Cibils agree that there has been a recovery since 2003. According to Sanchís, a main contributing factor in the recovery process was the increase in the price of commodities[7], for instance agri-foods, that resulted in better terms of exchange, which allowed the country to begin a period of very impressive growth that went on for several years, but which has decelerated in recent times.

“Strengthening the regional integration process in South America led to the revival of the exchange between our countries as well as industrial production in some areas. Internal policies focused on reviving the domestic market, diversifying exports and their destinations, and took proper advantage of external factors.  With the reserves stocked, thanks to the positive export balance, and the renegotiation of foreign debt after the country went into “default”, it was possible to increase social expenditures and make the domestic market more dynamic. Social policies aimed at improving the quality of life, like bringing the retirement system back into the State and broadening the scope of those entitled to retirement, and the Universal Child Allocation[8]. These measures are very different from those recommended by international bodies to the European countries currently facing a crisis”[9].

Cibils does not question whether there was growth or not but does question the social recovery. “To what extent does this so-called “model” differ from what was being implemented in the 90s? To what extent is the Argentinean productive matrix of today a departure from the productive economy of the 90s?  These are issues that allow for much more discussion. It is clear that poverty decreased – after reaching 57% in the second half of 2002 – and now the data provided by most survey companies say that poverty is around 30%.... but considering that there was a record growth for seven or eight years, the reduction seems to be small. One would expect a much stronger improvement in this sense.  And indigence still exists, which I find still harder to explain in a country like Argentina, a food producer”.

What lessons learned from the Argentinean crisis could be useful for the current world crisis?

According to Sanchís, “It all depends on which sectors are prioritized. If policies are aimed at preserving the good health of the financial sector, and significant amounts of money are injected into the banks, and all foreign debt obligations continue to be met, you will have one kind of result. But clearly those funds are being taken away from other sectors, like the domestic market, small businesses, the poor, pensions, etc. and the costs of the crisis end up being paid by the most disadvantaged. In the crisis, there are sectors that increase their profit, are granted disproportionate benefits, while, as we well know there is a huge majority that is adversely affected. Then I think the decision on which types of measures and policies to adopt will completely change the landscape in terms of which interests are being protected and who is being favoured. It was clearly right to prioritize domestic markets and production - the recovery in general generated a significant level of growth.  I don’t say development, because obviously the country still faces a huge debt in terms of distribution of wealth”.

Cibils says, “First we can see that the default was positive, contradicting what the financial markets and the IMF are still saying to scare indebted countries; it was positive because it gave the country the opportunity to start all over again. The other positive element was the recovery of monetary sovereignty - that is, to leave convertibility behind and devaluate. The devaluation of the peso was what allowed the economy to reactivate itself and grow. Another important lesson that Argentina learned quite well, but not fully, is that any solution to the crisis must not be through a return to the international capital markets. To put it bluntly, I believe that capital markets should, as far as possible be avoided, they should be a last resort.”

*  Norma Sanchís works for Asociación Lola Mora and belongs to Red de Género y Comercio.

** Professor and Researcher, Coordinator of the Bachelor’s Degree on Political Economy, Industry School, Universidad Nacional de General Sarmiento.

[1] “Convertibility meant that Argentina lacked the capacity to formulate its own independent currency policy, as its currency was fixed to the dollar, it was not possible for the country to do the usual thing in case of recession, which is to issue currency. In this sense, it could be argued that Argentina had lost its sovereignty in terms of currency. Which is not very different, at least conceptually, from what is happening now to Greece and to some countries placed at the periphery of the Eurozone” (Alan Cibils).

[2] The remarkable loss of formal employment brought about the breakdown of social protection networks, like retirement systems, union-run health insurance plans, all the support provided by social security to the most disadvantaged sectors. Policies attempting to compensate for these flaws usually had to do with segmenting the demand, creating policies for the so-called vulnerable sectors with a very limited efficiency, very restricted to specific sectors considered “beneficiaries”, “clients” or “consumers” of social policies, all this in a context in which one of the institutional implications was that the State resigned all its regulatory ability in favour of the free play of the market, with the resulting huge increase in social fragmentation, polarization and damage to the least favoured sectors. All this was compounded by de-centralization policies reflecting this will to downsize the State, particularly to cut off expenses in social services, which meant that the federal State transferred to the jurisdictions, provinces and municipalities, its responsibilities of health services and education, among others. Those jurisdictions, and particularly the poorest ones, did not have the capacity to absorb a growing demand and this resulted in heavy deterioration at the social level. (NS)

[3] “Argentina was one of the countries of the world signing the most investment agreements with different countries and regional blocs, mostly aimed to guarantee foreign investment in the country” (NS)

[4] During its XIII International Conference on Statistics, October 1982, the ILO recommended the following definition: those who did not work during the week under study; actively looked for employment, that is, engaged in concrete actions to find employment; and were available to begin working immediately. These are the three requirements for open unemployment to exist: not to have a job, to look for it actively, and to be ready and available to work.

[5] The phenomenon of those who wanted to work more hours than what they were working

[6]Clubes de trueque (exchange clubs) were an element of Solidarity Economy that were key for a few sectors of the population. The loss of monetary sovereignty implied that as a result of recession and also because of the corralito, the amount of cash in the streets was seriously reduced. Then, what trueque did was allow people having skills or the ability to produce something to exchange if for something else that s/he needed. Cibils explains that “in a way, it created a sort of parallel economy, with its own currency, that in some municipalities was accepted even to pay for services or taxes. Those were currencies not issued by the State but by the clubes de trueque. This shows how little cash was available. Another indicator pointing in the same direction is the many provincial bonds, or semi-official currencies, even at the national level, that also existed”. (AC)

[7] Commodities are the primary products being exported, without any added value. They are basically agricultural and livestock products, or oil (NS).

[8] Asignación Universal por Hijo (Universal Child Allocation) is a social insurance paid by the Argentinean State to unemployed or informal workers for every one of their children younger than 18; from May 2011 onwards, it has been extended to pregnant women after the 12th week of pregnancy (http://es.wikipedia.org/wiki/Asignaci%C3%B3n_Universal_por_Hijo)

[9] When the intention is to hold the financial system in place at any cost, like the USA did, even at the cost of reducing pensions and cutting off social expenses, what is being applied is known as pro-cyclic measures. That is, when the country goes into crisis instead of promoting anti-cyclic policies that allow for increasing the domestic market and strengthening the economy, if expenses are adjusted, domestic investment decreases and the crisis worsens even more. That is, they reduce people’s purchasing power by shrinking the domestic market and then the economy begins to drastically slow down (NS).

Article License: Creative Commons - Article License Holder: AWID

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