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Last Updated: Wednesday, 31 March, 2004, 14:04 GMT 15:04 UK
Argentinean economy
Nestor Kirchner
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. Mumphrey 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.



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