Buenos Aires rallies against the bankers

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Buenos Aires rallies against the bankers

Sue Branford Monday August 13, 2001 The Guardian

Demonstrations against the Argentine government's handling of the economy are expected to gather momentum this week with three days of protests held by unemployed workers. The "piqueteros," who are gaining support from teachers, doctors, nurses, state employees and pensioners, are planning a 10-day mobilisation next month in which seven columns of protesters will march across the country.

Two days of protests last week ended with 40,000 people pouring into the Plaza de Mayo, the central square of Buenos Aires, in the country's largest organised protest to date outside the structure of the largely discredited trade unions and political parties.

"These protests took part all over Argentina," Victor de Gennaro, one of the organisers, told the crowd. "We are creating something new. Argentines of all classes are coming together to say enough is enough. The government keeps telling us that there is no alternative to the recession they are imposing to free up money for the servicing of the foreign debt, yet they are doing nothing to stop the rich from taking their money out. Since March about $12bn (£8.4bn) has fled the country."

"I'm 56 years old," said one demonstrator, Micaela, "and this has been the worst year of my life. I have two sons, one 20 and the other 22. Neither can get jobs. We're already going hungry and we're going to be made homeless soon."

The protests have been fuelled by unprecedented social crisis. Signs of it are evident all over Buenos Aires, once famed for the elegance of its citizens and the exuberance of its nightlife. Young children are begging on streets. People are sleeping under the viaducts. What makes this crisis so shocking for Argentines is that their country used to be well-off and egalitarian.

"We thought of ourselves as Europeans, not Latin Americans," said theologian Jose Miguez Bonino. "We never imagined that we would suffer from this kind of poverty. It breaks our heart to see our children and our grandchildren queuing up outside European embassies to try to get out of the country. I don't think I know a single family not going through this."

Daniel Muchnik, one of the country's leading economists and a columnist for El Clarin newspaper, believes the origins of the crisis go back to the late 1980s. Hyperinflation, which reached 3,000% in a single year, had made everyone's life a misery, he said. "In 1991 the finance minister, Domingo Cavallo, pegged the local currency, the peso, to the US dollar," he said. The policy successfully ended three decades of high inflation and made Cavallo a national hero.

"But he carried on with the policy far too long," said Muchnik. "The fixed parity with the dollar meant that the government could not print money. The only way that it could fund its lavish spending projects was through selling state companies and borrowing heavily abroad.

"Foreign firms have taken over key sectors of the economy and the foreign debt has snowballed out of control, reaching about $220bn. Today the country simply cannot generate the dollars to service the debt. That is the stark truth."

Argentina has become one of the most expensive countries in the world in which to live. Unable to compete with a flood of imports, most Argentine manufacturers have gone bankrupt. Today, 17% of the labour force is unemployed and economic output is falling. Over a third of the population is living below the poverty line. Only a tiny elite got rich.

President Fernando de la Rua - who came to office in January 2000 and is widely seen as a decent but ineffectual politician - has been trying with increasing desperation to square the circle.

In March this year he brought Cavallo back to the finance ministry, hoping his international prestige and the myth that had been created around his persona in Argentina, might pull off a miracle.

Cavallo, who failed in his initial attempt to revitalise the domestic economy, is currently attempting to restore foreign confidence through a draconian cut in public spending, including a 13% reduction in the wages of most public employees. "The policy can't work," said Muchnik.

Hyperinflation

"The current economic model has died. The government is doing all it can to resuscitate it, but it won't succeed. Argentina is already suffering from the worst deflation in the world. The economy is in a worse state today than during the hyperinflation of the late 1980s. Argentina is facing the most serious crisis in its history."

Muchnik believes the crunch point is approaching rapidly. "Companies, as well as individuals, are taking pesos out of the banking system, converting them into dollars and taking them physically out of the country," he said. Even Mr Cavallo has admitted to personal deposits of $800,000 in the Cayman Islands.

Now Argentina faces the final humiliation of having its future depend entirely on decisions taken in Washington. Four Cavallo aides travelled to Washington last week in an 11th-hour attempt to persuade the International Monetary Fund to provide it with another bailout, of $8bn.

