Kirchner Rescued Argentina

This article was also published in The Guardian.

The sudden death of Néstor Kirchner today is a great loss not only to Argentina but to the region and the world. Kirchner took office as president in May 2003, when Argentina was in the initial stages of its recovery from a terrible recession. His role in rescuing Argentina’s economy is comparable to that of Franklin D. Roosevelt in the Great Depression of the United States. Like Roosevelt, Kirchner had to stand up not only to powerful moneyed interests but also to most of the economics profession, which was insisting that his policies would lead to disaster. They proved wrong, and Kirchner was right.

Argentina’s recession from 1998-2002 was indeed comparable to the U.S. Great Depression in terms of unemployment, which peaked at more than 21 percent, and lost output (about 20 percent of GDP). The majority of Argentines, who had until then enjoyed living standards among the highest in Latin America, were pushed below the poverty line. In December of 2001 and January 2002, the country underwent a massive devaluation, a world-historical record sovereign default on $95 billion of debt, and a collapse of the financial system.

Although some of the heterodox policies that ultimately ensured Argentina’s rapid recovery were begun in the year before Kirchner took office, he had to follow them through some tough challenges to make Argentina the fastest-growing economy in the region.

One big challenge came from the International Monetary Fund (IMF). The Fund had been instrumental in bringing about the collapse – by supporting, among other bad policies, an overvalued exchange rate with ever-increasing indebtedness at rising interest rates. But when Argentina’s economy inevitably collapsed, the Fund offered no help, just a series of conditions that would impede the economy’s recovery. The IMF was trying to get a better deal for the foreign creditor. Kirchner rightly refused the Fund’s conditions, and the IMF refused to roll over Argentina’s debt.

In September of 2003 the battle came to a head when Kirchner temporarily defaulted to the Fund rather than accept its conditions. It was an extraordinarily gutsy move – no middle-income country had ever defaulted to the Fund, only a handful of failed or pariah states like Iraq or Congo. That’s because the IMF was seen as having the power to cut off even trade credits to a country that defaulted to them. No one knew for sure what would happen. But the Fund backed down and rolled over the loans.

Argentina went on to grow at an average of more than 8 percent annually through 2008, pulling more than 11 million people in a country of 40 million out of poverty. The policies of the Kirchner government, including the Central Bank targeting of a stable and competitive real exchange rate, and taking a hard line against the defaulted creditors – were not popular in Washington or among the business press. But they worked.

Kirchner’s successful face-off with the IMF came at a time when the Fund was rapidly losing influence in the world, after its failures in the Asian economic crisis that preceded Argentina’s collapse. It showed the world that a country could defy the IMF and live to tell about it, and contributed to the ensuing loss of IMF influence in Latin America and middle-income countries generally. Since the IMF was at the time the most important avenue of Washington’s influence in low- and middle-income countries, this also contributed to the demise of the United States’ influence, and especially in the recently won independence of South America.

And Kirchner played a major role in consolidating this independence, working with the other left governments including Brazil, Venezuela, Ecuador and Bolivia. Through institutions such as UNASUR (the Union of South American Nations), MERCOSUR (the South American trading bloc), and numerous commercial agreements, South America was able to dramatically alter its trajectory. They successfully backed Bolivia’s government against an extra-parliamentary challenge from the right in 2008, and most recently stood behind Ecuador in the attempted coup there a few weeks ago. Unfortunately they did not succeed in overturning last year’s military coup in Honduras, where U.S. backing of the coup government proved decisive. But Argentina, together with UNASUR, still refuses to allow Honduras back into the OAS, despite heavy lobbying from Washington. Kirchner also earned respect from human rights organizations for his willingness to prosecute and extradite some of the military officers accused of crimes against humanity during the 1976-1983 dictatorship – reversing the policies of previous governments. Together with his wife, current president Cristina Fernández, Néstor Kirchner has made an enormous contribution in helping to move Argentina and the region in a progressive direction. Although these efforts have not generally won him much favor in Washington and in international business circles, history will record him not only as a great president but an independence hero of Latin America.

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He is also president of Just Foreign Policy.