The MacNeil/Lehrer Report; Argentina and the IMF

[Tease]

ROBERT MacNEIL [voice-over]: Argentina faces an explosive brew of economic hard times and political unrest as the military government tries to recover from the Falklands disaster.

[Titles]

MacNEIL: Good evening. Argentina announced yesterday that it had agreed to a stringent belt-tightening program to qualify for some $2 billion in loans from the International Monetary Fund. The loans have been negotiated to help Argentina prevent default on a foreign debt of nearly $40 billion. The tentative IMF agreement is expected to encourage private Western banks to help refinance the loans. But the price of the agreement may be steep politically for Argentina's leaders. It calls for cutbacks in government expenditures. Some observers think that may provoke further unrest by unions who have already staged protest demonstrations over the present state of the economy. Inflation is running at close to 250%, a world record, and unemployment at 10%. Tonight, can Argentina bear the political cost of being bailed out by the international financial community? Jim?

JIM LEHRER: Robin, Argentina all but disappeared from our television screens and newspaper pages shortly after the battle of the Falklands ended four months ago. So there's some catching up to do on what's been happening. Army General Bignone is still running the country. He replaced General Galtieri who was ousted after the Falklands defeat. Bignone is number one in a three-man military junta with the heads of the navy and the air force who at first declined to participate, but later changed their minds. The junta and Bignone have their problems. There is growing opposition to their rule from the civilian political parties who are gearing up for elections the junta has promised to hold by 1984. Human rights advocates continue to raise cain with the government, particularly over Argentine political dissidents who disappeared under prior juntas. But the major unrest is over the economy -- skyrocketing inflation and high unemployment. Freelance producer John Arden did this update for us on post-Falklands Argentina.

REPORTER [voice-over]: After the Argentines surrendered on the Falkland Islands, the military stil rules the country. The training goes on. Some of these men hope they'll get the chance to take part in a new attack against the British. Outwardly, the military is trying to preserve a show of unity, and for the first time since the war, the military junta has been reconstituted. But behind the handshakes and embraces, President Bignone's government is rent with internal strife. Since the war, each of the forces has had its own purge. The military process is now exhausted and the politicians are in action again. This Communist Party rally attacted 30,000 people. They chanted for an end to the military government.

A soup kitchen: something previously unheard of in the Argentina that regards itself as the land of plenty. A number of soup kitchens have sprung up around the capital, and for those who turn up it's the bottom rung of the ladder. Many are the victims of unemployment, a relatively new phenomenon. Thousands of workers have been put on the street by the free-market policies applied by the military after 1976. Protective tariffs were stripped away, resulting in the closure of hundreds of factories. One of the worst affected has been the automobile industry. This year only 180,000 cars will be produced -- half the industry's capacity. In the last four years, more than 10,000 metalworkers lost their jobs, and there are no unemployment benefits. Every night, lines of unemployed form outside this city newspaper looking for a free copy of the classified ads. Many of them find only temporary work and are back in the line within a few days. Officially, unemployment is about 12%, but sub-employment is far higher. Dr. Aldo Ferrer, economy minister in 1970 and '71, blames today's economic crisis on the military, and hopes a return to civilian rule will result in a government of national reconciliation.

Dr. ALDO FERRER, former Minister of Economy: There are many, many reasons, of course. There are old problems in Argentina -- historical problems. But the fact is that over 50 years, we have lived outside of democracy, since 1930, and in different periods we went back for short while, a few years, to democracy, but then we fell back again to military regimes.

REPORTER [voice-over]: The monetarist policies applied by the military through their economic hero, Dr. Martinez Diaz, created a strong peso against the U.S. dollar. Initially, this hoped to build up foreign reserves, but it was to have a disastrous long-term effect. High interest rates meant that money which could have been invested in industry went into the money market. Speculation became an obsession. Local producers were unable to compete with the flood of imports, and even the most insignificant household items came from abroad. Rapid devaluation of the peso in recent months has made such buys difficult for future, although many shops are still selling off old stock.

