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In a rare admission, Trump’s economic advisor Larry Kudlow admits to the US government’s involvement in bailing out Argentina, even though officially it is the International Monetary Fund that is behind the deal. We speak to CEPR’s Mark Weisbrot about the implications

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GREG WILPERT: It’s The Real News Network, and I’m Greg Wilpert joining you from Baltimore.

Argentineans are mobilizing more and more in the face of their country’s growing economic crisis. Stores across Argentina were closed and the streets of Buenos Aires, the capital, were quiet on Tuesday after the country’s largest union called a 24-hour general strike to protest President Mauricio Macri’s handling of the economy. Inflation is expected to reach 40 percent this year, and unions say that collective bargaining agreements have not kept up with price increases. Here’s what one demonstrator had to say on Tuesday.

SPEAKER: We’ve been suffering from the IMF deal for a while now, with cuts in public spending and education. It’s a crisis in the country framed in a global context in which the right is trying to advance over the workers, over the people. This crisis has been seen in lots of places. Not just here, but in places like Greece and France. They, the right, want to advance over the working class. And we’re here to stop them from moving even a centimeter, because they want the money that’s left to be paid to come out of our pockets.

GREG WILPERT: Meanwhile, Argentina’s currency lost over 50 percent of its value, and President Macri has imposed austerity and public sector layoffs, causing tens of thousands of people to lose their jobs this year alone. He also went to the International Monetary Fund a few months ago to ask for a bailout to the tune of $50 billion, one of the IMF’s largest such commitments to date.

Joining me now to look at the latest developments in Argentina’s economic crisis is Mark Weisbrot. Mark is the codirector of the Center for Economic and Policy Research in Washington, D.C. and the author of the book Failed: What the Experts Got Wrong About the Global Economy. Thanks for joining us again, Mark.

MARK WEISBROT: Thanks for having me, Greg.

GREG WILPERT: So let’s start with the news that the U.S. Treasury might give advice or support to the Macri government. Here’s what Larry Kudlow, Trump’s Director of National Economic Council, had to say about this on Fox News recently. I

SPEAKER: Some of the people the government, they hate the IMF’s medicine. They actually hate the IMF, to be honest. They would much rather be dealing with theU.S. Treasury in some form. Is there any chance that that could happen.

LARRY KUDLOW: Yes. The Treasury is deeply involved in this discussion. Deeply involved. Which is a great thing. And as you and I learned, and others, the only way out of Argentine’s dilemma is to set up a currency board, the peso links to the dollar. But you can’t create a single new peso. No money creation unless you have a dollar reserve behind it. That worked in the ’90s. It brought down inflation and kept prosperity. That’s what they need to do it again. And you know what? The Treasury Department people are on it. They’re on it, David. So you know, keep hope alive on that point.

SPEAKER: There’s hope for Argentina. That’s great to hear.

GREG WILPERT: So Mark, what do you make of this, that Argentines would rather go to the U.S. Treasury than the IMF because most Argentines blame the IMF for the last economic crisis that took place in 2000 and 2001?

MARK WEISBROT: Well, I think the interesting thing about that clip is it shows that what Kudlow is saying is that Treasury is involved in these negotiations, and the IMF is not really just this multilateral organization that it’s presented as by both the IMF officials and also the media. I’ve been writing about this for years. For most middle income countries that go to the IMF, and low-income countries, too- everybody but Europe, basically- the IMF is controlled primarily by the U.S. Treasury Department. So here he is saying that Treasury is going to force this, or push this kind of ridiculous idea on Argentina, which is that they should change their- very radical changes, they should change their whole monetary system. And I don’t think it’s going to happen, but it shows he’s admitting something and, and kind of bragging about something that most of the world doesn’t get to see, which is this powerful influence of the U.S. Treasury Department on the world’s most powerful financial organization, which is the IMF. It’s been for decades the main avenue of U.S. influence on the economic policies of the middle-income and low-income countries.

GREG WILPERT: That sounds a little bit like an admission that they’re being involved this time, but they’re not usually involved- although we know very well that they are. But what about Kudlow’s recommendation of pegging the Argentine peso to the dollar, and that this supposedly worked so well Argentina back in the 1990s?

