Argentine loan requires Mercosur agree to trade accord with US!

by Chakravarthi Raghavan

Geneva, 27 Aug 2001 - While the details of the latest $8 billion IMF loan to Argentina to stabilise its economy is becoming a subject of considerable controversy within that country, and its implications on the further belt-tightening for the population, collateral evidence is now emerging that one of the conditions for this package is the signing of a trade agreement between the four Mercosur countries and the United States.

The details of the IMF-Argentina agreement, signed after nearly two weeks of hard ‘negotiations’ between Argentina and the IMF, and the Argentine government and the Bush administration, has not yet been published.

However, according to activist NGOs from the Southern Cone of Latin America and in Washington, tracking the activities of the IMF and World Bank and the US role in them, the information about the ‘trade conditionality’ in the loan agreement has created an outrage among the public in the Mercosur partner countries.

Whether Argentina had consulted its Mercosur partner countries, and got their support for signing such a conditionality is not clear.

But what seems reasonably clear is that after following faithfully, the IMF policies and adjustment programmes and neo-liberal economics and trade policies for several years, Argentina is not out of its crisis, but is plunging further and further into it every day, with its public being forced to accept more cuts in living standards, increasing unemployment and loss of welfare.

The Argentine crisis, and the prolonged recession as a result of convertibility and pegged parity with the dollar, and the currency board system forcing the central bank to issue local currency only to the extent of full dollar reserves to back it, according to all accounts except that of the orthodoxies, has put Argentina on this path, and is seriously endangering its Mercosur partners, particularly its biggest trading partner, Brazil.

According to Southern cone NGOs, one of the conditions for the IMF loan is that Argentina and the other Mercosur members (Brazil, Paraguay and Uruguay) have to sign a 4+1 trade agreement - between the four Mercosur members and the United States. The IMF argument is that only such an accord, with opening of markets and capital, will bring about sustainable recovery in Argentina.

Such an agreement will neither open the US market nor that of Europe to the key exports of the Mercosur members - whether in agriculture, where the exports have to face large US domestic support and barriers, or in manufactures like steel etc where there are tariff and non-tariff barriers and constant harassment of trade through anti-dumping activities.

The US position, in the talks for the Free Trade Area of the Americas Agreement and the various regional and sub-regional agreements, has been that the crucial issues (of concern for e.g. of Brazil or other countries of Latin America) about the way the US anti-dumping law is administered and the need to put them on a negotiating agenda and an agreement, or that US agricultural protection and barriers to imports should also be negotiated, has been that these could only be negotiated in the context of a WTO round of multilateral negotiations.

However, the US has been demanding that other parties to such agreements must open their own markets to US exports, corporate investments and full freedom for foreign investors, as also to adopt Intellectual Property legislation that are ‘TRIPS plus’, namely, higher obligations and less flexibility than is required by the WTO.

In this situation, an IMF conditionality to a borrowing country, that the borrower and its partners in the regional agreement should negotiate and sign a trade agreement with the US, could only mean that they should all accept the US conditions. This means that the IMF, a ‘multilateral institution’, once again will be acting to further the interests of its ‘largest single, but minority shareholder,’ which has a veto over such loans.

This is not the first time that the IMF has so acted: it did so at the WTO during the financial services negotiations when it was used to arm-twist various borrowing countries in the aftermath of the socalled Asian financial crisis - South Korea, Thailand and Indonesia. But it failed in the case of Malaysia - perhaps because Malaysia had already decided that it would follow a different path from that pushed by the IMF and impose capital controls.

After the Argentine-IMF loan agreement was signed, the US trade representative, Mr. Robert Zoellick announced in a statement in Washington that in conjunction with the US government support to the IMF loan package, he would be pleased to meet with the trade ministers responsible from Argentina, Brazil, Paraguay and Uruguay. “The purpose of the meeting,” he announced, “would be to pursue our common interest in free trade as an engine of economic growth globally, regionally and bilaterally.”