[on camera] Well, the days of easy importation are obviously numbered, but you can still prick up a cheap bargain in a store like this -- Danish ham, sausages from Spain, beer from Japan, caviar from Norway, spaghetti from Italy, sweets from Greece, and even Coca-Cola from South Africa.

[voice-over] The cost of imports means little to most Argentine housewives who find it hard enough paying for local products.The real buying power of most families has dropped significantly. But by far the most spectacular price rise this year has been in the product most dear to the neart of all Argentines -- meat. Many families can afford it only once or twice a week. Ironically, the high prices of meat are partly due to the mild revival in the rural sector two years ago. Producers killed off too many female cattle and stocks dwindled. In addition, many producers sold out to invest in a lucrative money market rather than build up their local herds.Exports of meat are now seriously threatened by the exchange rate fluctuations. Argentina last month was unable to meet exports to Israel, Algeria, Egypt and the Soviet Union. That's because producers said they were being offered less than the cost price. This could mean a loss in export income of $28 million at a time when Argentina is faced with paying off its foreign debt of nearly $40 billion. It's a similar story for grains. Production of wheat, the biggest of all grains, is 12% down from last year. This has been partly caused by drought, but there was also insufficient money around to buy fertilizer.

The bitterest critics of the military say that wild spending on arms has been a big drain on the Argentine economy. Reliable estimates put the government's military spending at around $10 billion. Many of the new weapons were bought when tensions increased with Chile over sovereignty of the Beagle Islands. The loss of equipment is not considered to have been significant to the Argentine economy. Much more damage was done to the morale of Argentines themselves. The country is now going through a period ofpainful self-examination. Most countries have now resumed arms sales to Argentina after initially applying sanctions. Commercial sanctions were generally avoided.

Central Buenos Aires belies the true state of the economic crisis. Because of the exchange rates the tourist business is booming. Brazilians and Uruguayans arrive with dollars and fill their bags with local goodies. But angry Argentine housewives shaking their empty shopping bags staged a demonstration outside Government House to protest against food prices. They now buy only on Thursdays and are demanding price controls. This woman said her family now eats meat only once a week. She complained she was getting fat because of eating rice and spaghetti.

With the smell of democracy in the air, groups formely repressed by the military are now reforming; among them, the metalworkers. They marched through the streets of the capital chanting, "The military dictatorship shall end," and "Long live Peron." The government has managed to avoid one general stoppage with a last-minute pay offer, but transport drivers have already shown they will strike for their demands. Recently, the more militant branch of the central trade union, the CGT, showed how easily it could organize massive protest against the government. This demonstration in the Plaza de Mayo united broad streams of political and industrial groups. There was no provocation by either side, and the demonstration was generally a peaceful one. The new Economy Minister, Dr. Jorge Wehbe, recently introduced a series of economic emergency measures, such as price controls for bread and milk. He also forbade restaurants from serving meat on two days of the week.

But these measures seem hardly more than temporary. They will do nothing to restore the lost confidence in the Argentine economy. Argentina will have to tread the uneasy path between economic nationalism and the demands made on it by the International Monetary Fund. There's still strong opposition in some sectors to the idea of a standby credit deal. All will depend on the military making a graceful exit from power, a question of considerable anxiety for Argentines today.

MacNEIL: That report was by freelance reporter-producer John Arden in Buenos Aires. For a further look at Argentina's economy and political future, we have first Dr. William Cline, senior fellow at the Institute for International Economics. Dr. Cline, in general terms, how badly off is Argentina's economy?

Dr. WILLIAM CLINE: Domestically the economy is in a shambles. They've had a recession or depression and 9% -- or 6% decline in GNP last year, and a comparable decline, probably, this year. Externally, however, it's surprising that their situation is not as bad as one might think. Their export base is fairly solid. They're self-sufficient in oil. They have grain exports that are very large. And their deficit with the rest of the world is rather smaller compared to their exports than, say, in the case of Mexico or Brazil.

MacNEIL: How close are they or were they to default without this IMF agreement, which, we should say, still has to be ratified by the IMF in Washington?

