The economic crisis has led activists in countries such as Greece and Ireland to look to developing countries for models of how to fight an all-powerful, self-serving financial system that forces ordinary people to pay the price for its failures. From Dublin to Harare, the call for ‘debt audits’ is being taken up as a vital first step towards educating and mobilising people against an unjust financial system that benefits the few at the expense of the many.

Here, Nick Dearden introduces the history and significance of the campaign for debt audits, then Alan Cibils from Argentina, Maria Lucia Fattorelli from Brazil and Andy Storey from Ireland discuss their own experiences of debt audits and debt defaults, and examine the lessons for economic justice activists.

The first wave of the banking crisis is over. Banks successfully passed their losses onto the public and their profits are once again ‘healthy’. They are now looking to governments to repeat the same trick for them. Greece, Ireland and Portugal are suffering ‘structural adjustment’ policies so that public money keeps flowing to the institutions whose behaviour created the global economic crisis.
Across Europe, and particularly in Greece, people are fighting back – but not simply over the question of ‘who picks up the tab’. They are engaged in a struggle for democracy in its true sense, for an economic system based on a radically different set of values. And they are using models developed by social movements in Southern countries to begin the necessary process of education and empowerment.
Answering tyranny with knowledge
One idea that has fuelled the imagination of activists in Greece and Ireland is for a ‘debt audit’, to throw open their countries’ finances to public examination and analysis. A launch conference was attended by hundreds of people in Athens in May and has united a good portion of the notoriously fractured Greek left. The call has subsequently been taken up by activists in Ireland, with further interest in Spain, Portugal and even the UK.
Sofia Sakorafa is a dissident Greek MP, a former member of the Greek government who quit her party after refusing to sign up to the first ‘bailout’ package in 2010. She believes ‘the answer to tyranny, oppression, violence and abuse is knowledge’ – that public understanding of how the crisis came about, what Greeks are paying and to whom, will help to convince people of the moral bankruptcy of the current financial system and re-ignite a sense of ownership over their economy.
Sakorafa is clear that this is a battle for different values: ‘Beyond speculating market games, there are more valuable concepts. There are people, there is history, there is culture, there is decency.’ The crisis will not be solved by the odd piece of legislation but by a transformation of how individuals and communities relate to power.
The history of the debt audit
The idea of debt audits arose from Southern campaigners with decades of experience in fighting against the capture of their societies by Northern financial interests. After all, the problems of Europe today are a repetition of an old story. Controlling the financial system at national and international levels was a key concern of John Maynard Keynes after he observed the impact of the ‘rule of the banks’ in the Great Depression in the 1930s. Keynes believed in policies that would encourage the ‘euthanasia of the rentier’ through government intervention and control of finance.
As that system of control broke down in the 1970s, the world economy has experienced crisis upon crisis, from the Latin American debt crisis of the 1980s to the currency collapse in Indonesia and Thailand in 1997 and Argentina’s economic crisis in the early 2000s. For the financial institutions based in the North, debt has provided a means of extending the control of the financial sector. People have responded to each instance of crisis by fighting back – usually not with specific policy proposals for a softer form of financial control, but by calls for repudiation of their country’s debts and kicking out those international institutions imposing austerity.
On one level the argument for a debt audit is simply a call for transparency. If these debts are ‘ours’ then the least we can expect is to know what we are paying. But their impact goes much deeper. In the words of Irish activist Andy Storey, an audit can ‘remove the mask of financial power which pulls the strings over our economy and therefore our society’. It is particularly important in a country that has been through dictatorial rule, in unveiling how international lenders propped up the illegitimate regime. But even in European societies, it digs deep into the connections between power and finance, unveiling how and in whose interests an economy works.
