Researching and writing about Argentina’s international financial relations during the early years of the last military dictatorship was a unique professional opportunity and a daunting task. In recent years a wide range of Argentine and foreign primary sources were opened for consultation by bona fide scholars. A more nuanced and long-term examination of Argentina’s relations with the World Bank, the International Monetary Fund and international bankers is therefore possible. The recent international crises elicited a large number of studies whose empiric and theoretical findings are major benchmarks for fresh and deeper looks at Latin American international finance case-studies. Moreover, the recent international financial crisis in particular and its remarkable similarities with past experiences such as the foreign debt crises of the 1980s also stimulated scholarly articles and monographic studies on capital markets, banking, and institutional and policy changes of multilateral lending agencies during the Bretton Woods era and afterwards. Thus, my explicit intention to catch up the Argentinian case with the more updated state of knowledge on Chile and Mexico came across three controversial issues which immediately called my attention.
An unavoidable first bone of contention was the scope and achievements of Argentina’s resumption of close relations with the World Bank between 1976 and 1978. Undoubtedly, throughout these years there was a distinct understanding between both parties. Our review, however also shows that, well before the rise of the military dictatorship of 1976-83, World Bank management and professionals were keen remaining as a relevant and influential development financing institution, and on maintaining close working relations with the third most important country in Latin America. It also pursues recent pioneer work showing that by the late 1970s there was a strong debate within the Bank about the mixed record of project-lending which was the hub of its policies and that, at best, the Washington Consensus and the policies of the Reagan administration gave the final push to the launching and implementation of the new Structural Adjustment Loans (See Sharma 2013 and 2017; Babb 2009)). This gathering storm coincided with the fact that when the military dictatorship rose to power the U.S. government was already thinking that multilateral banks’ foreign exchange financing for middle income countries such as Argentina, Brazil and Mexico should be gradually phased out, and that to obtain development aid these countries should turn to private capital markets.
By early 1976 Argentina badly needed economic development financing for pending basic infrastructure and investment projects. The Martínez de Hoz team therefore followed a recommendation of Burke Knapp, the highly influential chairman of the Loan Committee who was responsible for the Banks’ worldwide operations, and in early August 1976 told a visiting delegation that Argentina should hasten to tap World Bank funding. They reactivated pending requests that were stalled on the pipeline due to technical and ideological disagreements with earlier administrations, and promptly submitted additional strong and ultimately successful loan applications which broke this stalemate. In so doing Argentine officials anticipated developments about which in January 1975 Knapp had already warned an Argentine delegation of the earlier Peronist government who were looking for financial assistance in Washington, D.C (1)
The true significance of ideological coincidences between the IMF management and the staff and the Martínez de Hoz economic team is the second broad topic discussed in our article which also warrants further consideration in this concise essay. As a leading analyst of the Fund’s institutional and policy-making development underlined a few years ago, as a result of a “lengthy and complicated lending experience”, it has always been very important for management and staff to work with “sympathetic” local country officials having “a set of collectively shared beliefs”. (See Chwieroth 2013, 267 and 271). In view of the protracted negotiations with a previous administration which were signaled by technical and ideological clashes and finally collapsed in the wake of an irretrievable crisis, it was only natural that in late March 1976 Western Hemisphere Department Director Jorge Del Canto and his staff should welcome Argentina’s return to the fold and be more than anxious to cooperate with her new government officials (2). Yet Fund staff and their local “sympathetic interlocutors” did not fully agree on certain issues such as the timing and duration of the IMF’s involvement in Argentina. Like former Minister of Economy Krieger Vasena, who was another local “sympathetic interlocutor” in the late 1960s, the Martínez de Hoz team rejected a Fund offer of technical assistance to design the first economic stabilization program. Furthermore, although the Fund thought otherwise and economic stabilization still had a long way to go, in mid-1978 they also decided not to enter into another “stand by” agreement and by the end of the year began to implement the so-called “Tablita Cambiaria” as an anti-inflationary tool. Briefly stated, our findings suggest a significant degree of independent decision-making which is at odds with conventional wisdom which depicts the Martinez de Hoz team as lackeys of foreign creditors, and appear to confirm basic tenets of sociological agency theories whereby bureaucrats, officials and managers, as well as their institutions, have the capacity to act independently and make their own free choices
