Debt crisis, default, and beyond: the Argentine experience Alan Cibils Political Economy Department Universidad Nacional de General Sarmiento Buenos Aires, Argentina June 3-6, 2013 Eurodad-Glopolis International Conference Prague 1 Topics Factors contributing to Argentina’s debt buildup The role of the IMF Default: good or bad? Argentina post-crisis Lessons June 3-6, 2013 Eurodad-Glopolis International Conference Prague 2 Arentine Public Debt: 1966-2000 (billions of US dollars) 160 Military Alfonsín Menem 140 120 100 80 60 40 20 0 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 June 3-6, 2013 Eurodad-Glopolis International Conference Prague 3 Argentina’s 1990s public debt build-up: main causes Privatization of social security: Policy environment: Promoted by IMF and WB, it generated a large fiscal gap covered by borrowing (debt) Fixed exchange rate Inability to conduct independent monetary policy External interest rate shocks: Higher interest rates turned Argentine debt structure into Ponzi scheme June 3-6, 2013 Eurodad-Glopolis International Conference Prague 4 Argentina’s public debt build-up and IMF IMF: Wrong diagnosis of the problem: Confused fiscal spending with debt service IMF still insists on this wrong diagnosis (probably explains its “success” in Europe) Lending conditioned on austerity Austerity deepened recession: June 3-6, 2013 increased capital flight Increased deficit Increased debt Eurodad-Glopolis International Conference Prague 5 December 2001 default Default became inevitable: Following three years of recession and austerity Important to admit that situation was unsustainable Alternative: downward cycle of debt and austerity Only real solution was default +devaluation Liberated fiscal resources for other socially necessary and productive uses No longer needed access to IMF or financial markets due to fiscal surplus Default IS an option to be considered June 3-6, 2013 Eurodad-Glopolis International Conference Prague 6 Post-crisis Argentina Between 2002-2007: Since 2007 (to present): High economic growth, lower unemployment and poverty. Causes: recovery of own currency, devaluation and ability to conduct independent exchange rate, monetary and fiscal policies growing inflation (25% yearly for the last four years) Currency appreciation, economic slowdown, higher poverty and inequality Neoliberal media blame Argentina’s current economic problems on the default: This is FALSE—problems are political and home-grown, unrelated to default. June 3-6, 2013 Eurodad-Glopolis International Conference Prague 7 Lessons Default IS an option (¿necessity?) Recovering currency/monetary policy is key Changing economic strategy is key: Abandon neoliberal agenda/IMF Economic policy should be focused on June 3-6, 2013 Sustainable development Employment Education and Health care Income distribution Eurodad-Glopolis International Conference Prague 8