by JUSTIN PODUR
Global South countries have a perilous path to walk to escape the shackles of dollarization. The major problems, as described by political economists Michael Hudson and Radhika Desai, are as follows: Global South countries are saddled with immense debts in dollars, and Western corporations claim ownership over their resources. The international legal structure favors the West, finding in favor of American corporations and vulture funds. The U.S.-run covert network continues to have the ability to foment wars and coups against those who defy Western rules including financial ones. These problems now confront most countries of the world.
Thus far, most of the world is not polarized. Very few countries (mostly in Europe) are unconditional supporters of the U.S.-led West. On the other side, only a handful of states (e.g. Russia, China, Iran) dare to categorically refuse when the West makes demands.
Everyone elsewhere the future of the global economy will play out is in-between. Will they find a way out of these traps?
Argentina’s Politicized Debt
For about 200 years, Argentina has been the site of first British, and then U.S. experiments in debt-driven subjugation. Each time a developmentalist government came to power and tried to get the country out of a crisis, it would be followed by a right-wing government that would plunge the country back in.
Among the in-between countries, Argentina has a special role. The country is on the list of the new invitees to BRICS. Its finances are in disarray, and its leading presidential candidate, who takes economic advice from his four dogs, wants to close most of the government down and use the U.S. dollar as the currency. Like many right-wing Western politicians, from Berlusconi and Sarkozy to Trump and Bolsonaro, Milei’s electoral brand is damaged neither by clown antics nor by infeasible economic plans.
And infeasible they are. The Economist notes that “Milei promises cuts worth 15 [percent]? of GDP, to a public sector that accounts for 38 of GDP, but struggles to outline where they will come from.”
Nor does he know
“how” Milei’s government would find the $40 [billion] his team thinks is necessary to make the switch to dollars. Currently, Argentina cannot even repay the [International Monetary Fund (IMF)]” to which it owes $44 billion. Having run out of American currency, the central bank is instead burning through yuan borrowed from China” Milei has suggested selling state-owned firms and government debt in an offshore fund to raise the necessary capital. It is hard to imagine there will be many buyers.”
Argentina’s fate has been controlled by imperial debt since 1824 when the British Empire’s bank (Barings whose Lord Cromer used financial methods to take over Egypt, among other notable operations) first advanced a loan of one million pounds to newly independent Argentina. This was less than 20 years after the British landed forces to try unsuccessfully to colonize Argentina. They ultimately found the financial weapon more effective. The first of nine defaults followed in 1827. The latest was in 2020 (the Economist is advocating a tenth).
In the 20th century, Argentina alternated between elected governments and military dictatorships and switched between developmentalist and neoliberal economic approaches. In the neoliberal periods, Argentina was the site of innovation new experiments in plundering a country were invented. Among these was what Esteban Almiron outlined as the “financial bicycle” made possible by the peg of the peso to the U.S. dollar:
“When billionaire speculators were allowed to exchange Argentine pesos for unlimited amounts of dollars, benefiting from ”high [interest rates in pesos, it was the state that had to borrow those dollars from [U.S.]” private banks or from the IMF and pay interests on them. Once exchanged, the dollars obtained by the speculators were moved out of the country, leaving the debt to the state.”
In 2001, Argentina defaulted and dropped the peg. It then paid its $9.5 billion IMF debt in full in 2005, saving the country $842 million in interest in subsequent years. It also negotiated, through to 2010, a restructuring of 92 percent of the rest of the national debt.
Almiron’s history of Argentina’s debt describes what happened next: a story of Argentina and the American vultures. The remaining 8 percent of the debt offers a case study of the rigged international legal structure that facilitates the U.S. plunder of Global South economies. It was held by vulture funds run by American billionaire Paul Singer and others. The vultures turned to the U.S. courts and, predictably, in 2012, got exactly what they wanted a U.S. judge ruled that Argentina would have to pay them in full.
Then-president Cristina Fernández de Kirchner refused to pay, but subsequent elections brought Mauricio Macri into power. Macri increased Argentina’s debt-to-GDP ratio from 52.6 percent to 90.2 percent and oversaw an increase in poverty from 30 percent to 40 percent (four million people entering poverty). By the time he left power in 2019, Argentina had experienced $79.8 billion in capital flight and defaulted again. Almiron writes that “Macri and his team wrecked the relatively healthy finances of the Argentine state in less than two years.” Macri brought back the financial bicycle:
“Their trick was to buy pesos, profit from the high [interest rates]” in pesos, then convert them to dollars and move the dollars out of the country. In the meantime, the state had to provide a virtually infinite amount of dollars for the speculators, and was left with the pesos.”
On his way out the door, Macri took out a $57 billion loan from the IMF, later reduced to $44 billion, which “disappeared in just 11 months.”
His successor Alberto Fernández tried to rebuild the gutted health ministry during COVID-19 but was stuck with the $44 billion loan. Out of desperation as much as out of developmentalist ideology, Fernández turned to China, joining the Belt and Road Initiative in 2022 and applying successfully, it turns out “to BRICS. Argentina will join in 2024. However, collaboration with China (and Qatar) so far has been a matter of getting additional loans from China to pay the IMF. This is not exactly the type of “win-win” deal China seeks with Global South countries in its infrastructure investments and trade deals around resources.
If elected, Milei can be expected to withdraw the BRICS application. If he keeps Argentina in BRICS, he will apply his (and his dogs’) financial genius to facilitate the U.S. use of Argentina not just to drain Argentina, but China (and perhaps other emergency lenders) as well.
With each new plunge into debt, the country’s right-wing attempts to sink the state so much deeper that it can never emerge. When he arrives in office, dog whisperer Milei has promised to outdo Macri’s record of destruction.
The Travails of Pakistan, Ally of Both the U.S. and China
Like Argentina, Pakistan has been controlled by imperial debt regimes first British, then U.S. for centuries. What is now Pakistan was once a group of rich provinces in British India. Each kingdom that Britain’s East India Company brought under its boot was saddled with debt, the principal mechanism (there were others) through which Britain drained $45 trillion from the subcontinent. Britain then partitioned the subcontinent into India and Pakistan before handing it over. Today India is playing an ambiguous role in BRICS, while Pakistan’s post-coup government has resorted to severe violence to try to get the country under control.
Also like Argentina, Pakistan is a place where both BRICS and the IMF have a heavy economic presence. In April, about a year after former Prime Minister Imran Khan was ousted, the U.S. Institute for Peace reported that Pakistan was facing an “existential” economic crisis. Dividing the debt into three types (multilateral, private, and Chinese), the USIP gave a breakdown of Pakistan’s debt and to whom it was owed: “As of December 2022, Pakistan holds external debt and liabilities of $126.3 billion. Nearly 77 percent of this debt, amounting to $97.5 billion is directly owed by the government of Pakistan to various creditors; an additional $7.9 billion is owed by government-controlled public sector enterprises to multilateral creditors.”
Pakistan’s multilateral debt of $45 billion broke down as follows: the World Bank ($18 billion), the Asian Development Bank ($15 billion), and the IMF ($7.6 billion), with smaller amounts to the Islamic Development Bank and the Asian Infrastructure Investment Bank. It owes another $8.5 billion to major creditor countries Japan, Germany, France, and the United States.
Pressenza for more