Dr. CLINE: They were behind in their payments by almost $2 billion, but they're a classic case of a political confidence shock to the banks and to the inflow of capital caused by the Falklands crisis. Their underlying economic position in terms of being able to pay their foreign debt has never, in my opinion, been in fundamental question.

MacNEIL: It's more a psychological thing than based on the factual situation, you mean?

Dr. CLINE: That's basically the situation, yes, that the political shock caused by the Falklands war made it dubious that banks would continue to put in new financing on a business as usual basis. And so it requires the seal of approval of the IMF to return that confidence.

MacNEIL: Now, John Arden, that reporter, said at the very end that there was a lot of opposition in Argentina to negotiating this kind of standby credit that the IMF has agreed to in principle, probably because of the terms. What is the IMF going to require Argentina's military leaders to do in practical terms?

Dr. CLINE: Well, in my opinion, the terms of the agreement -- of course, these are fully known, but insofar as they've been reported in the press, are somewhat milder than one might have feared. That doesn't necessarily mean that there won't be a political reaction. But the Fund is calling for a cut of government deficits from 3% of GNP to 2% of GNP. That's a much milder cut than is in store for Mexico where it's going to be reduced from 16% of GNP to only about 10%. Similarly, they are expecting an actual increase of 5% in real production next year. They're talking about increases of real wages for government employees of 5% next year. So the political pain is undoubtedly going to be there because of the sensitization of the public to any kind of an IMF program, but it does seem to me that it's not as draconian a package as one might have feared on an objective basis.

MacNEIL: I see. How hopeful are you that they can pull it off -- avoid default, reduce inflation, maintain political order?

Dr. CLINE: I'm relatively hopeful. They are, after all, starting from a large excess capacity because they're starting really from the floor; there's almost nowhere to go but up. So there's a chance for a kind of an expansionary stabilization, if you will. As they get the imports moving again and they get the credits moving again, they can get the imputs to run their industrial park. And it seems to me that the key question is whether the political situation domestically will permit the implementation of what seems to me to be potentially a sensible and not terribly painful package.

MacNEIL: Do you have a reading on that yourself, or a hunch about it?

Dr. CLINE: It would seem to me that if the political parties do want to take a responsible approach and clean the house, as it were, and set the house in order for the return to civilian government, that they might be prepared to go along with austerity measures rather than to essentially scuttle the whole process and leave the economy in a greater shambles later.

MacNEIL: Well, thank you. Jim?

LEHRER: Another perspective now, that of Riordan Roett, director of Latin American studies at Johns Hopkins School of Advanced International Studies here in Washington and its newly established program on Argentine-U.S. studies. He was with us several times, you may recall, during the coverage of the Falklands crisis. How firmly in control is the junta now?

RIORDAN ROETT: Oh, I think the control of the junta is very, very dubious at the present moment. As you know, we have a situation where the commanders of the three armed services have now once again rejoined a junta, and then there is the fourth man, the President. It's quite clear there are divisions within the junta. There are divisions within the army, the navy and the air force.

LEHRER: I said that wrong at the beginning; there are actually four, you're right. The other three -- excuse me, but go ahead. Thank you for correcting me so politely, but go ahead.

Mr. ROETT: And the divisions between the junta and the President are rather impressive, as well. The President comes out of a different military tradition -- the Videla tradition -- and the present people who are in charge of the three services are having to fight off demands for further purges, and they're having to fight off different and very diverse pressures from within their services to do very different kinds of things.

LEHRER: Well, can they impose these austerity measures and make then stick without having political chaos?

Mr. ROETT: The only hope is that they will be able to work out with the political party leadership some form of national-conciliation approach to dealing with the economic package. As Bill Cline says, it really is not a very draconian package. The difficulty is that no one -- no one believes any particular set of institutions in Argentina are really legitimate, will function.

LEHRER: But in other words, what you're saying is the junta is not strong enough just to mandate this. I mean, they're going to have to have the cooperation of the opposition, of the political opposition, right?

Mr. ROETT: That's right.

LEHRER: And without it, it isn't going to work.

Mr. ROETT: Yeah, it's not going to work, particularly the labor unions and the Peronist movement. And the two are not necessarily exactly the same thing. The Peronist movement is a very widely based movement in Argentina, and the labor unions -- an important part of that movement -- are a very strong economic and social factor.

