By Cesar Uco
22 August 2018
The crisis of the Turkish
lira, driven by the strengthening of the US dollar, combined with the increase
in US interest rates in recent months and sharply exacerbated by the Trump
administration’s imposition of punishing trade tariffs, has spread to a number
of “emerging markets” economies, which borrowed heavily during the years of low
interest rates. Argentina has now joined Turkey in imposing currency
mega-devaluations, threatening a national economic collapse.
Last week, in a desperate
attempt to keep the national currency, the peso, from going into freefall, the
Central Bank of the Argentine Republic (BCRA) increased the short-term interest
rate to 45 percent, the highest in the world, in a bid to attract profit hungry
investors. The Argentine peso closed last Friday at 30.62 pesos to the US
dollar, losing 22 percent of its value against the dollar in just the last
three months, equivalent to an annualized devaluation of 124 percent.
Above all, the Argentine
ruling establishment fears a bank run, which, given the intensification of the
class struggle in the country, could detonate mass popular upheavals against
the bourgeois state led by right-wing President Mauricio Macri.
The decision to hike the
interest rate to 45 percent followed the Central Bank’s inability last Thursday
to sell sufficient amounts of its reserves to support the peso. Last Thursday,
the bank “bid US$500 million, of which it sold only US$55 million,” according
to the Argentine daily El Clarin. The day before, the bank had
successfully sold US$781 million. But on Tuesday the BCRA conducted an auction
of US$500 million, managing to sell only US$200 million, according to Reuters.
Argentina has a credit rating
of B, according to Standard & Poor’s—equivalent to the rating of subprime
mortgages prior to the collapse of the housing bubble that led to the world
financial meltdown of 2008. Argentine country risk remains high at 667 basis
points.
With massive outstanding
short-term debt, Argentina is facing a potential calamity in the financial sector
that provides industry, including transnational corporations, with the
necessary credit to function. Access to short-term funds is vital for companies
to pay workers’ salaries.
In past years, this funding
was made available by the Central Bank issuing Letras del Banco Central, Lebac,
the Argentine equivalent of US Treasury bills. At this point, there are about 1
trillion pesos or US$33.5 billion of outstanding Lebac.
Since the Fed put an end to
its quantitative easing policy, emerging markets are having difficulties in
servicing their debt in US dollars, as well as in national currencies that
maintain a high correlation to US interest rates.
By May 2018, as the financial
crisis became apparent, Argentina secured a loan from the IMF for US$30 billion
in a desperate effort to slow inflation and to prevent a bank run.
But the IMF loan was not
enough to contain the devaluation of the peso. Over the past month it reached
an annualized rate of 199 percent, comparable only to the Turkish lira.
The Central Bank and the
Ministry of the Treasury are coordinating efforts to move away from short-term
debt, the Lebac—usually with maturities of around 1 month—the Argentine
equivalent to one-month US Treasury bills. As long as world interest rates
remained low, the Lebac program became a major source of short-term funding.
BCRA President Luis Caputo has
declared that the Lebac program needs to be completely dismantled by the end of
the year. The notes are a major source of funding for Argentine banks, which
hold about 50 percent of the Lebac, with the other 50 percent in the hands of
common investment funds, public corporations, enterprises and individuals.
The Lebac will gradually be
replaced by one-year maturity notes issued by the BCRA (Nobac) and letters of
liquidity (Leliq). The latter is destined to become the main source of funding
in the future. The cost of closing down the Lebac program is estimated at US$7
billion, which will come out of the Treasury reserves in US dollars.
In an effort to stabilize the
economy, the Argentine government last week placed longer term debt—US$1.64
billion worth of government bonds maturing in 2020 (BODEN 2020) and US$514
million treasury notes (LETES)—with maturities of between 210 and 378 days.
As the US dollar strengthens
against all major currencies, Argentina is looking to China to negotiate a
currency swap—Chinese yuan vs. Argentine pesos—for US$4 billion, to be used in
reinforcing falling reserves. This represents a move away from economic
dependence on the US, despite the right-wing Macri’s affinity for Donald Trump.
Argentina’s inflation reached
its peak in 2016 with an annual rate of 40.3 percent, the highest in the world,
and in 2017 the Consumer Price Index rose 24.8 percent. It is expected that
2018 will close with an inflation rate of between 30 to 40 percent, more than
double the BCRA target.
In remarks delivered Friday in
northwestern Jujuy, one of Argentina’s poorest provinces, Macri publicly
acknowledged the obvious, that both Argentina’s financial crisis and the
measures his government is taking in response are resulting in the erosion of
working class living standards and a steady growth in poverty. “This
devaluation brought a rebound in inflation, and inflation is the largest driver
of poverty, and regrettably, we are going to lose some of the gains we have
made in poverty reduction,” Macri told a news conference.
Last year, Argentina’s
official statistics agency, Indec, claimed that the poverty rate fell to 25.7
percent from 30.3 percent in 2016.
The Argentine economy is
projected to contract 0.3 percent this year. In his remarks Friday, Macri
offered cold comfort to the Argentine population. “Next year the economy will
grow,” he said. “Not much, but it will grow.”
In the face of inevitable
social unrest, the government will have to increasingly resort to repressive
measures, including the use of the military. Last month, Maci signed a decree
allowing the use of the armed forces in domestic policing for the first time
since the savage military dictatorship that ruled the country in the 1970s and
1980s.
The second prop upon which the
Macri government depends to suppress the resistance of the working class is the
trade union bureaucracy.
Throughout the first half of
this year, hundreds of thousands of workers—among them teachers, steelworkers,
teamsters and other sectors—have held demonstrations expressing their anger
over the loss of real wages to inflation.
This led to a 24-hour general
strike on June 24 that paralyzed Buenos Aires and most major Argentine cities.
The main trade union, Confederacion General de Trabajadores (CGT), has called a
total of three general strikes against the Macri-IMF attacks on workers’ living
standards. In April and December 2017, workers also staged one-day general
strikes.
The CGT’s role is to contain
the rising movement of the Argentine working class within the confines of
capitalism, limiting the general strikes to 24 hours and preventing popular
upheavals from challenging capitalist rule.
Meanwhile, the bureaucracy’s
ostensible “left” opponents, particularly the pseudo-left groups that comprise
the opportunistic parliamentary bloc known as the Workers Left Front (Frente de
Izquierda y de los Trabajadores, FIT)—the Workers Party (PO), Workers Socialist
Party (PTS) and Socialist Left (IS)—seek to channel the working class behind
the right-wing unions and the bourgeois state by advancing the call for putting
pressure on the CGT’s Peronist bureaucrats to fight.
The decisive question posed by
the deepening of the economic crisis is the building of a new revolutionary
leadership in the working class, based upon the perspective of socialist
internationalism fought for by the International Committee of the Fourth
International.
The author also recommends:
World markets
brace for impact of Turkish lira crisis
[13 August 2018]
[13 August 2018]
Workers Party
in Argentina seeks to “refound” Fourth International in alliance with Stalinism
[7 June 2018]
[7 June 2018]
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