Most debt audits have been done on a shoestring budget, using what information can be gleaned from freedom of information and other research. The Brazilian Citizen Debt Audit was the first such initiative in 2001. In 2006, President Correa made Ecuador the first country to hold an official audit, declaring ‘my only debt is to the people’. Despite the presidential backing, the audit was a mammoth task, which encountered constant resistance from civil servants unwilling to disclose the secrets of former regimes.
In 2008, the audit commission reported that debt had done ‘incalculable damage’ to Ecuador’s society. It uncovered numerous illegal, useless and extortionate loans that had bled the country of resources. Correa essentially defaulted on the most dubious of this debt – a set of bonds. Even the Economist called Correa ‘incorruptible’ when public spending rose as a consequence.
Activists, however, wanted him to go much further in repudiating debts. This is one of the problems of state-sponsorship of such mobilisation processes, which has also led to disappointment among activists in Argentina and Brazil as promises have not translated into broader economic transformation. Smaller official audits have been initiated, but not carried through, in Argentina and the Philippines, with more promised in Nepal and Bolivia.
Meanwhile, activists in Zimbabwe are working on an audit to show the role that lending from the IMF and World Bank, as well as Northern governments, played in the creation of crisis in that country. Once Zimbabwe is judged to have transited Mugabe’s regime, the country faces a barrage of new IMF loans with accompanying control of the economy. The debt audit is a first step to challenging this control.
Some look on debt audits as ‘reformist’ – surely the truly radical answer is for a country to simply stop paying its debts? Actually it’s not so simple. A default is not automatically progressive – look at those of Mugabe in Zimbabwe or al-Bashir in Sudan. Repudiation and default might be the best option, politically and economically, but it is not without pain. A country’s population will need to proactively take on the hardships and isolation it is likely to experience. A thorough understanding is an essential prerequisite.
People can’t be led to support a default in the mistaken belief that ‘everything will return to normal’. Things may get worse. As 28-year-old Icelander Thorgerdun Ásgeirsdóttir said after he voted to turn down the British and Dutch terms for repaying his country’s debt, ‘I know this will probably hurt us internationally, but it is worth taking a stance.’
Such an understanding is also necessary if a default is to become a genuine first step towards wider change. Argentina pulled off one of the biggest defaults in history in 2001, after years of following faulty IMF advice. Economically it worked – the economy began recovering quickly. But many activists lament the failure of the Argentinian government to build on this by creating a different form of economic development. In spite of rapid growth, poverty remains at 30 per cent, inequality is high and the majority continue to suffer from a debt-led form of ‘development’.
Audits in Europe
Clearly debt in Europe has many differences from debt in the global South. Little European debt today was run up by dictatorial regimes, and the payment of that debt will not lead to the levels of hardship experienced by truly impoverished countries. But issues of wealth and power redistribution, of who controls our society and who foots the bill for that accumulation of power, are the same everywhere.
What does the Greek audit hope to uncover? Greek academic and activist Costas Lapavitsas has said he is not certain that the bulk of Greek public debt is legal, ‘given especially that it has been contracted in direct contravention of EU treaties which state that public debt must not exceed 60 per cent of GDP’ – something the creditors were fully aware of. Some Greek debt was massaged by Goldman Sachs to hide the true extent of Greece’s liabilities. According to Lapavitsas, the bailout package itself was not contracted in accordance with normal parliamentary oversight.
We in Europe are living in a society in which financial interests have captured our governments, control our economies and eat into every aspect of our lives. They have even captured our very notion of democracy – overruling the fact that true democracy cannot really exist in a society of vastly growing wealth differentials, where bankers pull all the strings. Struggles for political democracy cannot hope to succeed separate from struggles for economic democracy. Debt audits are means of seeing democracy in a more holistic way. Their adoption could help pave the way for a genuine break with the failed economic policies of the past.
More information: Jubilee Debt Campaign www.jubileedebtcampaign.org.uk
Campaign for the Abolition of Third World Debt (French and English) www.cadtm.org