LEHRER: John Arden said on the tape that there was the smell of democracy alive in Argentina. How strong a smell is that from your reading?

Mr. ROETT: I think it's very strong at the present time. The difficulty is the smell is not terribly well directed. What you have are a number of competing groups who are attempting to find their own way of manifesting their interests, and no one yet appears to be working very much in tandem with the other.

LEHRER: And the junta, here again, is unable to be that solidifying force, right, that unifying force?

Mr. ROETT: Yeah, there's no way the junta can play that role in Argentina.

LEHRER: Are there any patterns or characteristics that have arisen in this junta, particularly General Bignone, that are -- in other words, what kind of rulers are these folks?

Mr. ROETT: Well, Bignone himself, it seems to me is a perfectly reasonable general as generals go. He appears to be willing to negotiate --

LEHRER: The generals will be glad to hear you say that. Go ahead.

Mr. ROETT: -- and he is perfectly willing, I think, to look for ways out of this particular impasse. The difficulty is that Bignone is dependent upon the army in the first degree, and then finally upon some kind of weak consensus within the three armed services to even allow him to make any major political decisions.

LEHRER: How real is this promise of elections by 1984?

Mr. ROETT: I think the promise could also be seen as a threat. The promise, it seems to me, is a real one at the present time because the military have nowhere else to go. They need to negotiate with the civilian groups in Argentina, and they must find some way of building a bridge to allow them to withdraw institutionally, and to give some sense of political process once again to the country.

LEHRER: In the human rights area, what is the attitude and the record of this new junta after four months?

Mr. ROETT: The record is somewhat checkered, and indeed the number of violations of human rights has declined drastically over the last year in Argentina. But every time we think they have disappeared, they haven't disappeared and somebody else disappears. And therefore the list of the desaparecidos, those who have disappeared, continues to grow -- more slowly than before, but, shockingly, it's still there.

LEHRER: Finally, in the general area of dissent, not only through the political parties but through the press and whatever, what's the situation there? Has it opened up?

Mr. ROETT: It has opened up tremendously. You now have all varieties of opinion being expressed in the newspapers and magazines. The junta itself is being laughed at in some of the humor magazines. We saw in the film the demonstrations in the streets. That would not be possible in Chile or Paraguay or Uruguay or Bolivia just a month and a half ago. In Argentina, in a sense, the holds are now off and anything goes.

LEHRER: Finally finally let me ask you this -- the same question Robin asked Dr. Cline. Do you feel that the junta and through a coalition with the political parties and whatever can pull off these austerity measures, in the final analysis, that there will not be chaos, they will be able to meet the IMF conditions?

Mr. ROETT: They will need to return to what President Peron was trying to do in 1973 and '74, and that is negotiate a social pact with the unions; to argue that if you take short-term cuts we will promise you in the medium- and long-term a certain number of benefits. And if they can put together a meaningful package and make it stick throughout the party system and within the unions, there may be a chance.

LEHRER: Are there indications that the junta is willing to do that?

Mr. ROETT: I think that they, again, don't have very many options, and they're being pressured very strongly by the industrialists, the unions and the political parties.

LEHRER: Thank you. Robin?

MacNEIL: What is the U.S. stake in avoiding default in Argentina?

Dr. CLINE: Well, it's quite substantial. The U.S. banks, I would say, have about $6 or $7 billion out to Argentina just among, say, the nine largest banks. The Argentine situation, coming on top of the debt problem in Poland, the debt problem in Mexico and a very tight situation in a number of other heavily indebted countries is very important in terms of determining whether the financial system remains intact. So we have a very large stake.

MacNEIL: And U.S. and other Western banks have become extremely shy of advancing further credit or extending loans or rolling over loans. Is the IMF agreement likely to convince them that this is the thing to do? Is it enough?

Dr. CLINE: Well, I think that's a very important question, and it's not completely clear. The likelihood is that with an IMF package in hand, which I think the banks will look at very carefully -- they'll scrutinize it -- but if they're impressed by what they see, I think they will come forth with enough new money to bridge the gap. In terms of their total flows, it's not all that large. You're talking about figures on the order of two, three billion dollars that will be necessary from the banks.

