• Skip to main content
  • Skip to secondary navigation
  • Skip to primary sidebar
  • Skip to footer

Humphrey Hawksley

Author, commentator and broadcaster

  • Home
  • About
  • Journalism
  • Books
  • Humphrey’s
    Diary
  • Blog
  • Contact
    & Photos
  • Rake Ozenna Thrillers
  • Future History
  • International Thrillers
  • Non-Fiction
  • All Books

An economist in Patagonia

27th April 2004

SANTA CRUZ, ARGENTINA April 2004

Earlier this week, the International Monetary owned up to making mistakes in dealing with Argentina’s 2001 economic crisis which pushed half the population into poverty. The IMF said it had missed warning signs that Argentina’s growth at the end of the 1990s and economic reforms were not as successful as they seemed. Why, though, had it taken so long for the IMF to be humbled.

Grasslands stretched unprotected and untamed for as far as the eye could see, forming a perfect horizon under a big sky wisped with the faintest of white clouds. The wind was everywhere, buffeting gulls in the air, whipping up white water on the river and slamming shut car doors as soon as you opened them.

From a distance, a hillside towards where we were heading was shimmering strangely, the green turning into dirty white then back again. As we got closer, I realized it was actually full of sheep being rounded up with dogs and farm hands on horseback

And down the slope, by a fence, his thumb pushing tobacco into a pipe, was Paul Gallard, his leathery face, etched and wind-burnt from years of working a farm on the Patagonian steppe.

‘So you made it?’ he said, by way of greeting. I had expected Spanish-accented English at best. But Paul is the son of English settlers who came to Argentina after the First World War. I zipped up my jacket against a fresh gust. Paul, his pipe packed, amazingly cupped his hand, struck a match and kept enough flame to light the tobacco.

Just over two years ago, Paul’s farm was almost bankrupt and Argentina was coming to end of a decade of sham.

The country had been hailed by Western politicians and bankers as a model of democratic and economic growth. Loans poured in unchecked. But it was riddled with corruption and so came the crash. Millions were put out of work and rioters took to the streets.

A recovery is under way now, but there is deep mistrust between Argentines and financial institutions in which they once believed.

‘We knew,’ said Paul. ‘We all knew. We who lived and suffered it – yes – we knew. Definitely. It’s hard to believe they didn’t know. Our whole economic system was going down the drain fast.’

So why – if a Patagonian farmer knew – did not those highly-respected and high-earning economists who deliver recipes for growth to the developing world also know.

Argentina’s new president, Nestor Kirchner, has answered the question already. He used to be governor of this area and he foresaw disaster with such certainty that he sent money from his provincial coffers into foreign banks for safe keeping.

And now he’s challenging the orthodox economic thinking of the International Monetary Fund and other lenders head on.

Kirchner is a tall man, in his early fifties with an easy, urbane manner. He was a left-wing activist, jailed during the Cold War military dictatorship, and even now counts Fidel Castro among his friends. In normal times he would be a natural opponent of the United States. But these are not normal times…

Kirchner argues that money that should be used to repay debt is better spent ending poverty and getting the country back on its feet again. And so far, with a fascinating twist of global politics, he’s winning.

In Washington, I asked the same question as I asked Paul, but this time to Anne Krueger, an academic who is now, the acting managing director of the International Monetary Fund.

‘Why didn’t you know?’ I said.

‘Well I wasn’t here,’ she said. ‘I was at Stanford University at the time.’

‘Sorry,’ I said. ‘Not you, but the IMF. Why didn’t it know.’

Then she revealed that some IMF staff had written letters about their fears for Argentina.

‘So what happened,’ I said.

‘Nothing.’

‘Why not.’

‘I don’t know,’ she admitted.

And it was that oversight – for want of a better phrase – which finally caught the attention of the White House. Last September, Argentina came close to defaulting again because the IMF was playing tough to retrieve its debt.

Nestor Kirchner played hardball, too, and the US told the IMF to back off.

‘Our point of view was that Kirchner needed time to establish his credibility,’ said Richard McCormack an economist close to the Bush administration.

Another insider put it more concisely. ‘This is so weird,’ he told me. ‘A generation ago Kirchner and his buddies would have been thrown into jail for being communists. Now you’ve got a right-wing American government helping them stay in power. You see, Bush can’t afford to deal with Iraq, terror and social unrest in Latin America. And he wants to see if Kirchner can make it work, see if he can produce a new kind of model for the developing world. God knows, we need to find one.’