Life after default

Alan B Cibils looks at some lessons from Argentina on dealing with debt default
The current crisis in the eurozone periphery has many of the same ingredients that led to the Argentine debacle of 2001–2002: repeated bailouts making already unsustainable debt loads even more unsustainable, the IMF’s mistaken prescriptions for spending reductions, and financial market intransigence. So it may be helpful to look at the lessons from Argentina’s debt crisis – and eventual default in 2001 – to see what worked and what should be avoided.
Default is a viable option
Argentina’s experience shows that defaulting was not the disaster many predicted. Indeed, the default stopped the economy’s four-year free fall and helped put an end to unviable exchange rate and monetary policies, freeing up resources for more socially productive uses. Whether Argentina then made the best use of these resources is debatable. However, it is unquestionable that default was the correct and most efficient option given the circumstances.
The IMF does not possess the know‑how or the theoretical framework to deal with financial crises
The IMF’s ‘one size fits all’ approach to economic policy and crisis resolution has failed repeatedly and catastrophically around the world, as it is failing in Greece, Portugal, Ireland and Spain. IMF-promoted public spending cuts only deepen the recession, as any introductory macroeconomics student knows. Asian and Latin American nations have learned this lesson well. Their massive foreign reserve accumulation serves as insurance against ever having to follow IMF advice again. While reserve accumulation can be costly, it is less costly than following the IMF’s advice.
Default should be approached holistically and not exclusively as a financial issue
Ideally, the opportunity of debt restructuring will be used to perform a thorough debt audit and establish what portion, if any, of accumulated debt society should have to pay. Despite well-documented irregularities and fraud, which greatly contributed to debt build‑up, Argentine officials chose not to perform a debt audit, therefore legitimising the corrupt dealings of the military dictatorship and the Menem and De la Rúa administrations. Indeed, President Cristina Fernández de Kirchner stated in 2010 that there is ‘no such thing as illegitimate debt’, thwarting efforts by activists and opposition politicians to conduct a much-needed debt audit.
Debt restructuring should not be geared to pleasing financial markets
For a debt-restructuring process to result in a sustainable debt load, it must be based on an economy that grows thanks to strong internal markets. For this to take place, it is fundamental to have productive investment and an equitable distribution of income. This is the opposite of ‘Washington consensus’ (neoliberal economic) prescriptions.
Recovering the ability to conduct independent exchange rate and monetary policies is key to economic recovery
In the Argentinean case, replacing the fixed exchange rate regime with a more flexible arrangement and regaining control over the national currency resulted in six years of record economic growth. The current European rules, designed according to orthodox economic prescriptions, allow no room for the expansionary policies needed in a recession. If these rules persist, there will be no option but to exit the arrangement and return to a national, sovereign currency.
The good news is that there is life after default. Indeed, life emerges after default. However, it is crucial to break with neoliberal economic constraints if sustainability and a better distribution of the fruits of society’s efforts are the objectives.
Alan B Cibils is chair of the political economy department at the Universidad Nacional de General Sarmiento in Buenos Aires

