Remembering Nestor Kirchner

October 28, 2010 at 9:41 pm | Posted in Political Economy | Leave a comment
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It is not surprising that stock markets responded to the sudden and untimely death of former Argentine President, Nestor Kirchner on Wednesday October 27, 2010  by a strong rally. Elected President in 2003, Kirchner was responsible for steering Argentina out of its pervasive debt crisis.

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The immediate trigger to the crisis of 2001-02 was the refusal of the International Monetary Fund (IMF)  to release a $1.3 billion loan that had already been approved to finance the Latin American state’s $142 billion external debt on the argument that the government of the then-president Fernando De La Rua had not cut government expenditures to levels demanded by the IMF. This was despite the fact that the government had already privatized social security and so stringently cut allocations to the provinces that many of them had had to resort to issuing their own scips.

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That the Argentine government could not cut expenditures further was due to the fact that some 18 percent of the population was unemployed and a further 18 percent were underemployed. Following the withholding of the IMF loan, the government restricted withdrawals from private bank accounts to $250 a week–a move that resulted in massive demonstrations that drove the De La Rua out of office. This was followed by a period of deep political and economic stability with a sovereign debt default, a failed attempt to issue a new non-convertible currency, and a succession of four presidents in less that eighteen months before Kirchner was elected President in 2003.

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Immediately on assuming office, Kirchner served notice that he was not going to accept the dictates of the IMF which were designed to favor foreign creditors and defaulted on loan payments to the IMF in September 2003–something that only “failed” states had done before because all others feared that the IMF could cut off lines of credit. Instead, Kirchner drove a tough bargain with international creditors arguing that since most of the loans were incurred by the private sector, these should not be socialized. Eventually, he struck a deal agreeing to pay 30 cents on the dollar.

After contracting for three months after the default, the economy grew at an annual rate of 8 percent, raising some 11 million, or 28 percent of the population out of poverty. This was done by the Kirchner government pursing a competitive and stable exchange rate, carefully monitoring interest rates, price controls, and targeted spending to benefit urban populations. In 2006, Kirchner announced that his government would use over a third of its foreign exchange reserves to pay off its debt to, and end its dependency on, the IMF: there is “no way in hell” that Argentina would return to the IMF, he said. He was able to quickly replenish Argentina’s foreign exchange reserves since Venezuela agreed to buy over $2.4 billion in Argentinian bonds.

Kirchner’s policies then also had a regional impact as he joined with Venezuela’s Hugo Chavez, Ecuador’s Rafael Correa, Bolivia’s Evo Morales, and Brazil’s Luiz Inacio Lula da Silva in streering Latin America away from neo-liberal policies that saw an end to Washington’s plans for a “Free Trade for the Americas.”

By flouting neoliberal orthodoxy, Kirchner was able to lift the Argentine economy and especially to lift millions of people from poverty by refusing to socialize private debt and refusing to succumb to pressures to further privatize and de-regulate the economy. After his term in office, his influence continued as his wife, Cristina Fernandez de Kirchner succeeded him as president, and was widely expected to let him stand again for the presidency in elections scheduled for 2011. Hence the stock market rally was in anticipation of the end or the era of Kirchners.

 

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