Without this money the country could default on its debt. The IMF's decision will depend, not so much on its assessment of the Argentine economy, which it already seems to regard as a lost cause, but on whether or not it believes that the collapse of the Argentine economy will cause "contagion" - spreading to other debtor nations, particularly Brazil. Such a domino effect could see a serious crisis in the battered global financial markets.

It is a tense moment in Argentina, yet one sector seems oblivious to all the turmoil. In the early evening the street around La Biela - where two cups of tea costs 12 pesos, or £8.40 - were thronged with smartly dressed shoppers chattering away as they examined a glittering display of luxury goods in the shop windows - fur coats, diamonds, haute couture clothes, the latest imported computer models.

Market credit

Yet not far away, in the quarter of San Martin, other Argentines were living a very different reality. About 300 people, mainly women, were chattering away as they waited outside a large hall. Inside, Daniel, who was wrapped up in a couple of scarves and a woollen hat to keep out the cold, was putting out pots of tomato sauce on a table. "I make this sauce according to an old recipe from my Italian grandparents. I'm 49 years old. I've got a degree in business administration but I lost my job two years ago. This is how I'm feeding my six children."

Beside him Elsa, a middle-aged woman wearing a thick winter coat, was spreading out her wares - chocolate cakes, pots of dulce de leche, a kind of fudge, pizza, lentil sauce and onion bread. "My husband used to work in a cake factory but it closed down. We both know how to cook and so that's how we're surviving."

At that moment, a man announced over the loudspeaker that the market was open. People rushed over to Elsa's stall. Within 20 minutes most of her goods had been sold. Daniel's sauce was not in such demand but even so he sold about 15 tubs over the following hour. This was no ordinary market, for not a single peso changed hands. Both Elsa and Daniel were paid in creditos, Monopoly-style money created by the people themselves. They then used these credits to purchase clothes, vegetables, toys, books.

"The strength of this scheme is that it creates wealth," said Daniel. "I can take 10 pesos and spend it on tomatoes, onions and herbs in the street market. I then make this sauce, which brings me in 30 credits, equivalent to 30 pesos. It is a real salvation for us, for everyone is so short of money."

About 800,000 people go to these barter markets in Buenos Aires alone.

Yet there is no escaping the feeling of despair that is taking over the city. Many Argentines have taken out dollar loans to purchase their homes, their cars, and their washing machines. In an internal memo, the Bank of America predicted that if Argentina were forced to devalue, the peso would drop to somewhere between 2.5 and four to the dollar. If this happens, the cost of these loans will rise prohibitively. Reluctantly and angrily, most Argentines still support Cavallo and hope against hope that even at this late hour he will be able somehow to avert default and devaluation.

At night, a man juggling five flaming torches weaves his way dangerously through the traffic in the central avenue of Buenos Aires, the 20-lane Avenida 9 de Julio, which in happier times the Argentines used to say was the "widest avenue in the world". While people look at him with interest through their car windows, they ignore his request for money. He seems to symbolise Argentina's predicament.

• Sue Branford's Assignment on Argentina will be broadcast on the BBC World Service on August 19 (08.00 and 19.30) and on 20 August (03.00)

http://www.guardian.co.uk/business/story/0,3604,535788,00.html

-- Martin Thompson (mthom1927@aol.com), August 13, 2001

Answers

This is an important article. Absolutely fascinating. "This was no ordinary market, for not a single peso changed hands... paid in creditos, Monopoly-style money created by the people themselves...About 800,000 people go to these barter markets in Buenos Aires alone..."

So, by implication, millions of people (the shoppers plus their families, in B.A. and other Argentine cities presumably) have so little faith in -- and so little supply of -- dollars or pesos that they instead depend on what the journalist calls "Monopoly money." Of course, this derisive term could equally be applied to the dollars themselves. It appears the "creditos" are adequately backed by the people themselves, and this has more weight than the Wall Street bankers' words. To the extent that modern currencies (no longer backed by gold) have any meaning at all, they depend on the faith (delusion) of the people using them. It would appear that for large numbers of poor/working people in Argentina, the official currency system has *already* collapsed. The "nearly bank runs" we have been wondering about are not the main symptom. The creditos are.

Coming soon to a country closer to you?

-- Andre Weltman (aweltman@state.pa.us), August 14, 2001.


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