June 3-6, 2013 Eurodad-Glopolis International Conference Prague1 Debt crisis, default, and beyond: the Argentine experience Alan Cibils Political Economy Department Universidad Nacional de General Sarmiento Buenos Aires, Argentina

June 3-6, 2013 Eurodad-Glopolis International Conference Prague 2 Topics Factors contributing to Argentina’s debt buildup The role of the IMF Default: good or bad? Argentina post-crisis Lessons

June 3-6, 2013 Eurodad-Glopolis International Conference Prague 3 Arentine Public Debt: (billions of US dollars)

June 3-6, 2013 Eurodad-Glopolis International Conference Prague 4 Argentina’s 1990s public debt build-up: main causes Privatization of social security:  Promoted by IMF and WB, it generated a large fiscal gap covered by borrowing (debt) Policy environment:  Fixed exchange rate  Inability to conduct independent monetary policy External interest rate shocks:  Higher interest rates turned Argentine debt structure into Ponzi scheme

June 3-6, 2013 Eurodad-Glopolis International Conference Prague 5 Argentina’s public debt build-up and IMF IMF:  Wrong diagnosis of the problem: Confused fiscal spending with debt service IMF still insists on this wrong diagnosis (probably explains its “success” in Europe)  Lending conditioned on austerity  Austerity deepened recession: increased capital flight Increased deficit Increased debt

June 3-6, 2013 Eurodad-Glopolis International Conference Prague 6 December 2001 default Default became inevitable:  Following three years of recession and austerity  Important to admit that situation was unsustainable  Alternative: downward cycle of debt and austerity  Only real solution was default +devaluation Liberated fiscal resources for other socially necessary and productive uses No longer needed access to IMF or financial markets due to fiscal surplus  Default IS an option to be considered

June 3-6, 2013 Eurodad-Glopolis International Conference Prague 7 Post-crisis Argentina Between :  High economic growth, lower unemployment and poverty.  Causes: recovery of own currency, devaluation and ability to conduct independent exchange rate, monetary and fiscal policies Since 2007 (to present):  growing inflation (25% yearly for the last four years)  Currency appreciation, economic slowdown, higher poverty and inequality Neoliberal media blame Argentina’s current economic problems on the default:  This is FALSE—problems are political and home-grown, unrelated to default.

June 3-6, 2013 Eurodad-Glopolis International Conference Prague 8 Lessons Default IS an option (¿necessity?) Recovering currency/monetary policy is key Changing economic strategy is key:  Abandon neoliberal agenda/IMF  Economic policy should be focused on Sustainable development Employment Education and Health care Income distribution