PRESS RELEASE
Argentina Makes IMF Blink,
Misses Chance To End IMF System
by Cynthia R. Rush and Dennis Small
March 10, 2004 (EIRNS)—Early on the afternoon of March 9, after several days of tense negotiations, the Argentine government and the International Monetary Fund (IMF) stepped away from a total showdown on the issue of Argentina's restructuring of $99 billion in public debt on which it defaulted in December 2001, and the two sides came to a time-buying agreement. Negotiations went down to the wire, with President Nestor Kirchner threatening to default on a $3.1-billion payment due the IMF that day, and refusing to bend to fierce international pressure to pay more on the defaulted public debt than the 25% of face value he announced months ago.Under the terms of the accord, the IMF agreed to lend Argentina $3.1 billion, which will be used to cover Argentina's $3.1-billion payment back to the IMF—a straight debt rollover—without imposing new austerity requirements on the country.
The Kirchner government thus forced the once-mighty IMF to blink, and won this round of the battle by threatening to use its "debt bomb" if forced to the wall. But Kirchner failed to deliver the knock-out punch to the entire IMF system, which in all likelihood would have resulted if Argentina had outright defaulted on its $3.1-billion payment.
It was in fact fear of such a financial chain-reaction which drove the U.S. Treasury to instruct the IMF bureaucracts to back off from the showdown. As U.S. Presidential candidate Lyndon LaRouche commented on hearing the news: "There was enough dynamite there, that the Argentine crisis could have been a detonator for all that explosive power. That's the secret of this thing: The U.S. Treasury and IMF had to side-step the confrontation, and try to buy time."
LaRouche was referring to the latest Bank for International Settlements quarterly report (which documents the multiple dangers of financial explosion internationally), and the looming bankruptcy of the U.S.'s giant Fannie Mae and Freddie Mac mortgage agencies, which in recent months lost an astounding $25 billion in derivatives speculation, according to the Financial Times of London.
Another stick of financial dynamite is the debt of Argentina's neighbor Brazil, which owes some $30 billion to the IMF. Together, Argentina and Brazil account for over 50% of all the debt owed the IMF. The bankers' nightmare is an alliance of Argentina and Brazil to use this debt weapon to force global financial reorganization around the specifications of LaRouche's New Bretton Woods Proposal.
Precisely such action was called for by the international LaRouche Youth Movement, which issued an open letter to Brazilian President Lula da Silva March 8, and held rallies before the Brazilian and Argentine embasssies in a half-dozen countries. The letter, published in the March 11 edition of Listin Diario, the leading newspaper of the Dominican Republic, urged Lula to:
"1) Firmly support the sister republic of Argentina in its current life-and-death battle against the International Monetary Fund and the so-called 'vulture funds'; and
"2) Join Argentina and other nations in promoting the call for a New Bretton Woods to replace the current bankrupt and genocidal IMF system, as issued by the renowed economist Lyndon LaRouche, currently a Presidential candidate running in the Democratic primaries in the United States....
"President Lula: Those who today attack Argentina, will tomorrow do the same to Brazil."
The letter recalled that, in 1971, "LaRouche had a public debate in New York City with the most famous 'Keynesian' economist of the time, Abba Lerner, in which LaRouche denounced those forces in the United States who were imposing fascist policies on Brazil, modelled on the policies of Hjalmar Schacht, Adolf Hitler's Economics Minister. Lerner defended Schacht, saying that, had he succeeded, 'Hitler would not have been necessary.' LaRouche defended Brazil.
"Today, those same fascist interests are assaulting Argentina," the open letter stated.
Vulture Economics
In their crazed attempt to prop up the crumbling global financial system, the IMF and the Group of Seven industrialized nations are determined to squeeze more blood out of every economy on the planet, and thus tried to make of Argentina a bloody example. They stepped in as collection agents for the vulture funds, and threatened that unless Kirchner capitulated to their demands, they would not approve the IMF performance review or reimburse the $3.1-billion payment.
Kirchner stood firm. Argentina's people and national interests must come before the banks, he said. To pay more than 25%, would mean a "new genocide" against the country.
As the crisis escalated, IMF Managing Director Horst Köhler abruptly exited March 4, announcing he would run for the largely ceremonial position of German President. Some attributed the decision to the showdown with Argentina, per se, but LaRouche explained it reflected broader panic in face of a phase-shift in the financial breakdown crisis, where radical changes are on the agenda.
The IMF's insolvency is not a secret. In a press release posted to its website, reporting on a Feb. 25 meeting of IMF Directors to discuss "financial risk" to the institution, the Directors warned of the need to bolster "precautionary balances" against the "possibility of payments disruptions." It is crucial to "safeguard the Fund's financial basis," they said, which is threatened "mainly from large arrangements with middle-income countries and the Fund."
The London Guardian's Larry Elliott noted in the paper's March 9 issue that Argentine defiance of the IMF "raises the ultimate spectre: a domino effect of defaulters that could bankrupt it."
Worse Pressures To Come
Nestor Kirchner drew the line, for the moment, on IMF genocide against his country. But he didn't have the courage to force the issue on the cause of the crisis, by defaulting to the Fund. Nor did Brazil's waffling President Lula have the nerve to join Kirchner in opposing the vultures. Lula proclaimed his "solidarity," but insisted that Brazil is in a "very different" situation from Argentina.
Reality will impose itself soon enough. Aware that even more brutal pressures will come in June, when the IMF accord comes up for review, Kirchner told his closest collaborators not to rest on their laurels, because "We're in a minute-by-minute, hand-to-hand combat."
He's right. Consider the words of Adam Lerrick, of the steering committee of the Global Committee of Argentina Bondholders, laden with vultures.
Speaking at a March 10 U.S. Senate subcommittee hearing in Washington, Lerrick warned: "If Argentina even comes close to imposing the 90% debt reduction"—the vultures call it 90% by adding in unpaid interest charges—"how can Latin American leaders or any developing-country politician justify to their electorates stringent fiscal efforts to honor obligations to foreign lenders? Why not schools and hospitals instead of repaying rich foreigners? The resulting defaults will cascade through the international capital markets."
