AVELLANEDA, Argentina— Gregorio Lopez has a message for the Greek workers who are protesting deep cuts in salaries and pensions that come with an international, trillion-dollar rescue package: You're on your own.
Lopez and employees at the Lavalan wool-processing factory worked for a year without pay after Argentina's economy imploded in 2001 and the country defaulted on a record $95 billion debt.
They endured blows from riot police to keep creditors from carting off the equipment. In the end, they had to take over the factory and form a worker-run cooperative to save their jobs.
“It was really ugly,” Lopez said. “We didn't have support from anybody, not the government, not even the union. Our only way out was to do it ourselves.”
Argentina also had to go it alone after failing to make the deep cuts demanded by the International Monetary Fund to secure more loans. The country in 2001 was in many ways where Greece and other southern European nations are today, with its economy sputtering, companies failing and huge debts coming due. But instead of a trillion-dollar rescue to keep Greece from defaulting, Argentina got a cold shoulder from lenders.
Emerging from default
While Europe's rescue announced this week has at least postponed the worst — a domino effect of defaults across Europe that could drag down the euro and even break up the European Union — Argentina ran out of options. It defaulted and had to figure out how to rebuild its economy without outside help.
But in its isolation, the country boomed. By boosting government spending to stimulate the economy, Argentina increased its GDP by more than 50 percent since 2003, and now plans to emerge from default by resolving the last of its bad debts.
President Cristina Fernandez says Argentina's experience shows that austerity measures are the wrong medicine in a debt crisis, which is why Europe's rescue plan is “condemned to failure.”
“You don't need to be an economist to know that if you reduce the flow of economic activity, you reduce even more the capacity to pay the debt,” Fernandez said this week. “It's clear that you won't be able to pay what you're being lent.”
Even supporters of Europe's rescue package say Greece, Portugal, Spain and other indebted European countries face years of wage cuts, increased taxes and living with less to have a chance of avoiding bankruptcy.
But getting your financial house in order is the best prescription for growth, European Central Bank President Jean-Claude Trichet said Friday, expressing an orthodox theory that is opposed to Argentina's position.
“It is a complete fallacy to say that fiscal soundness dampens growth. It is exactly the contrary,” Trichet said.
Before its default, Argentina had spent years following Washington's economic doctrine — privatizing public services, dropping trade barriers, taking out huge loans and linking the peso 1-to-1 to the dollar. Then its economy slowed in the late 1990s, and it found it had borrowed more than it could pay back.
The IMF, which lent Argentina money in good times, said draconian cuts in government salaries and pensions had to be made before fresh loans could be offered — at 6 percent interest, a rate Argentines felt was obscenely high.
It fell to Argentina's economy minister Ricardo Lopez Murphy to announce the austerity measures in the spring of 2001: $2 billion in budget cuts, including a sharp drop in education spending.
Massive protests forced his resignation in days. But the economy kept souring, and debt payments loomed. With no consensus for unpopular measures, Argentina declared its world-record default and devalued its currency.
Overnight, Argentines lost most of their wealth. Money stopped circulating. The economy virtually stopped.
Fernandez's husband and predecessor, President Nestor Kirchner, put Argentina on a path to recovery beginning in 2003. The Kirchners allied with labor unions to increase wages and contain destabilizing protests, and the government now provides direct subsidies to vast sectors of the work force.
But now many worry that Argentina is headed right back where it started . To maintain high government spending, Fernandez has tapped central bank reserves and the pension funds she nationalized, and agreed to pay 15 percent interest on $7 billion borrowed from Venezuela.
“Argentina is burning through its reserves, it doesn't have investments, it doesn't have savings, it doesn't have an economic plan. It's living for the moment,” said Marcelo de las Carreras, a Buenos Aires financial consultant. “Sooner or later, it's going to get slammed, because these funds are running out. ”
Actually BBC radio/world report tells the story much better; but I'm unable to provide a link. It tells of cooperation among various merchants and green grocers to provide what was necessary while the workers worked without pay, quite an interesting lesson in social solidarity and probably on a level impossible for U.S. citizens to achieve.
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