International lending to Dictatorships: the case of Argentina 1976-1983

FLORENCIA SEMBER

Ginebra

Seminario; The Paul Bairoch Institute of Political Economy, Séminaire Avancé de Recherche; 2021

Université de Genève, Département d?Histoire, Économie et Societé

During themilitary government that lasted from 1976 until 1983, Argentina accumulated anunprecedented external debt. This article will examine the factors that led tothis result and the characteristics of such indebtedness. The dictatorshipunder examination -the last of the six military coups Argentina suffered in theXXth century -had some peculiar features that distinguish it from the previous dictatorships.The deepness of the economic reforms implemented, including financial reform,deregulation of capital movements, and external trade liberalization, wouldpermanently change the country's productive structure and the characteristicsof external debt.Even if theexternal debt had always been a feature of the Argentine economy, this timeexternal debt went together with capital flight of almost the same amount. Whilebefore the dictatorship of 1976-83 external debt was used to finance the balanceof trade deficits raised by the needs to fund import substitution, from then onexternal debt resulted mainly in capital flight. The period was characterizedby a mechanism of financial valorization, which consisted of borrowing abroad,taking advantage of higher internal interest rates, and fly the capital abroadonce the profits were realized. The change in the productive structure and thecomprehensive financial reform introduced in 1977, made this mechanismpossible, ending the second wave of the import substitution process and movingto rely on the primary and financial sectors. Implementing these policies waspossible thanks to the systematic repression and the collaboration of civilpublic officials from research centres created ad hoc by business groups todesign policies that better suited their interests.On theexternal side, the international context contributed remarkably to thishigh-indebtedness/capital flight scenario. The article will address the role ofinternational financial institutions and private lenders. The IMF had a decisiverole as a lender only at the beginning of the period, and afterwards, it servedas a facilitator of private lending. The IMF promoted adjustment plans andpolicy changes that encouraged the private lenders to give credit, in the beliefthat these would make the debt sustainable. Theapproach taken in this article is that the high Argentine indebtedness duringthe period is not to be attributed to some sort of conspiracy against Argentinaof international financial institutions or banking multinational corporations.Instead, the local élites composing the civic-military government played an essentialrole, promoting the structural reforms necessary to allow for the changes thattook place. This combination of factors resulted in long-lasting consequencesfor the Argentine economy, also as compared to other Latin American countriesthat suffered the external debt crisis at the beginning of the 1980s.