Analysis: The failed neoliberal experiment of Argentina an apt meeting place for paralysed G20

Ben Wray

Argentina, the original failure of neoliberalism, is an apt place to meet for a paralysed G20 that isn’t even talking about the big structural problems in the global economy, Ben Wray finds

THE 20 largest global economies are meeting in Buenos Aires, Argentina today [30 November] to kick-start a weekend of talks, most of which are expected to go nowhere.

Recent G20’s have been paralysed by division, most importantly between the US and China, as the tit-for-tat trade war between the two largest economies, sparked on the US side by Donald Trump, has no end in sight.

Chinese President Xi Jinping would like to come to a deal with Trump as tariffs are hurting the exporting giant more than Washington. But Trump wants big concessions if he is going to give up on his trade war, which is useful politically for the US President, who wants depict himself as a fighter for the American manufacturing sector. The Chinese are not minded to show too much weakness, and thus the outcome is likely to be deadlock.

The trade battle reflects the strains on the world economy ten years after the global financial crisis. As we have pointed out previously, deglobalisation is not just an idea in Trump’s head – the crash has seen global corporations revert back towards where they are headquartered as they seek to reduce risk.

What is driving this is enormous structural problems. Most importantly, the global economy is massively overloaded with debt due to the dominance of finance in the neoliberal age of capitalism. As the following two graphs show, financialisation has permeated every part of the economy in a way that is historically unprecedented.

This is not sustainable – debt growing much faster than the size of the economy can only end in defaults. The 2008 financial crash should have been the major correction the global economy needed, but the remedy was to bailout banks and buttress financialisation through monetary policy deliberately designed to keep interest rates rock bottom. Central Banks have been deployed worldwide in a massive exercise of kicking the can down the road.

Re-inflating the bubble of financialisation has resulted in growth being driven by rising house prices and asset values, which has been good for those who own assets and bad for those who don’t. The result is an enormous rise in global wealth inequality, and GDP increasingly de-linked from living standards.

So not only is the financialisation model inherently unsustainable, it doesn’t benefit the majority of people.

In that context, Argentina is an apt place for the G20 to meet. The Latin American country is in many ways a case study in the failure of neoliberal economics, and in what happens when the debts can no longer be paid.

From the early 1990’s until 2001, Argentina was a poster boy for IMF structural reforms, backed to the hilt by the US. The economy was privatised, the budget deficit was reduced and the currency was pegged to the Dollar.

READ MORE: 50 civil society groups challenge IMF to abandon austerity and to fight inequality

Recession hit in 1998, and when Fernando de la Rúa took office in 1999 he immediately sought assistance in the form of IMF loans. In March 2000 a bailout package was agreed, tied to – you guessed it – austerity .

By December 2001, with recession deepening and mass social unrest on the streets, the Argentinian government could no longer pay its creditors, and by January 2002 the IMF cut the cash flow. Eventually, the Argentine government wrote down 70 per cent of its debts, much to chagrin of banks and hedge funds to this day. By the end of 2002 the Argentinian economy had contracted 20 per cent in just four years – the most rapid economic decline in its history, brought to you by the ‘Washington Consensus´.

Right-wing economists like to point to Venezuela as a supposed example of a failed socialist experiment – but they are less attracted towards the story of Argentina, where neoliberalism’s top minds got the policies they wanted, and the policies delivered an economic and political disaster.

We all know that the IMF did not learn from this episode, and neither did many other governments desperate for cash who have subsequently turned to the IMF (see Greece 2010).

READ MORE: How Greece helped Germany write off half of its debt in 1953

Indeed, Argentina may not have learned its own bitter lesson. Mauricio Macri, Argentinian President and host of the G20 Summit, came to office in 2015 and lifted exchange rate restrictions, leading to inflation ballooning. The escalating crisis led to Macri going cap in hand to the IMF once again, and received a $50 billion credit line, tied – you guessed it – to austerity.

In a G20 counter Summit in Buenos Aires last week , former Argentine President Cristina Fernández Kirchner slammed Macri’s IMF loan, saying it made his government “mere managers of policies that are imposed from abroad”.

The ‘Argentine paradox’ is much discussed in economics literature – a country which became an advanced economy, and then went into consistent decline, starting in the 1930’s and then falling into one crisis after another ever since. It shows how capitalism is not one long march of progress.

But, when you look at the state of the G20, does anyone actually need this reminder? The world’s leaders are so busy fighting fires, usually of their own making, that they aren’t thinking about how to fix this rotten system. Climate change should be an urgent emergency for the 20 leaders, but it is likely to get little more than acknowledgement (and not even that by some leaders). The last place you should look to for answers to the world’s problems this weekend is Buenos Aires.

Picture courtesy of G20 Argentina