MARK WEISBROT: Well, it worked well for a bit because it was useful in getting rid of their hyperinflation which they had at the time, but they don’t have hyperinflation now. And so it really isn’t something that you would want to do at a time when there are other methods to bring the 40, projected 40-42 percent inflation they have this year under control. So that’s why. And of course the last time, you know, it worked to get rid of the hyperinflation. But the thing is, you have to get rid of it at some point. You have to go back to having some control over your monetary policy, which you were giving up when you just peg the currency at one peso, one dollar, and you make it a permanent thing. What happened was that led to the terrible crises that Argentina had, especially the depression from 1998 to 2002, during which the peso convertability collapsed.

GREG WILPERT: So we talked about this before, but in a nutshell, how did Argentina get into this mess of high inflation, capital flight, and a falling peso?

MARK WEISBROT: Well, I think they had relatively- they had inflation that wasn’t quite as high when Macri took office in December of 2015. I think his biggest mistakes were all the foreign borrowing, increased foreign borrowing, unnecessary foreign borrowing by the government. Increased foreign borrowing from foreign debt, from $61 [billion] to over $140 billion. And a lot of that was, you know, because they raised interest rates so high. First the 40 percent, then to 60 percent short-term interest rate. That’s the interest rate that’s set by the central bank, kind of like our Federal Reserve sets those interest rates here, called policy rates. And that incurs a lot of speculative inflows. And of course, when in the beginning of May there was a sudden stop of these inflows, and that’s what led to the crisis.

And Macri makes a lot of excuses and tries to blame it on the previous government. But you know, there’s some a, little bit of truth in the sense that they did have some inflation, and they did have to settle with the vulture funds, and they had to foot the exchange rate, which I think the the Peronists would have done if they had won the election. But I think the thing that’s really wrong about it is the bigger mistakes were the foreign borrowing, and then burning through billions of dollars of reserves trying to defend the peso against the dollar. That is, defend the exchange rate. The peso has lost 50 percent of its value over the last year, and it’s hard to argue that it would have lost even more than that if they hadn’t wasted all that money.

GREG WILPERT: So what would be needed for Argentina to get out of this mess, and how could the U.S. help were it really interested in doing something that would benefit Argentina and its people?

MARK WEISBROT: Well, they need to change these policies. I mean, they are committed to this austerity. They’re going to cut 8 percent of spending in real terms over the next year. That’s the deal they just made with the IMF. This whole IMF package is a very dangerous thing because they can get caught in this cycle like the European countries did, and like Argentina did in the late ’90s, where they just continue to shrink the economy, which they’re doing kind of semi-intentionally in order to reduce the current account deficit that is trade- mostly trade deficit. And so that’s a big problem right there, is the requirement. If the U.S. wanted to help them, they could allow the IMF to help them without shrinking their economy.

But I think there’s also, you know- there’s other, another bigger problem, and that is that both the government and the IMF share this agenda of trying to transform the economy into something much more unequal. You know, the prior government, the Kirchners, they reduced poverty by over 70 percent, and extreme poverty by even more than that. And you know, now they want to come back and they want to, you know, they want to do everything they can- they’re going to cut, they’re goign to try and cut pensions, for example. A lot of these- shrink the size of the government, do a lot of the standard neoliberal things that they did back in the ’90s when they made the economy into its last terrible failure. So you see, this, it’s a really big thing for the IMF because the whole world knows how badly they messed up the last time. And they don’t want to do it again, because then it’ll just be an even bigger stain on their reputation. But at the same time they are committed to this program that the government wants, too. And there’s conflict between the government and the IMF, also because the government has another goal, which is to get reelected next year. And so they want everything, they want the economy to be growing by then. And so that’s that’s kind of why, a lot of where this crisis comes from.

GREG WILPERT: OK. Well, we’re going to continue to follow this, story of course. I was speaking to Mark Weisbrot, codirector of the Center for Economic and Policy Research. Thanks again, Mark, for having joined us today.

MARK WEISBROT: Thank you, Greg.

GREG WILPERT: And thank you for joining The Real News Network.

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Mark Weisbrot is Co-Director of the Center for Economic and Policy Research in Washington, D.C. He is also the author of “Failed: What the ‘Experts’ Got Wrong About the Global Economy” (2015, Oxford University Press).