Finally, our case study also provides meaningful “episodic evidence” which enriches current scholarly debates on whether IMF-supported economic stabilization programs actually improve needy emerging countries’ access to indispensable supplementary banking finance (See for example Arabaci and Ecer, 2014). As is well known, in some cases with some qualifications already laid out in other scholarly and professional journals, a significant number of participants in these discussions maintain that IMF “stand by” lending and periodic monitoring certify borrowers’ credibility and commitment to economic reform. In their view, this “catalytic effect” explains why needy nations pay the political cost of adhering to mainstream rules of international finance in order to obtain collateral stabilization loans with longer maturity periods and lower interest rates. How does the Argentine experience of the late 1970s fit in into this proposition? Clearly as of early 1976 Argentina’s Peronist government failed to obtain such “seal of approval” from the IMF. Hence traditional supplementary banking finance tied to a “stand by” agreement to tide over a looming balance of payments crisis was unavailable. On the other hand, the Martínez de Hoz team swiftly renegotiated the short term banking loans which had kept the national economy afloat until March 1976, and then signed a “stand by” agreement with the Fund in parallel with longer-term foreign banking loans which came in force immediately afterwards. In other words, the IMF “stand by” loan of 1976 and its renewal in 1977 had a catalytic role which expedited emergency banking financing until the worst part of the crisis was reportedly over and supplementary loans tied to such agreements were no longer needed. By early 1978 a key international banking spokesman summarized Argentina’s situation as follows:
“The tables have turned very quickly for Argentina. Less than two years ago it was struggling to salvage its international creditworthiness; nowadays the country is actually fighting off what could be a flood of loans from abroad.”(3)
In this post I have focused on just a few issues which certainly warrant further interdisciplinary work. More systematic cross-national studies with starting time-periods dating as far back in time as the 1970s and the early 1980s are needed to capture the antecedents of later trends in international finance. Moreover, two largely unnoticed news items regarding an unexpected “stand by” agreement of June 2018 with the Macri administration that were recently published in Buenos Aires point to the contemporary and long-term relevance of two issues discussed above. The first one reported that as of this writing this “seal of approval” of the current stabilization program has not fully restored market confidence in Argentina and country risk rating, therefore, remains high. (4). As shown by the headline of a leading Sunday paper that is quoted in the epigraph of this blog, the second underlined that, despite their ideological affinities and common goals, there are growing disagreements and tensions between the Fund and the Argentine economic team over monetary and exchange policies, and the macroeconomic outlook for 2019.
(1)For the early warning see “Call on Mr. Mc Namara by Argentine Minister of Finance on January 17, 1975”, Memorandum for the Record by Gunter Wiese, Washington, D.C., January 23, 1975, in World Bank Group Archives, Records of President Robert S. Mc Namara, Contacts with Member Countries: Argentina, Correspondence 2, Folder 1770941
(2)In late June 1975 the Peronist government had begun earnest efforts to stabilize the economy and opened negotiations with the IMF. At that time the Director of the Western Hemisphere Department had over-optimistically drawn up tentative timetable for talks leading to a “stand by” agreement. See “Argentina”, Office Memorandum by Jorge del Canto to the Acting Managing Director, Washington, Je 23, 1975; and an attached memorandum titled “Meeting with Argentine Officials” in International Monetary Fund Archives, Argentina: c/Argentina 820-Member Missions to Washington, 1970-1992.
(3)“Argentina’s foreign borrowing: Too much of a good thing”, Institutional Investor, February 1978, p. 43.
(4)For an example of these concerns see “Que es el riesgo país y porqué está jugando en contra de la Argentina”, La Nación (Buenos Aires), 11 de diciembre de 2018. Accessed on 16 December 2018 at https://www.lanacion.com.ar/2199891-el-riesgo-pais-era-macri-que-esta. La Nación pursued the issue in the economic supplement of its printed edition of December 15, 2018.
References
Arabaci, Mehmet and Sencer Ecer “The International Monetary Fund (IMF) and the Catalytic Effect: Do IMF Agreements Improve Access of Emerging Economies to International Financial Markets?”, The World Economy, November 2014, Vol. 37, No 11, pp. 1575-1588
Babb, Sara Behind the Development Banks. Washington Politics, World Poverty, and the Wealth of Nations. Chicago: University of Chicago Press, 2009
Chwieroth, Jeffrey M. “The silent revolution: how the staff exercise informal governance over IMF lending”, Review of International Organizations June 2013 Vol 8, No 2, pp. 265-290
Sharma, Patrick Robert McNamara’s Other War. The World Bank and International Development. Philadelphia, Pa.: University of Pennsylvania Press.
Sharma, Patrick “Bureaucratic imperatives and policy outcomes: The origins of World Bank structural adjustment lending”, Review of International Political Economy 2013, Vol. 20, No 4, pp. 667-686.
Acknowledgments
The University of Buenos Aires, Argentina’s National Scientific Research Council (CONICET), The Pierre Du Bois Foundation and the Graduate Institute of International Studies in Geneva, the Universidad and the Instituto Torcuato Di Tella in Buenos Aires provided financial and institutional support for the completion of this post and the article that is being published in LARR
Picture in the post: https://commons.wikimedia.org/wiki/File:Macri_with_Lagarde.jpg
