Chris Harman


The ecstasy, followed by the agony

(September 2001)

From Socialist Review, No.255, September 2001.
Copyright © Socialist Review.
Copied with thanks from the Socialist Review Archive at
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Demonstrator points to grim future

Demonstrator points to grim future

Tony Blair stopped off on the way to Cancun in Mexico for one of his three holidays to give his blessing to the Argentinian government’s attempt to cut pensions and public sector wages by 15 percent. He was joining in a concerted campaign by the US government and the major sectors of the world capitalist class to make the cuts stick in the face of workers’ opposition. For Argentina has become the first big test case as to which class is to pay for the developing world recession.

Not so long ago Argentina was the toast of neoliberal apologists. In 1991 the government of President Menem and his finance minister Domingo Carvallo undertook a massive programme of privatisation. They passed a law making the Argentinian peso equal to one US dollar. They had turned the country, wrote the Financial Times, ‘into an economic region of the US’.

For a time the policy seemed to work. Inflation dropped into single figures. Some of the $40 billion the Argentinian rich had secreted abroad flowed back home, as did a growing portion of international investment. Production rose, as did real wages. Neoliberal ideologists everywhere were ecstatic.

They hardly noticed some obvious flaws. The government was holding down taxes on the wealthy in order to attract investment. But that meant it could only finance its own expenditure by borrowing abroad and selling off previously nationalised sectors of the economy. Exports rose more slowly than imports. What kept the whole economy booming was the willingness of banks, foreign and domestic, to go on a lending spree.

The Asian crisis of three years ago put paid to that. The funds which had poured in to the country now poured out, while the government could no longer balance its books since it had nothing left to sell off. The economy was forced into recession. Unemployment rose to 15 percent, and around 40 percent of what was once the wealthiest society in Latin America fell below the poverty line. Not surprisingly Menem’s party was defeated electorally by a left of centre coalition.

The crisis did not, however, go away. Under the new government it got worse, since declining output reduced government tax revenues still further and made interest payments on past debts even more onerous. After attempts to slash the education budget were beaten back by strikes earlier this year, the president, de la Rua, effectively did a deal with the discredited former government and brought Cavallo back as finance minister.

His ‘solution’ to the crisis is to keep paying the bankers while further impoverishing the mass of the population. Hence the wage and pension cuts. Hence too a refusal to give state governments money to pay their employees’ salaries. The peso is being replaced in wage packets by bonds which are supposedly redeemable at some point in the future. In practice, however, people are only going to get about half their supposed value if they try to spend them – with McDonald’s the only big company keen to accept them.

No wonder most of the country’s teachers have been on strike – there have been repeated strikes of the whole public sector, and unemployed ‘pickets’ who blockade major roads are able to do so because of massive sympathy from employed workers. No wonder, too, that the government is desperate to engage the country’s highly bureaucratised trade union leaderships in ‘dialogue’ over ‘sacrifice’ to deal with the crisis.

No wonder, too, that Blair, Bush and the IMF are backing de la Rua and Cavallo to the hilt. Success for Argentina’s workers would deny the bankers their pound of flesh and set an example for people elsewhere as the crisis spread. The workers are in the front line of a battle which many others are likely to join in the period ahead. And there are signs that, if they hold firm, some sort of victory is possible. The Financial Times has been suggesting that the bankers may have to accept some debt write-off if they are not to lose everything.

Last updated on 1 January 2010