General strike paralyzes Argentina as bankruptcy threatens economy

By Rafael Azul
18 December 2001

Argentina was paralyzed on Thursday, December 13 during the seventh
general strike this year against the government of President Fernando De
la Rua.

The national strike was called by both wings of the General Workers
Confederation (CGT), and by the Argentine Workers Central (CTA) in
the wake of the government’s order last week limiting cash withdrawals
from financial institutions, a desperate measure to stem a run on the
banks. The banking panic was being fueled by expectations that the
administration was about to confiscate bank deposits to service
government debt.

The walkout was widely supported by the middle class, which is being
ruined by the current crisis. The night before, hundreds of thousands of
Buenos Aires women took to the streets and balconies banging empty
pots. The deafening noise was accompanied by darkness as Buenos
Aires’ inhabitants and thousands of small businesses turned off their lights
in unison. Even swanky and usually brightly illuminated Corrientes
Avenue, Buenos Aires’ theater district, went dark as theater owners
joined in the protest.

During Thursday’s strike, demonstrators blocked some of the main
access roads to this sprawling capital city. Others set up a soup kitchen
on the street across from Economic Minister Domingo Cavallo’s
residence, chanting slogans demanding his resignation. Banks and state
offices were stoned in some areas of the nation’s interior.

In the interior cities of Cordoba, Rosario, Mendoza, Mar del Plata, San
Miguel de Tucuman and General Roca, employed and unemployed
workers marched demanding jobs and subsidies to the jobless. In the
industrial cities of Cordoba, Rosario, Neuquen and Pergamino there
were confrontations with the police.

CTA and CGT leaders are now considering a 48-hour strike this week.

Earlier last week, Argentine Economics Minister, Domingo Cavallo
called on the International Monetary Fund in New York and agreed to its
conditions for a $1.24 billion loan disbursement. These include slashing
the 2002 budget by more than $7 billion.

On Friday, December 14, Finance Secretary Daniel Marx resigned as it
appeared likely that a $163 million payment due on three pending bond
issues would be postponed. Marx’s resignation renewed calls by the
opposition Peronist Party that Cavallo also resign. The latter has taken on
a role akin to the proconsuls of the Roman Empire, dutifully relaying ever
more onerous conditions imposed by the IMF.

The IMF now considers the Argentine crisis the result of structural
problems, such as inefficient tax collections and rigid labor laws. It is
demanding that those problems be addressed. Until then, economic
growth is not an option and Argentina can expect at least another year of
economic depression.

Also last Thursday, Industrias Metalurgicas Pescarmona SA (IMPSA),
Argentina’s biggest overseas power plant builder, announced that it is
unable to service its own dollar-denominated debt. Instead it intends to
issue $137.6 million in bonds to its debt holders. Investors expect that
IMPSA’s default is the beginning of many other corporate defaults.
Argentina’s private sector has been locked out of the credit market
because investors feel that a peso devaluation is imminent. Up until now
the peso-dollar convertibility implied that the Central Bank had sufficient
reserves to maintain parity. It now appears that this may not be the case.

Last week’s controls on bank deposits immediately gave rise to a parallel
market in dollars, which devalued the peso by 40 percent, to 1.40 pesos
per dollar. At that exchange rate, the peso value of all foreign
currency-denominated debt also automatically rises by 40 percent,
virtually guaranteeing the bankruptcy of an entire layer of Argentine

For the average Argentine, pesos and dollars are becoming a scarce
item. Instead state issued bonds, like Buenos Aires’ Patacon and the
federally issued Lecops, are taking the place of money. Many workers
already receive part of their wages in these bonds. For want of pesos,
businesses accept them at a steep discount.

In contrast to the policies of the Clinton administration toward Mexico in
1994, when the US Treasury rapidly intervened to stop the hemorrhaging
of financial capital, the Bush administration opposes a bailout. In this it is
driven both by an extreme free-market ideology and by calculations that
US banks will not be hurt as much as their European and Japanese rivals,
which are heavily burdened by Argentine bonds.