Argentina Could Show Greece A Way Out Of Its Crisis
Alan Cibils
The Greek debt bailout and austerity
saga, including the recent agreement between Greece and the Euro Summit,
has important parallels with the Argentine experience of the late 1990s
and early 2000s. Even given country specific differences, these
similarities are relevant to the choices facing Greeks today.
The terms of the agreement, embodied in
the “Euro Summit Statement” of July 12, 2015, are troubling on at least
two counts. First, from an economic policy perspective, considering that
Greece is in a depression, many of the commitments go precisely in the
wrong direction. Increasing consumption taxes, reducing pensions and a
“zero [fiscal] deficit” will only hurt economic activity and, therefore,
impact negatively on fiscal accounts and debt sustainability. Even the
IMF, a staunch promoter of austerity policies, has recognized that
Greece’s debt is not sustainable.
Second, the Euro Summit Statement
violates Greek sovereignty and democratic institutions. The agreement
requires the Greek parliament to approve legislation under tight
deadlines and the threat of not renewing liquidity assistance for Greek
banks, which the ECB had closed down. This facet of the agreement is so
coercive that one can hardly speak of an agreement at all. It also
mandates the Greek parliament to review all legislation enacted since
Syriza came to power, and possibly repeal any that are contrary to
Troika doctrine. Finally, it stipulates the creation of a fund, under
Troika supervision, to manage the privatisation of Greek public assets.
In other words, Greece has been
effectively placed in receivership by the Troika, despite the popular
vote, the country’s laws and institutions. It also sends a clear message
to Spain, Ireland, Portugal and any other country that may try to
diverge from Troika demands. It is not surprising that the recent
agreement has been labelled “blackmail” by Greek Education Minister
Aristides Baltas or “terms of Greece’s surrender” by former Greek
Finance Minister Yanis Varoufakis.
However, the terms of Greece’s agreement
with the Troika are not really new. Argentina had a very similar
experience in the late 1990s and early 2000s. Indeed, much of the
wording in the “Euro Summit Statement” can be found in the IMF’s
successive memoranda of understanding signed by Argentina, including
“ownership” (of austerity policies by local authorities), “zero
deficit”, “privatisation”, “structural reforms”, etc.
During the 1990s, burdened with a heavy
debt, Argentina implemented a series of far-reaching “free market”
reforms similar to the austerity policies implemented in Greece today.
These included privatisation of all state enterprises, utilities and the
“pay-as-you-go” social security system. Trade, finance and the labour
market were all radically deregulated. Finally, Argentina implemented a
currency board which pegged its currency to the dollar on a fixed,
one-to-one, exchange rate. In doing so, Argentina de facto renounced the
possibility of carrying out independent monetary policy, which is
critical to any country’s ability to manage its economic health. The
currency board was a less drastic measure than the Euro monetary union,
but almost as damaging.
Far from putting Argentina on the path
of debt sustainability, economic reforms made matters worse, with the
privatisation of social security particularly harmful to fiscal
accounts. As Argentina’s rapidly growing debt became unsustainable, it
turned to the IMF for bailouts. The IMF’s conditions, like the Troika’s
today, turned Argentina’s recession into a depression, making the debt
even more unsustainable. IMF prescriptions were also deeply
interventionist, including the requirement that Argentina’s bankruptcy
code be changed to facilitate foreign buy-outs of bankrupt domestic
businesses and repealing a law against white-collar crime.
By December 2001, Argentina was in a
full-blown political and economic crisis, including banking
restrictions. Default was not only inevitable, but necessary to break
the stranglehold of the IMF and its destructive economic policies. The
second essential step was to repeal the currency board and regain
control of its currency and the ability to conduct active monetary
policy once again. Argentina did both, and just three months later, in
April of 2002, the economy began to grow after four consecutive years of
recession.
One should not idealise Argentina’s
default and currency recovery process — it was unplanned and quite
chaotic. Argentina waited until the last possible moment and when the
IMF-sponsored scheme crashed, did the only thing it could: default and
devalue. Despite being an unplanned and chaotic process, its benefits
materialised shortly after.
Argentina’s experience is relevant for
Greece today, despite differences between their economies. The “Euro
Summit Statement’s” neoliberal economic mandate will not take Greece to
debt sustainability, as even the IMF acknowledges. It is more likely to
deepen the Greek crisis, worsening already devastated social and
economic conditions.
Defaulting and recovering monetary
sovereignty were key for Argentina’s recovery. When creditors are
inflexible, it is up to the debtor nation to act based on its best
interest. Policy priorities should shift from servicing the financial
sector to dealing with economic growth and social demands.
It may be a good time for Greece to
re-evaluate the costs and benefits of belonging to the monetary union.
Are the Greek people, economy and productive structure better off as a
result of eurozone membership? Perhaps a good use of the time bought by
the current bailout is to prepare diligently for the implementation of
Plan B.
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