Lifting the lid on the loan sharks

Nick Dearden interviews Brazilian activist Maria Lucia Fattorelli about debt audits in Brazil and Ecuador
What progress have you made with debt audits?
Since 1988 the Brazilian constitution has included an obligation to hold an official debt audit, but it has never been carried out. In 2000 we organised a popular plebiscite and more than six million people voted to stop paying the debt until the audit was held. We took matters into our own hands and set up Citizen Debt Audit, which aims to conduct research, educate, mobilise and examine legal arguments.
In 2009 we achieved the creation of an official commission for investigation of the debt. We were also invited to take part in Ecuador’s debt audit commissioned by President Correa in 2007.
What did the citizen audit and parliamentarian investigation find in Brazil?
The parliamentary commission found that the international ‘debt system’ continuously generates new debt to pay previous debts. New debt is always much bigger, despite the huge servicing payments. Our research proved that the main component of Brazil’s large debt has been high interest rates, which means that it hasn’t represented a real benefit to the country.
The government transformed Brazil’s ‘external’ debt into ‘internal’ debt, but it is still owed mainly to foreign banks. It is growing fast and the repayments accounted for 45 per cent of the national budget in 2010. That’s why, despite being the seventh largest world economy, Brazil still has more than half of its population living in poverty.
Despite its severe diagnosis, the commission didn’t recommend a full debt audit. However, eight parliamentarians joined with activists to present an alternative report, which went much further in exposing the illegal and detrimental impact of Brazil’s debts – even finding that some clauses in the debt contracts breached the constitution.
What did the audit find in Ecuador?
The audit exposed the manifold problems of Ecuador’s debt history. In particular, much of the debt was run up by a small group of large international banks aggressively pushing debts onto Ecuador in the 1970s, then restructuring those debts in the 1980s, under pressure from a cartel of creditors comprising the largest banks, the IMF and Northern governments. Debts that were worth very little were restructured at their full value, with abusive interest rates and illegal terms.
The proof of so many illegalities allowed President Correa to suspend interest payments and then agree to pay only 30 per cent of the face value of its ‘bond debt’. It demonstrated that a country can suspend payments and achieve positive results when backed by a properly documented audit report.
How were the results used by government and civil society groups?
In Ecuador civil society is well organised and the audit has led activists into campaigns for greater economic justice – pushing for new financial architecture such as the Bank of the South, control of capital flows and popular tribunals to adjudicate on economic justice and ecological debt.
In Brazil, the government has not taken advantage of the investigations and continues to ignore the call for a debt audit partly because the electoral campaigns of the major candidates are funded by financiers and partly because of the power of financial markets to blackmail governments.
The campaign against debt became more difficult after Lula became president. For 20 years he had opposed the debt but as president he retained the privileges of the ‘debt system’. In fact, things became even worse after Brazil repaid its IMF debt in 2005. Most people took this to be the end of the matter, when in fact it was a very small part – only 2 per cent – of Brazil’s debt.
Besides, our debt simply changed hands. To pay off this debt in advance to the IMF, Brazil took on new and more expensive debt. While IMF interest was 4 per cent, the new debt bonds carried interest of 7.5–12 per cent for external bonds and 19 per cent for domestic bonds. Once again this damaged the country to the great profit of creditors.
It seems that there is a big risk that the state can co-opt the auditing process. How can these lessons be built on in future audits, especially in Europe?
The only remedy I see to prevent it is to empower civil society. That’s why it is so important to start right away on a citizens’ audit, involving as many organisations as possible – because debt problems affect the lives of everyone. As people begin to understand the ‘debt system’ and the results of the audit, it is more difficult for governments to co-opt the process.
Very similar means to those now being employed in Europe have been used to create ‘public debt’ in Latin America since the 1970s. The experiences of debt audits in Ecuador and Brazil have proved that in the last 40 years this kind of debt in bonds has been used as a mechanism to transfer public resources into the private financial sector.
Everywhere public finances have been usurped. We can’t keep paying illegal debt with our jobs and our lives.
Maria Lucia Fattorelli was a member of Ecuador’s debt audit commission, an advisor to the commission of public debt in Brazil and coordinator of Citizen Debt Audit.