Argentinian economy

 Not so long ago Argentina was the joke of Latin America, three Presidents in one year, a general strike, and a currency devaluation which broke the link to the US dollar and plunged many middle-class Argentines into poverty.

Now, a year after Nestor Kirchner became president, things have turned around.

How? Well, here’s a clue, the bureaucrats at the IMF were not best pleased. Humphrey Hawksley reported.

HUMPHREY HAWKSLEY:

Not long ago banks couldn’t lend enough to Argentina, although it was riddled with corruption. Then its money and politics were exposed as a sham. We headed to see a farmer who almost lost everything, but is now recovering. You knew that the economic system at that time was driving your industry into the ground?

PAUL GALLARD:

To the ground. Yes, yes, we all knew. We lived here and suffered it, yes, we knew. Definitely. It’s hard to believe that they didn’t know. Our whole economic system was going down the drain, fast. We couldn’t possibly have an Argentine peso the same as the dollar. It was cheaper to import everything than produce anything here.

HAWKSLEY:

With three pesos now to the dollar, business is picking up again. The economy is settling. The president has been in office for nearly a year. His number one target is the institution which lent much of the money, the International Monetary Fund. Is he right to stand up to the IMF after your experience with it?

GALLARD:

He is right to get tough with them, yes.

HAWKSLEY:

What took place in Argentina had never happened anywhere else before. It was the biggest sovereign debt default in history. Savings were frozen, even US dollar accounts weren’t honoured. More than two years later, the financial district is pretty much deserted. The banks remain boarded up with the realisation that when things get tough a global logo is only as good as the country it operates in. Argentina is a long way from being a destitute developing country, but its institutions are rotten and the people here are far from putting their faith in the banking system again. The other question is, will they ever trust their politicians? Perhaps. This is Santa Cruz province, home to Argentina’s president. Nestor Kirchner comes from a speck of a city on a wild landscape. City mayor for four years, Santa Cruz governor for 12 and he always balanced the books. His image is of a left-leaning man of the people. His message that their needs are greater than that of international investors. And when taking presidential office, he gave a warning which rang alarm bells in the heart of Washington.

TRANSLATION OF KIRCHNER:

No-one should expect from us an automatic friendship. We want serious respectful decisions as dignified countries should be given.

HAWKSLEY:

His inauguration guests represented not the leaders of Western democratic capitalism, but a strand of Latin American politics which for America verges on the unpalatable. The awkward President Chavez of Venezuela, President Lula of Brazil, head of the Workers’ Party and a leader whose policies a generation ago whipped up as much threat on the world stage as Al-Qaeda does today. Kirchner gave Castro the streets of Buenos Aires. A few months later, Kirchner unveiled his real metal. He and only he would decide how Argentina repaid its debt because the IMF was wrong.

TRANSLATION OF KIRCHNER:

We can not compromise our ability to govern and create more poverty. No-one will benefit if the difficulties of our economy increase. The lack of growth will kill our hopes and everyone knows you can’t get money from a dead man.

HAWKSLEY:

It was a challenge to orthodox, economic thinking. President Kirchner isn’t a difficult man to bump into. In his home town, he had an eye to greet constituents passing by, but he’s tricky to pin down and astute enough not to answer questions off the cuff. His style is so casual that he travels without bodyguards, keeps heads of state and ambassadors waiting, and has never even held a cabinet meeting. He asked one of his ministers to spell out his policies.

MARTIN REDRADO:

If we would have abided by the recipes of the IMF, we would have had less growth and more social disruption than we have had in the last 12 months. As you know, we grew 8.2% and employment has been coming down. Even though the social situation is very difficult, 51% of people are beyond the poverty line. That situation, the social situation would have, for sure, deteriorated.

HAWKSLEY:

There are still millions like Meera Argon below that poverty line, but most are protected by workers co-operatives. Everyday members of this co-operative take a special train to Buenos Aires to pick through rubbish for scraps and sell it on. For that they get about a pound.

TRANSLATION OF MEERA ARGON:

President Kirchner, I don’t know if he is thinking of us yet, I hope he is.

HAWKSLEY:

Another co-operative has taken over what used to be a multinational shoe and clothing factory. President Kirchner’s policy is to hand over to the workers factory after factory which has gone bankrupt. The staff have even designed a new shoe, but they are looking for cash to place it with Argentina’s biggest shoe outlet Grimaldi. The amount needed is £100. But they can’t get that because the banks are still in such chaos.

