Argentinian foreign debt, illegitimate and illegal (part 1)

Nestor Miguel Gorojovsky Gorojovsky at
Sun Aug 27 18:26:23 MDT 2000

Friends and comrades,

I am forwarding a version in English of a document drafted by the
Argentinian politician Juan Gabriel Labaké at request of the Foro de
los Argentinos and of the Foro Argentino de la Deuda Externa,
explaining the main points of the recent ruling by Judge Ballestero
on the Argentinian foreign debt.

This is the same document I recently forwarded in Spanish.

Not all the political opinions of Labaké are acceptable, but the
amount of information and of evidence that the sentence by Ballestero
has produced made it advisable to post this precis by a clever lawyer
and political militant.

I am also sure that PEN-L subbers will find the material here very


We Argentinians owe today some 200 billion dollars to foreign banks,
the IMF, the World Bank and other international organizations. 150
billion are of public debt, to be paid directly by the State (all of
us, that is). The remaining 50 billion must be paid, in theory, by
private firms.  But they need dollars to do so, and it is the
Argentinian State who must provide them with those dollars, (through
the Central Bank) at an exchange rate of one peso = one dollar. In
the end, it will be all of us who will eventually have to pay for the
consequences of that indebtedness.

It is an easy calculation

Argentinians number 37 million people. Each one of us (newborns
included) is indebted with the foreign banks, the IMF and the World
Bank in 5,045 dollars: 4,054 belong to the public debt, and 1,351 to
the debt of private companies.

A standard family in Argentina is composed of two adults and two
children, so that the head or heads of each household will have to
work in order to obtain the 21,620 dollars the standard family owes.
A fortune!

Something else, however: at the current interest rates, we shall have
to honor yearly payments of 9,5 billion dollars in interests for the
public debt, and 3 billion dollars for the debt of private firms,
that is a sum total of 12,5 billion dollars every year, which makes
around 1.042 billion dollar every month.

In the end, this implies that during his or her full lifetime each
and every one of the 37 million inhabitants of Argentina will have to
pay a monthly installment of u$s 28.--  (or more, if interest rates
rise)  for the interests (not the principal) of this monstruous debt.

Thus, the average head of standard household is ALREADY paying 112
dollars each month in concept of interests of the foreign debt.  And
this is not just playing with words and figures, it is simply the
crudest reality.

The tax rise produced by the current government in december, 1999, as
well as the wage reductions for state employees (may 2000) were
designed with the only objective of paying the 9,5 billion dollars of
interests of the foreign debt.

It should be noted that the fiscal budget has a deficit of 5,5
billion dollars, so that if we were not forced to pay those 9,5
billions of interests, there would be a superavit of 4 billions in
the treasury, and the tax rise of december or the wage cuts of may
would have been unnecessary. Much to the contrary, with that money we
would have been able to build schools and hospitals, to raise
retirement pensions, to help the unemployed (the amount would allow
to pay an unemployment fund of slightly more than 1800 pesos
(dollars) every year to the 2,200,000 unemployed: the "Trabajar"
plans that the government is currently administrating is of exactly
the same amount per person, and reaches just 70,000 people instead of
2.2 million, and  so on.

We shall still have to pass through new tax rises and wage
reductions, not only this year, but for many years more, in order to
pay for those 9.5 billion dollars

Economists in the national camp, on the other hand, have computed
that during the last 10 or 12 years real wages have fallen at least
25%.  This means that a worker who is now earning $ 400 each month
should be earning $530 to keep the already miserable levels of 1988.
Summing up: the average worker is earning, today, $130 less than in
1988, and the burden of interests of the foreign debt amounts to
$112. Isn't this a coincidence?!

This coincidence has nothing to do with chance, in fact.

Wages have been pushed down intentionally by governments during all
these years, through the payment of the debt and through the whole
economic policy, thus achieving a concentration of the wealth of the
country in very few hands:

* about ten local economic groups
* foreign banks
* large multinational corporations.which became owners of almost
every publicly owned company or utility (all the large ones, and most
middle sized ones) in Argentina.

