External public debt allows countries to finance their growth and develop resources for repayment or to sustain a critical balance of payments or reserve situation.
Sometimes, the difficulty of paying this debt makes it necessary to reach agreements with the International Monetary Fund, which requires the signatory country to negotiate and accept conditions that distance it from the difficult fiscal, monetary and trade balance situation that has led it to need agreement.
Between 1974 and 2021, Argentina increased the stock of its external public debt from 4 billion dollars to 160, a growth rate of 8.3% per month. In the same period, the average growth of GDP per capita was 0.4% per year.
During the presidency of Mauricio Macri (2015-2019), it acquired new debt for 90 billion dollars, including the 44.5 disbursed to comply with Agreement 21 with the IMF (June 2018). In this way, renegotiating maturities or declaring the country’s fifth default was avoided.
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In 2022, with a risk country of 1,900 basic points, in order not to fall into default it was inevitable reach a new agreement: the conditions agreed in 2018 were impossible to comply with.
In the negotiation, Alberto Fernández agreed to the conditions imposed by the IMF: reduce the public deficit and currency issuance and accumulate reserves in the Central Bank of the Argentine Republic. The Fund establishes conditions for the macroeconomic balance of the countries without paying attention to their development problems.
What came first?
Is the inability to service the external debt a consequence of the macroeconomic imbalance or is the macroeconomic imbalance a consequence of the economic development crisis caused by the attention of the external debt?
If the crisis is the origin of the imbalance and, therefore, of the indebtedness, only complying with the conditionalities imposed by the IMF will not resolve the country’s macroeconomic instability because the fund’s requirements do not address the causes of the imbalance. Argentina’s external debt derives from an economic structure that makes external indebtedness an inevitable consequence of its operation.
The relationship of Argentina with the IMF It began in 1958, with the disbursement of 43 million dollars. Agreement 22 renegotiates that of 2018, in which they disbursed 44.5 billion dollars. The disbursements of the 20 previous agreements add up to 30 billion dollars.
Since 1974, Argentina’s public foreign debt has grown by a cumulative annual 8.3% and the number of people below the poverty line by a cumulative annual 7%. GDP per capita in 2021 was lower than in 2007 at constant prices.
Economic stagnation is the matrix of external and social debts, which in turn are inseparable: addressing the external public debt has not made it possible to promote growth or the well-being of citizens.
stuck, with a 50% annual inflation and a public spending from around the 40% of GDP, and of which a huge proportion are transfers or subsidies to alleviate the distressing social debt, twenty million Argentines below the poverty line live in the suburbs of large cities. This lack of resources frustrates the lives of 60% of those under 14 years of age.
The year 1974 was the last in which the objectives and instruments of the nation’s economic policy had economic growth, full employment, development guided by indicative planning, fiscal promotion of industrial investments and a financing structure as their north. long-term, based on the selection of projects with the criteria of shadow prices (that is, attribute a price to them to do a cost-benefit analysis).
In 1975 those objectives and instruments were abandoned. The dominant idea was that industrialization was an exhausted process. It was necessary to bet, exclusively, on the growth of the primary sector. This would have to provide the resources to substitute the national production, of little efficiency, by imported goods, cheaper, to improve the quality of life. While the new model matured, public debt would finance the deficits.
The results, beyond sporadic growth, have been stagflation and financial and social debt, with a State that has doubled its size compared to the GDP of 1974 and lives in permanent deficit, financial and in the provision of social goods and collective infrastructure. .
A review of the history of debt
In its first century as an independent nation, Argentina fell into default in 1827. This debt began to be amortized in 1857. It fell again in 1890. But from 1857 to 1890 the GDP multiplied by 5 thanks to the productive occupation of the territory, immigration and the inflow of capital and external credits, which allowed this expansion.
The default of 1890 occurred, then, in a period of exuberant growth, but in the framework of an extraordinary national and international financial disorder.
The crisis of 1930 began the process of import substitution industrialization and, after World War II, the welfare state was established.
Between 1944 and 1974 Argentina registered, for periods of 30 years, the highest growth rate in its history.
The agro-export model of the 19th century, completed in the 1930s, lacked the industrialization of raw materials in the place of origin. The consequence was the growing territorial demographic imbalance.
The model of industrialization and the welfare state had yet to complete the stage of export industrialization that had begun vigorously in the decade between 1964 and 1974.
In 1975 that stage was aborted. An economy dominated by external constraint was imposed. In 1982/1992 and in 2001, Argentina experienced its third and fourth defaults.
The industricide started in 1975 and the insufficiency of the agro-export economy left in the past that country that came to have the highest GDP per capita in the region.
From 1964 to 1974 it grew an average of 8% per year: no year of decline, full employment, Gini coefficient of Nordic levels and 25% of exports of industrial origin.
Political fractures and economic decline
in those yearsguerrilla movements (ERP, Montoneros) considered that the pre-revolutionary conditions were met to achieve socialism by arms.
When Juan Perón won the 1973 elections with more than 60% of the votes, the Montonera guerrilla assassinated the secretary general of the union close to Peronism CGT to break the social pact that sought the export deepening.
At the same time, an academic view was added to the criticism of the model that supported the exhaustion of industrialization. They understood, for example, that the industrial pattern was the ultimate cause of inflation.
The result of the guerrilla was the genocidal dictatorship and its economic result, the explosion of external and social debts, stagnation, two hyperinflations, an inflation that largely doubles that of the previous period, and growing public spending with a notable deterioration in Argentina’s economic and social infrastructure.
The influence of the IMF has not been responsible for the decline. The economy model for debt was applied before going to the IMF. They called him as a result of the application of that model.
The decline began by aborting a productive development model, its tools, long-term indicative planning, tax incentives, and long-term financing of reproductive investment.
Without a reproductive investment of more than 25% of GDP, there is no way to achieve growth and logical fiscal consolidation. Without investment there is no saving and the contempt for planning and the long term, dominant in 46 years, has been the true cause of the external debt and the social debt.
The IMF issue, while important, is secondary. The problem of the debt is the absence of a consensual strategy for development that, yes or yes, must go through the reindustrialization of the country.
Carlos Leyva, Emeritus Professor. Director of the Master in Regional Integration Processes of the UBA, Buenos Aires’ University
This article was originally published on The Conversation. read the original.