TRANSLATION OF JORGE OMAR TORRES:

If we can do it, we will be planting seeds which we will harvest in the future. We have a chance of being really great.

HAWKSLEY:

Advising them is a trade union leader helping in takeovers of factories throughout Argentina.

TRANSLATION OF ERNESTO PARET:

500 pesos would give us a possibility of closing the deal with Grimaldi. I spoke to them yesterday. We have to move quickly and sort out this problem of cash and cheques.

HAWKSLEY:

The decision, do it through black market money changes. Adrian is married with two children. Fresh from the meeting, he now hopes the new brand will see his family right for the future. Before the economic collapse, staff were being paid £400 a month. Afterwards £130, then nothing. Now, they get paid in shoes. They know first hand how democracy and free markets have failed. Their trust lies in the old institutions of co-operatives and trade unions. Adrian heads for a domestic life with strange home economics, which have never been written in a textbook for the International Monetary Fund.

TRANSLATION OF ADRIAN:

We need milk, eggs, butter, I don’t know, a pie perhaps and cheese. That is roughly what we will get for a pair of shoes.

HAWKSLEY:

In Argentina, this brand name is good for the barter trade. A pair of trainers fetches a supply of groceries from the local store. It’s a system all of them know and have come to rely on. Life is beginning to work again. The last thing anyone wants is more advice from outside. And they wonder how so many experts could have got it so wrong. Why didn’t you know it was going to go wrong?

ANNE KRUGER:

Well, I was at Stanford University at the time.

HAWKSLEY:

Sorry, not you yourself. Why didn’t the IMF know it was going to go wrong?

KRUEGER:

In fact, I gather some staff did have major concerns. I gather more than one staff member did privately communicate and there are copies of those letters I guess in their files, with the government saying especially in ’96, ’97, when growth was very strong, now is the time to make the fiscal correction. So it is not true that there was none of that advice.

HAWKSLEY:

So what happened?

KRUEGER:

Nothing.

HAWKSLEY:

Why?

KRUEGER:

I don’t know.

HAWKSLEY:

That’s what worried the American government. It had enough problems with Iraq and terror, it couldn’t afford social upheaval in Latin America. Last September, Argentina came to the brink of defaulting again as the IMF played tough to retrieve its debt. The US stepped in and told the IMF to back off.

DR SYDNEY WEINTRAUB:

The Argentine offer, whatever they said about it, was inadequate. If they put it on a value basis, which is the way any creditor with skill will do, it was ludicrously low. The IMF had to take that into account. But then go back to the other side, they didn’t want to cause riots. They didn’t want Argentina to collapse even further.

HAWKSLEY:

The order is thought to have come from the White House.

RICHARD MCCORMACK:

The point of view of the US government was that Kirchner needed time to establish his own credibility. Kirchner needed time to get a clear understanding of the domestic economic situation in his country and what was possible to accomplish politically. The third thing was that he needed time to build his own political base from which he could then make decisions.

HAWKSLEY:

There was a lot of objection to that in the IMF, wasn’t there?

MCCORMACK:

Yes, there was.

HAWKSLEY:

For the IMF, it’s as if Argentina has got away without paying the minimum on its credit card bill. In global finance, it’s unprecedented. The IMF might have been overruled but not humbled? Are you tough?

KRUEGER:

I suppose the answer would be, yes.

HAWKSLEY:

Are you too tough?

KRUEGER:

I think not, of course.

HAWKSLEY:

What is the risk of being too tough?

KRUEGER:

Let me turn it around. What is the risk of being too soft? Which is very high too because, in the Argentine case, that can be the formula for the next sort of problems. There is range in which it is a judgment call.

HAWKSLEY:

Just getting back that balance of people going on to the streets because they have lost their jobs and the fiscal policies. It is a fine balance, isn’t it?

KRUEGER:

I’m not so sure. I think the reason those people are on the streets is because Argentine fiscal policy had been so disastrously bad earlier. It is the crisis that put them on the streets, not the fund program.

HAWKSLEY:

Meera Argon used to run a team of factory cleaners. Now she leads her co-operative of cartoneras. It might be grubby work, but there is a strong sense of status.

TRANSLATION OF MEERA ARGON:

This is a good country. I tell you why it is good. People recognise us as cartoneras. I tell you, I would prefer to be doing this than worrying about what to give the kids to eat. What am I going to? Sit on the streets and put a gun to my head and beg for someone to give me two pesos to but something. That’s really screwed up.