MacNEIL: Mr. Roett, is the feeling in Washington and the U.S. government that avoiding default and stopping the kind of domino disaster that might start from a big default by a country like Argentina is so important that the U.S. must do everything possible to help prevent it?

Mr. ROETT: I'm always leery to speak for the U.S. government --

MacNEIL: Well, I didn't mean to make you. I just assume you know a lot of what they think.

Mr. ROETT: Well, I think that it is fair to say that there is a deep concern that Argentina should not default, as there has been, certainly, with Mexico and there is now with Brazil. And I think that it's quite clear in Washington that Argentina is a major actor in Latin American affairs and needs all the support it can receive.

MacNEIL: Does that mean that the United States is interested in pressing to reestablish normal relations, including resuming military shipments to Argentina, do you think?

Mr. ROETT: I think at some point that is going to become an issue. The Argentinians are waiting to see now the United States votes in the United Nations, probably in November, on the question of the Falkland-Malvinas issue when it arises once again. That is still a very difficult sticking point between the two countries.

MacNEIL: What is the issue that will come up in the United Nations on that? I mean, what will they be voting on?

Mr. ROETT: Well, it's not clear yet. That is what is being negotiated, but it appears as though there is some attempt by the Argentinians to take the issue to the U.N. for some kind of arbitration or decision there over joint sovereignty between Britain and Argentina, and then working out a compromise thereafter.

MacNEIL: I see.Would you think, having heard all this, would you like to revise your estimate of the likelihood of their getting together and working it out, and avoiding default? Having heard what Mr. Roett had to say?

Dr. CLINE: Oh, I think I would basically stand by my assessment. It seems to me that the stakes are high in terms of where the civilian political leadership wants to see itself 18 months down the pike. And I think that there will be, you know, a recognition of the fact that there has to be a dealing with the realities of economic relations with other countries.

MacNEIL: Mr. Roett, will an ingredient in this working out some agreement with the political leaders be the willingness of the military leadership to open up the question of all those thousands of disappeared people, which so far they have absolutely refused to do, and yet which a lot of political leaders are now, I gather, insisting on?

Mr. ROETT: Yes, the key question, Robin, really is two parts: one, is the question of those who have disappeared and will they indeed be processed or prosecuted, if indeed there is a return to an open political system, and the second, I gather, is the question of corruption. There are allegations of deep corruption within the military institution in Argentina, and there are fears there will be inquiries and serious questions raised about that if we return to a democratic system.

MacNEIL: And how hopeful would you be that that kind of bargain can be worked out?

Mr. ROETT: It was very clear, interestingly, in the Brazilian case that there were also desaparacidos. That has not become a stumbling block in terms of the Brazilian political opening. In Argentina it has become a major question. It is both a moral question and a political question, and no one appears willing to make any kind of compromise, let us say, by arguing, "All right, this is behind us. This is a tragedy; we must go forward now." That doesn't appear to be in the Argentine character at the present time.

MacNEIL: Would you agree with that? Do you have a feeling about that?

Dr. CLINE: I think I would basically agree with that.

MacNEIL: I just wonder whether, if they are insisting that the military agree to investigate what happened to all those thousandsof people, the military will gain the cooperation of the unions and the political leaders that they need in order to make this new economic package work and thereby avoid default. Do you have a view on that?

Dr. CLINE: I seems to me that the exact nature of the bargain with the domestic political groups, whatever it entails, is somehow going to have to still deal with the reality of the external debt, and it is not clear to me exactly how far the military would be prepared to go in terms of investigating the desaparacidos and so forth. But it doesn't seem to me that that should be an insurmountable stumbling block.

MacNEIL: I see. Well, thank you.Mr. Roett, thank you very much for joining us in Washington; Dr. Cline, in New York. Good night, Jim.

LEHRER: Good night, Robin.

MacNEIL: That's all for tonight. We will be back tomorrow night. I'm Robert MacNeil. Good night.