Why Argentina¡¯s request for an IMF loan is bringing back bad memories

Talk of the International Monetary Fund (IMF) just brings back bad memories in Argentina. It¡¯s almost a curse word, associated with austerity measures and the worst financial cataclysms.

¡°It¡¯s like going backwards.¡± ¡°We have already lived through this.¡± ¡°It¡¯s more of the same.¡± That was the talk to be heard on the streets of Buenos Aires almost at the same time as President Mauricio Macri was announcing on television that he would be seeking assistance from the IMF, the first time Argentina has had to do so in 15 years.

The IMF was never the main creditor of Argentina, but the arrival of investment depended on its approval

The feelings expressed by Argentines are justified: the first loan granted to the South American country came in 1957, when the military was running the government. Since then its presence has accompanied every one of the economic crises that have rocked Argentina.

In the 1990s, the IMF passionately backed the Convertibility Plan implemented by then-economy minister Domingo Cavallo during the government of Carlos Menem. The plan created a currency board that pegged the dollar-peso exchange rate. But today everyone associates the IMF with the failure of that model in 2001. The government of Fernando de la R¨²a had agreed a $38 billion loan to sustain the inherited one dollar-one peso parity. But only two payments were made, and the suspension of the third precipitated the end of the Convertibility Plan and caused the worst economic crisis in living memory for Argentina.

Eduardo Duhalde, who stepped in for De la R¨²a, resorted to the IMF twice, but it demanded ever-tougher conditions, always related to cuts in public spending and a reduction of the deficit. The IMF was never the main creditor of Argentina, but the arrival of investment depended on its approval.

There is a whole generation aged 40 and above that knows what happened with the IMF. Whenever they have applied their recipes the workers had to pay the consequences

Ezequiel, teacher

By 2006, then-president N¨¦stor Kirchner managed to eliminate the deficit thanks to extraordinary revenues from commodities exports. Emerging economies were living through years of economic bonanza and Kirchner made a move with dramatic effect: the debt of €9.8 billion that Argentina still had with the IMF was cancelled and the country was declared free of conditions. The flags of supposed economic sovereignty were flying high, and the Argentine people repaid Kirchner with their votes.

But the tailwinds did not last. The prices of raw materials fell and Argentina began to spend more than it was producing. The Kirchner government then decided to resort to pesos for its financing, using mostly money from pensions. With access to external credit cut off, it lent to itself by printing money. As a result, it didn¡¯t have to be accountable to anyone else.

Macri came to power in 2015, and stated that the situation he had inherited was unsustainable. He returned to the external markets. First he paid €9.3 billion to the so-called vulture funds, in order to settle the lawsuits over the failure to pay back external debt declared in 2001. In two years, he took more than €50 billion from the international markets, but it wasn¡¯t enough to turn the peso into a currency that would weather external storms. Yesterday he announced that, once more, Argentina would be asking the Fund for more help. And the people of Argentina are finding it hard to believe that this time it will be any different.

¡°Going back to this situation is creating a lot of anxiety,¡± says Ezequiel, a teacher, who was 22 when the crisis of 2001 broke out. Others speak of ¡°disappointment.¡± ¡°I don¡¯t know if the Argentine people are going to tolerate this [¡­],¡± adds Ezequiel. ¡°But there is a whole generation aged 40 and above that knows what happened with the IMF. Whenever they have applied their recipes, the workers have had to pay the consequences.¡±

Carlos, who owns a flower shop in the middle-class neighborhood of Villa Ort¨²zar, fears the word ¡°adjustment.¡± ¡°Going back to the IMF means handing over the country, that¡¯s what Macri is doing. Before long they will say that they have to make more adjustments, adjustments for pensioners, selling off public companies.¡± He does not believe, what¡¯s more, that the IMF has ¡°changed,¡± as its managing director, Christine Lagarde, has claimed. ¡°It¡¯s more of the same, or even worse, because every time they are squeezing more and more out of? those who have the least, and the gap between the rich and the poor is getting bigger and bigger.¡±

The unease has even invaded those who voted for Macri in the hopes that the problems inherited from the Kirchner era would be solved. Nacho, 24, who works at a candy store in the evenings, says that he knows ¡°very little¡± about the IMF, but has few expectations about the help that might arrive. ¡°It¡¯s a disaster,¡± he says, ¡°everything is going up in price and I can¡¯t make ends meet. I earn 16,000 pesos [$700] and pay 12,000 [$520] in rent. I am anti-Kirchner because they stole everything, but Macri said that he was going to make a change and there hasn¡¯t been one. I voted for Macri but now I regret it, I won¡¯t vote for him again.¡±

It¡¯s possible that the money from the IMF will give the Argentine economy a bit of oxygen, but the government will have to pay a high political cost in return.

English version by Simon Hunter.