Assigning blame in Buenos Aires: questionable lending practices by United States' banks and other foreign financial institutions played a critical role in the meltdown of Latin America's third-largest economy

0 Comments | Insight on the News, Feb 18, 2002 | by Martin Edwin Andersen

Did it matter to the big boys? "I have the impression that finally Argentina has a regime which understands the private-enterprise system," proclaimed David Rockefeller, Nelson's brother and chairman of Chase Manhattan bank. "Not since the Second World War has Argentina been presented with a combination of advantageous circumstances as it has now."

In 1978, the generals -- the tenor of whose regime was captured almost a decade later when their trial in civilian courts for human-rights atrocities was dubbed a "mini-Nuremberg" -- played host to the World Cup soccer tournament, and netted as their prized international guest private-citizen Kissinger. In March 1978, David Rockefeller visited Argentina, where he praised the generals' handling of the economy, then in the throes of crisis. Rockefeller and other international bankers, mostly American and Spanish, their institutions awash in Middle Eastern petrodollars, lent money to the regime at several points above the prime interest rate. These loans helped finance the country's nearly $1 billion security apparatus, including the clandestine repression of the Marxist insurgency. U.S. banks accounted for nearly $3 billion of these loans, of which more than one-third went to government or state companies.

The loans made during this period were bad business, even forgetting considerations of human rights and representative government. Despite the rapid increase in foreign debt, the level of economic production remained essentially unchanged since before the 1976 coup. you didn't need to be a rocket scientist," noted one economic analyst several years later, "to realize that when state debt was increasing at a rate far outstripping domestic economic performance the warning signs were there for all to see."

A 20 percent average rake-off by the military and their civilian allies was chronicled in a March 1981 article in Time magazine rifled, "Big Profits in Big Bribery." Still, noted one senior U.S. diplomat at the time, "Executives of a few banks and multinational corporations were the principal proponents of a closer relationship [between the United States and Argentina]. Since 1976 their apologies for the military regime have borne an uncanny resemblance to those of their predecessors for Hitler and Nazi Germany."

Democracy returned to Argentina in 1983 when center-left career politician Raul Alfonsin was elected to the presidency. Seven years of military rule had shrunk the country's industrial workforce from 1.8 million people to 1.3 million, while inflation galloped along at more than 450 percent. Alfonsin had campaigned on a platform of re-examining part of the $45 billion owed to foreign creditors -- the developing world's third-largest external debt burden -- to determine which part of that contracted by the murderous military was "illegitimate" In 1984, alone, Argentina had to pay or reschedule some $20 billion in foreign debt.

Alas, say close observers of Argentina, Alfonsin's renowned preoccupation with democratic political reforms and human rights was matched by his fundamental ignorance of the functioning of the global economy and Argentina's real and potential role in it. Foreign banks -- still reeling from Mexico's 1982 financial meltdown -- initially were frightened by Argentine talk of reviewing the debt, but as time wore on the financial houses built up reserves sufficient to cushion a possible blow from Buenos Aires.