The tiger that didn’t roar

Ireland has undergone one of the largest fiscal adjustments in the rich world since the start of the economic crisis, with e20 billion in tax increases and spending cuts. But the public response has been muted. Andy Storey reports
On Easter Monday 2011, the Irish justice and human rights group Action from Ireland (Afri) launched a satirical version of the 1916 proclamation of Irish independence at Arbour Hill cemetery in Dublin, where the leaders of the Easter Rising are buried. Actor and writer Donal O’Kelly read out the new proclamation on behalf of the bondholders to whom Irish people’s money has been pledged through the 2008 bank guarantee that obliged the Irish government to pick up the tab for the losses of Irish banks:
‘We declare the right of senior bondholders to the ownership of Ireland, and to the unfettered control of Irish destinies, to be sovereign and indefeasible . . . The senior bondholders are entitled to, and hereby claim, the allegiance of every Irishman and Irishwoman.’
The proclamation was signed by ‘financial speculators unknown to you’ and O’Kelly’s wearing of a face mask symbolised the shadowy, opaque nature of the creditors to whose upkeep Ireland’s future has been mortgaged.
Remarkably, there has been limited public outrage in Ireland over this scandalous socialisation of private debt. This is despite the fact that more than €20 billion of ‘fiscal adjustment’ (tax increases and spending cuts) has taken place since the crisis broke. In the words of the Irish economist Karl Whelan, this is ‘the equivalent of . . . €4,600 per person . . . the largest budgetary adjustments seen anywhere in the advanced economic world in modern times’. There will be an estimated €6 billion in further spending cuts and tax increases in 2011, and an annual average of approximately €3 billion for each of the next three years.
Unemployment is in excess of 14 per cent (446,800 people), with more than two fifths of it long term in nature. Emigration is estimated at some 60,000 per annum. And the economy, not surprisingly, is mired in recession, with investment down from more than €48 billion in each of 2006 and 2007 to a little over €18 billion in 2010. Capital, as Irish sociologist Kieran Allen puts it, has gone on strike.
So why are the people not out on the streets in revolt? A key role has been played by the absence of leadership from most of the trade unions, whose long history of cooperation and dialogue with the government has blunted whatever appetite for struggle they once possessed. A hegemonic media insists that ‘there is no alternative’, amidst fear generated by the threat of unemployment and even homelessness – one in five households suffers from ‘negative equity’ (their house is worth less than the mortgage). Moreover, many people vested their hopes in the February 2011 election, when the government that oversaw the crisis was ousted, only for its successor to pursue exactly the same policies of debt repayment and austerity.
How then can the necessary outrage be generated? One contribution would be to lift the mask behind which the financial speculators are hiding and to unveil the reality of their scams and predations. The central point is to untangle the web of secrecy around the debt and work out who lent what to whom, when and for what purpose. There is an expectation that at least some of the debt would be found to be ‘illegitimate’ and could, therefore, be repudiated.
Afri and some other organisations (the Debt and Development Coalition Ireland and the trade union Unite) have launched a debt audit in Ireland. A small team of independent academics – with expertise in economics, finance and related disciplines – is trawling through the books to see if they can answer various questions. The most basic is: to whom is the bank debt (for which the state has assumed responsibility) owed?
We already have our suspicions. One estimate is that a 50 per cent write-down on the debt of the EU peripheral states would wipe out €850 billion of capital in German and French banks alone. To stop that happening, money is being channelled from European taxpayers and the European Central Bank through Ireland, Portugal and Greece to the financial institutions of Germany, France and elsewhere. This is the logic of the so‑called bailouts.
Andy Storey is a lecturer in the school of politics and international relations, University College Dublin. For more information on Afri’s work on the Irish debt audit, see: www.afri.ie

This frigid exchange is an indicator that the relationship between Argentina and the IMF is not going smoothly. In fact, the three-year agreement with the Fund, signed in September of 2003, is in limbo. In what has become a regular event, the IMF delayed approval of the third quarterly review of the agreement due last July, alleging that Argentina had not complied with certain structural reforms.

In previous reviews, Argentina responded to IMF delays by threatening to default on its $15 billion debt to the institution. This time, however, Argentine officials tried a novel strategy: President Kirchner and Economy Minister Roberto Lavagna decided to unilaterally suspend the agreement until April, 2005 and pay the IMF on schedule the approximately $2 billion due between August and April. While this approach temporarily gets the IMF off Argentina’s back, it is by no means a sustainable arrangement. Without the refinancing of capital payments provided by the agreement, Argentina must face impossible debt service payments in the coming years, reaching 8.2% of GDP in 2005. This would be roughly equivalent to 35% of total government spending in 2005, an unthinkable amount given the huge need for government resources required to undo 10 years of IMF-mandated austerity and the magnitude of the social crisis. According to the Argentine government, unemployment is at 19.1%, underemployment is at 15%, 44% of the population is below the poverty line and almost 20% of the population is indigent.

