ARGENTINA IS the sharp end of the global economic crisis. The social and political explosion there should not be dismissed as the kind of turbulence typical of obscure parts of the Third World.
Argentina is a highly urbanised and industrialised country that a century ago enjoyed one of the highest standards of living in the world. From a historical point of view it bears many similarities to settler colonies like Canada and Australia that are now securely part of the rich capitalist bloc.
A decade ago Argentina looked set to join the club. In Business Week in October 1991, a euphoric piece with the headline 'Can Latin America Move From The Third World To The First?' enthused over the privatisation policy of President Carlos Menem that was attracting a flood of foreign investment to Argentina.
Neo-liberal policies of privatisation, financial deregulation and public spending cuts were supposed to rescue Argentina and the rest of Latin America from poverty, hyper-inflation and foreign debt. Back in October 1991 Domingo Cavallo, Argentina's economics minister, boasted to Business Week about Latin America's debt crisis, 'In a few months it will be ancient history.'
Last year Cavallo was recalled to office to grapple unsuccessfully with a sinking Argentinian economy, including an official foreign debt of $155 billion. The build-up of foreign debt was a product of the boom of the early 1990s. Cavallo then pegged the Argentinian peso to the US dollar. Attracted by his free market policies and the rich pickings to be made from privatised industries, foreign capital poured into Argentina.
It wasn't just government bodies and big firms that borrowed abroad. Private citizens were encouraged to take out dollar loans, for example as mortgages. Since the peso and the dollar were worth the same, there seemed to be no risk. But the boom went sour.
Argentina was dragged into recession by the reverberations of the East Asian crisis in 1997-8. Brazil, Argentina's closest competitor, devalued its currency in 1999, making its exports cheaper. The obvious way out was to break the peg to the dollar and allow the peso to fall against other currencies. But devaluation would impoverish the Argentinian middle class, who have debts in dollars but are paid in pesos.
Over Christmas the anger of the middle classes, along with that of workers and the unemployed, on the streets forced out Cavallo. He was rapidly followed by President Fernando De la Rua, and then his successor, Adolfo Rodriguez Saá. During his brief tenure Rodriguez Saá suspended payments on the foreign debt. Now the latest of the five presidents Argentina has had in the past month, Eduardo Duhalde, has devalued the peso by nearly 29 percent. The Financial Times underlined the political and social logic involved in this strategy:
'The devaluation scenario presupposes that Argentina can no longer afford its middle class. Economists calculate that real wages must fall 30 percent for Argentina to compete with its peers around the world. But middle class Argentinians have already shown they are not ready to fade away quietly.'
Argentina's role as a neo-liberal showcase means that the crisis has much broader implications. George Bush's administration is watching events there closely. It is close to ex-president Menem, now widely hated both for his economic policies and the corruption associated with his government. The new president, Duhalde, is, like Menem, a member of the Peronist party.
But he has promised to end what he calls the 'perverse model' of neo-liberalism, and promised an 'unrestricted defence of national interests' in the global economy. When he ran unsuccessfully for the presidency in 1999, Duhalde repeatedly attacked the International Monetary Fund, Washington's close ally in imposing neo-liberal policies on the rest of the world.
Washington's fear is that the crisis in Argentina may produce a backlash against neo-liberalism throughout Latin America and maybe the rest of the Third World. The US State Department has called on Duhalde to work with the IMF. The economist David Hale laments in the Financial Times, 'Now the anti-globalisation movement and traditional left wingers are likely to hold up Argentina as an example of how market-oriented reforms can self destruct.' Indeed we will. What is happening in Argentina is of worldwide ideological significance.
Solidarity with the Argentinian rising - cancel the debt, picket the World Bank: Saturday 12 January, 12 noon, 1 Haymarket, central London.