HAWKSLEY:

Money which was to have repaid foreign investors is now being used to help these people. Bankers don’t like it, but for now America does. And that’s allowed Argentina to become a powerful moral voice on how financial institutions should behave towards the poor.

This transcript was produced from the teletext subtitles that are generated live for Newsnight. It has been checked against the programme as broadcast, however Newsnight can accept no responsibility for any factual inaccuracies. We will be happy to correct serious errors.

  • Click to share on Facebook (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)
  • Click to share on Twitter (Opens in new window)
  • Click to share on Telegram (Opens in new window)
  • Click to share on WhatsApp (Opens in new window)

Primary Sidebar

For enquiries and further information

To contact Humphrey:
[email protected]

Before sending your email address please read our GDPR Compliance Statement and Privacy Notice to reassure yourself that we are looking after your data responsibly.

More reports

Democracy fights back

In a business district a couple of miles from Vilnius’ Medieval Old Town, an office block sign lists … [Read More...]

If you want giant glaciers, wondrous wildlife and the adventure of a lifetime, Alaska is waiting for you

Riding in a high-speed catamaran along an Alaskan fjord, the captain asked: ‘See that glacier ahead? … [Read More...]

Asian countries must restrain hawkish AUKUS parties

Since leaving the European Union last year, the British government has decisively pursued two … [Read More...]

ANC Airport

Alaska’s growing global trade hub highlights booming US-Asian trade

For a few months last year, the prize for the busiest airport in the world slipped away from those … [Read More...]

Global rules against cyberattacks must be updated

The cyberattack that shut down an American East Coast pipeline underlines a global security … [Read More...]

From Our Own Correspondent

The Philippines — How China Plans to Win the Asia-Pacific

3rd March 2017

Taiwan-China – a Flashpoint Once More

19th February 2017

Living on America’s Border with Russia

28th August 2015

World Peace Begins in the Bedroom

5th June 2015

The curse of gold

30th May 2012

The supply chain children

30th January 2012

Experiments in aid

30th January 2011

Joining the club

30th July 2010

Banking nuclear fuel

26th January 2010

The ceremony of port

30th December 2009

Dancing with the devil

30th June 2009

The Contractor’s War

30th March 2009

Sharing your man for Jesus

30th March 2009

A million good workers needed

30th October 2008

Russia’s human weapon

30th September 2008

Cold War bunker

30th August 2008

Smoke-filled rooms and the law

30th June 2008

War scars, a handshake and a beacon

26th June 2008

Make knives not war

30th March 2008

Baghdad banking and real estate boom

30th January 2008

America is our ally

30th November 2007

Russia’s red line over Kosovo

30th October 2007

Big Brother is watching us all

30th September 2007

Small town with a big heart

30th June 2007

The democratic mission

30th May 2007

How Kosovo worked

30th January 2007

Hell escape

30th November 2006

Reporting from Israel

30th August 2006

Peace? With our politicians – never

26th June 2006

Lenin and Mao – One day they’ll get it right

30th May 2006

China in the backyard

30th April 2006

Reporting from Poland

26th February 2006

Addicted to oil

26th February 2006

The boy who lived on a garbage dump

30th December 2005

Republican missionaries in New Mexico

26th November 2005

The American dream

30th July 2005

Why did they fight?

30th April 2005

Haunted by the Ottomans

27th February 2005

Empires and abortion

30th December 2004

The young political elite

30th September 2004

Beer with the Hizbollah

30th July 2004

The patriot act

30th June 2004

Someone else in her house

28th February 2004

Big threats, no health care

30th December 2003

Inside India’s nuclear program

30th November 2003

Suicide slum

30th September 2003

The politics of SARS

30th April 2003

The Christian mission

27th February 2003

Blood cocoa

30th May 2002

The war crime pen-pushers

30th January 2002

Triple border terror

30th January 2002

Europe’s apartheid

30th September 2001

The blonde and the dying

30th March 2001

Never to be freed

30th January 2000

One wrong turning

30th May 1999

Footer

Search site

Goldster

  • The Goldster Inside Story Podcast
  • Goldster Video Archive

Connect with Humphrey

  • E-mail
  • Facebook
  • LinkedIn
  • Twitter

Join Humphrey’s mailing list

Subscribe

Email Humphrey

For general enquiries and bookings for events:

[email protected] and [email protected]

Copyright © 2008–2023 Humphrey Hawksley · All rights reserved · Site Terms, Cookies and Privacy · GDPR Compliance Statement · Website by LiT Web Studio