The discussions of Zoellick, and the ministerial meeting of the 4+1 (according to the US press release) would be held ‘pursuant to the 1991 Rose Garden Agreement among the US and the four countries’. The areas of discussion would include the launch of a new round of multilateral trade negotiations at the WTO, the negotiations for a FTAA and other possibilities within the 4+1 context, and could be held in September.

A New York Times report of 22 August on the IMF loan package said that the US Treasury Secretary Paul O’Neill “had used Argentina’s case as a way to demonstrate that the administration will back bailouts only when a nation takes painful steps to grapple with its financial woes before seeking emergency help - and then only when there is a high probability that the aid can sustain the recipient through tough times.”

Recently, the Mercosur countries and the Rio Group had asked the US administration to intervene and support an IMF loan - given the economic crisis in Argentina, with serious effects on other Latin American countries including Brazil.

According to a study by Eric Thoussaint, of the CADTM (French acronym for the Committee for the Annulment of Third World Debt), in 1976, Argentina’s external debt stood at $8.28 billion and debt servicing (interest and amortisation) at $1.616 billion.

In 1999, the debt had risen to $147.881 billion and the annual debt servicing to $25.723 billion.

However, says Thoussaint, citing OECD data, the debt was in fact $169 billion.

According to Beverly Keene, coordinator of Dialogue 2000, an NGO coalition representing human rights and other groups in Argentina, the debt is “fundamentally illegitimate”, since it originated in loans taken out by the Argentine military junta (1976-1983), responsible for the disappearance of 30,000 persons during the ‘dirty war’ in Argentina and the Southern cone.

And Gregory Palast, columnist in the English newspaper, The Guardian, has underscored the IMF’s responsibility for the misery in Argentina. Last September, he notes, when Argentina was already in recession, the IMF asked the country to cut its budget further, from $5.3 billion to $4.1 billion, and cut salaries of civil servants by 12-15 percent. The payoff for Argentina was to be a $26 billion emergency package.

But the IMF also insisted on Argentina continuing its policy of pegging the peso to the dollar, enabling speculators and foreign banks to operate freely - but only resulting in Argentina having to pay a 16 percentage point risk premium for borrowing and loans - and forcing Argentina to maintain an over-valued peso.

“This disaster (for Argentina) was created by the IMF policies which transformed a mild recession into a depression and international crisis,” Palast wrote.

The New York Times report had noted that earlier, in opposing the bailouts, O’Neill was quoted as saying on CNN, in relation to Argentina and the loan negotiations: “We are working to find a way to create a sustainable Argentina, not just one that continues to consume the money of the plumbers and carpenters in the United States who make $50,000 a year and wonder what in the world we are doing with their money.”

The Buenos Aires paper, La Nacion, wrote in an editorial on this that O’Neill’s comments were “outside all norms of respect and protocol.”

While the loan to Argentina and the reactions of bankers and financiers have received attention in the media, there has been little attention to the protests and marches by tens of thousands of people on the streets of Argentina, before and after the loan.

The protestors have included doctors, teachers and others who have been continuously forced to take salary cuts to enable the government to pay the foreign creditors.

Argentina has been faithfully following the IMF policy prescriptions, and its public are finding the economy and public well-being crippled.

The New York Times report merely notes that this has been happening all over the world.

However, when civil society activists connect the IMF-World Bank programmes and policies as well as the WTO trade regime (and the efforts of its officials and the major trading partners) and protest against such ‘globalization’ policies and take to the streets, the orthodox and mainstream economists and government leaders of the dominant countries denounce the protestors as ‘anarchists’, and commission their universities and think tanks, and intelligence agencies, to undertake research into how these movements have grown up, function and operate, which of them could be ‘coopted’ and which others ‘suppressed’.

A news analysis in the Washington Post last week, reproduced as a lead story in the International Herald Tribune last week, said that ‘conservative defense intellectuals’ were arguing and suggesting that the United States “embrace its imperialist role’ and enforce a new Pax Americana. – SUNS4956

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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