How did Argentina get so deep in the debt cycle? Is there a way out?

Since the onset of the social and economic crisis three years ago, national and international attention focused on Argentina’s gargantuan public debt. In December 2001, at the height of the crisis that sealed the fate of Argentina’s decade-long experiment with rampant neoliberalism, president-for-a-week Adolfo Rodríguez Saá defaulted on roughly $80 billion of Argentina’s debt with private creditors (predominantly individual and institutional bond-holders). However, Rodríguez Saá did not default on Argentina’s $30 billion debt to the IFIs.

Argentina’s chaotic devaluation in early 2002 resulted in the accumulation of an extra $35 billion in public debt, mostly to bail out banks and private businesses. This “new” debt, added to IFI and defaulted debt brings total public debt to approximately $180 billion, roughly 130% of GDP.

Argentina’s emergence from default requires negotiating a swap of the old defaulted bonds for new ones. IMF and creditor pressure resulted in Argentina backtracking from its initial proposal of a 75% capital reduction. The new offer doubled interest rates and reduced the haircut from 75% to about 50%.

The alarming news is that even if a majority of defaulted creditors take the Argentine government’s offer, total debt would only shrink by approximately $50 billion dollars, to about $130 billion-a whopping 90% of GDP. Most economists agree that this is still a dangerously unsustainable debt level. Even in the best case scenario of a successful debt restructuring, Argentina’s still-huge public debt continues to leave the country on the verge of another major crisis.

The outcome of Argentina’s debt saga depends largely on how the current standoff with the IMF is resolved and on the country’s substantial debt to the IFIs. Argentina’s debt situation cannot be resolved in any meaningful way if it continues under the tutelage of the IMF-forced to continue to implement failed policy prescriptions on the one hand, and to bleed out ifs coffers through IFI debt payments on the other.

The IFIs: Better Off Without Them?

There are at least six good reasons for Argentina to consider leaving the IFIs behind and forge its own future. First, Argentina’s explosive debt accumulation and resulting crisis were due, in large part, to the privatization of the social security system foisted upon Argentina by the World Bank (WB) and required by the IMF. The WB is now backtracking from its earlier dogmatic stance on the superiority of market solutions for workers’ retirement, acknowledging that a strong state-sponsored program should be the backbone of the retirement system. However, in Argentina the damage is already done.

Second, in spite of the IMF’s blunders in Argentina in the 1990s the Fund refuses to admit its mistakes. The so-called Independent Evaluation Office, in reality a branch of the IMF, recently completed a study on the IMF’s performance in Argentina. The study lays the blame for the crisis squarely on Argentine government officials, parroting the usual IMF line about Argentina’s fiscal profligacy and incomplete structural reforms. The only mistakes the IMF admits to are not having supervised Argentina closely enough and not having paid enough attention to warnings sounded prior to 2001 that the fixed-exchange rate regime was in trouble. Indeed, not only did the IMF ignore clear warnings, but they tripled their loans to Argentina in the months preceding the December 2001 crisis, taking total loans from $5 billion to $15 billion. In sum, the IMF was unprepared for the crisis, prescribed mistaken economic policies and poured money into Argentina to prop up an unviable system.

Third, the IMF’s management of the Argentine crisis (since December 2001) has been plagued with errors in diagnosis, macroeconomic projections, and policy prescriptions. In an unprecedented document published in early July, the Argentine government described in detail IMF mistakes. The government’s paper highlights the extent of IMF cluelessness and inability to deal with the crisis. The document also details IMF meddling in national affairs far outside its official mandate, such as demanding modifications to the bankruptcy code and the repeal of a law that allowed for the prosecution of white-collar crime.

Fourth, the IMF continues to act in a highly contradictory way. On the one hand, it acts as a lobbyist for defaulted private creditors, demanding that Argentina raise its debt-restructuring offer and insisting that the government pay off its debt to the IFIs. On the other hand, the IMF has also insisted that Argentina eliminate export and financial transaction taxes, which together account for one third of the government’s revenue, because it claims these taxes “distort” the price structure. So as the IMF pressures for significantly higher payments to creditors, it also demands measures that would deeply cut government revenue. Meanwhile, Argentina’s millions of poor and unemployed don’t even enter into the IMF’s equation.

Fifth, since the December 2001 crisis, Argentina has made net payments to the IFIs to the tune of $8.2 billion. During the worst economic crisis of its history, rather than receiving fresh loans from the IFIs and applying scarce resources to alleviate poverty, generate employment and kick-start the economy, Argentina was instead sending its revenues to the IFIs.

Finally, the IFIs have not only prescribed mistaken and harmful policies and made bad loans, but they also claim “preferred creditor” status, expecting to cash in ahead of all other creditors. In other words, contrary to the laws of the market they so vehemently promote, they are accountable to no one nor will they pay for their mistakes.

The huge social and economic costs of IFI mistakes have Argentines asking: why should IFIs not pay for their mistakes, much like private creditors pay for bad investments? And how does Argentina benefit by maintaining its links to these institutions?

Which Way Now?

Come April 2005, Argentina will have to decide what its relationship to the IMF will be. Will the agreement signed in 2003 be restored? Assuming a successful defaulted debt restructuring, Argentina’s debt sustainability will still not be guaranteed, especially if it must pay off the IFIs. What are the options?

The most desirable – and least likely – option is debt forgiveness along the lines proposed by the Jubilee Network. However, Argentina does not fit the IMF’s “heavily indebted poor country” definition that is needed to qualify for debt cancellation. Furthermore, it appears that the IMF wants to make an exemplary case of Argentina for having defaulted on its debt, making debt forgiveness even less probable.

The least desirable option is a restoration of the currently suspended agreement. Despite the Argentine government’s combative rhetoric, when push comes to shove Argentine officials have caved in to the IFIs in the past and may well continue to do so. The only benefit of a renewed agreement with the IMF would be a roll-over of capital payments. The drawbacks would be adoption of IMF conditionality and mistaken policy prescriptions with huge human and economic costs. There would be a political cost as well. Given the government’s detailed and public exposure of IMF blunders and their damaging consequences, how will it justify a renewed relationship with the Fund? If this option is chosen by Argentine officials, they should at least demand that IFIs submit to the accountability framework recently proposed by the Center for Economic and Policy Research. Such a framework would make IFI economists accountable for their economic projections and policy prescription outcomes.

A third option is to default to the IFIs and force a debt restructuring. The advantages would be considerable: freeing up resources for development and regaining sovereignty over policy design and implementation. The price to pay is not as clear. The cost mentioned most often is the interruption of access to international credit markets, which Argentina has not had since 2001 and has still emerged from the crisis. Furthermore, Argentina has large primary fiscal and trade surpluses, and therefore the country has been mostly self-financing. Another cost often mentioned is the interruption of foreign investment. This is unlikely, since foreign investors care more about profit opportunities and a predictable investment climate than about IMF agreements. The political costs are more of an unknown. A successful break with the IFIs is an example that the G-7 and the IFIs themselves would like to avoid. It is not clear to what extent they would go to do so.

The road ahead for Argentina is bumpy. However, increasingly it looks like Argentina would be better off traveling without the IFIs. One thing is clear, as Rato said, the IMF has “a problem called Argentina”. Being the stone in the shoe of the IMF gives Argentina considerable leverage. It should use that leverage to finally break dependence on bad IFI policies.Alan B. Cibils is an Argentina-based Senior Research Associate at the Center for Economic and Policy Research in Washington, DC and a Research Associate at the Centro Interdisciplinario para el Estudio de Políticas Públicas (Interdisciplinary Center for Public Policy Studies-CIEPP) in Buenos Aires. He is a frequent contributor for the IRC Americas Program and can be reached at americas@irc-online.org.