At the same time that they hoarded those riches, these groups
requested from the Central Bank dollars, which were used to remit
(evade) the largest share of their profits abroad.  We shall see,
below, that a careful indagation of different industries and sectors
in the Argentinian economy reveals that most of our debt must be
attributed to that flight of capitals.  Another large part fled the
country through the "financial bycicle" (mechanism that was typical
of Argentina after Martínez de Hoz, where credits were contracted to
pay for previous credits and make a difference with a predictable
exchange rate and runaway inflation)

The above is enough to show how wage cuts, concentration of wealth
and foreign debt are related; all this can be summed up as follows:
$ 112 out every $ 130 lost by each worker every month go to payment
of debt interests (a debt that was basically created by flight of
capitals), while the remaining $ 18 are, in fact, the share of wealth
that has been concentrated and has not fled... yet.

And this is the most treacherous side of this history: we are all
paying for the debt, but it was contracted for the exclusive benefit
of a handful of large domestic and foreign companies that fled their
benefits abroad. Nothing, but the debt, remains with us.


In order to adequately answer this question, we have to previously
consider four issues:

1.- Was the debt legitimately contracted?
2.- Can we pay the debt without brutally harming our economy and our
3.- Do we really still owe something?
4.- Are our creditors innocent, or they share some guilt in this
tragedy that affects us?

Let us consider each one separately.
1.- Was the debt legitimately contracted?
1.1.- The denunciation by Dr. Alejandro Olmos

Exactly 18 years ago, on August 1982, Dr. Alejandro Olmos made a
criminal denunciation at the Federal Court Nr. 2, requesting an
investigation on the origin of the debt (by those times, of "only" 37
billion dollars while in March 1976, when the military government
begun, it was of just 7,5 billion). Dr. Olmos was a honest man, who
never wanted to belong to any political party, and never took public
office at any level, although he dedicated his life to work on
questions that benefitted all the Argentinians. He died on April
2000, few months before his denunciation bore fruit. Sentence was
passed by Judge Jorge Ballestero on July 15, 2000.

Similar denunciations were added to the one by Olmos afterwards. They
were made by Jorge Eduardo Solá, José Alberto  Deheza,  José Manuel
Marino, Carlos Alberto Hours, Walter Beveraggi  Allende, Carlos Saúl
Menem (in 1984, as a political move when he was just a Governor of
the poor La Rioja province) and Osvaldo Destéfani.

Along the 18 years that took the trial generated by the Olmos
denunciation, more than 6 000 sheets with analyses by experts,
declarations by witnesses, and  other legal evidence and red tape
accumulated.  457 lines of credit approved by the Central Bank, as
well as 20 wrongly awarded indorsements of the Banco de la Nación and
the then still existing National Bank for Development (BANADE), were
probed in full detail.

The main foreign banks benefitted by those credits were the Bank of
America, Republic Bank of Dallas, Citibank, Bank of Boston, Chase
Manhatann Bank, Lloyds Bank, Wells Fargo Bank,  Citicorp, Marine
Midland Bank, Banco Mundial, Union of Arab and French Banks, Bank of
the European Financial Society, D.G. Bank,  European Credit Bank,
Swiss Bank Union, Banco di Roma, and the  Banco de la Nación
Argentina. This was a very "heavy" trial, because the powerful and
actual owners of our country were the culprits: big foreign banks,
IMF, World Bank, large multinational corporations, 10 enormous
domestic economic groups, and a very populated group of high
officials of the 1976-1983 regime.

This is why the trial took so long. No judge dared to pass sentence
without the most complete certainty of what she or he was going to
do. And this is also why the judges did not remain content with the
investigations made by the team of accountants and economists of the
Houses of Justice (which are many and able), but they also asked the
most prestigious institutions of Economic Sciences in Argentina to
suggest the names of first rate professional economists who would act
as special experts.

A total of 30 experts of the highest capacities and honesty took part
of the judgement, among whom  Dr. Sabatino  Fiorino, of the College
of Economic Sciences at the University of Buenos Aires; Dr. Alberto
Tandurella, of the Professional Council In Economic Sciences of the
City of Buenos Aires; Dr. William  Leslie Chapman, of the National
Academy of Economic Sciences (which was chaired, by those times, by
Dr. Guillermo Walter Klein, father of the economist of same name who
was being investigated by the judges); Drs. Héctor  Valle and Osvaldo
Trocca, of the Foundation for Research in Economic Development; Dr.
José Alberto Deheza, former State Prosecutor and Minister of Defense;
Dr. Nicolás Argentato, President in those times of the Catholic
University of La Plata, and Dr. Enrique  García Vázquez, who was
later to become President of the Central Bank.

The high professional and ethic level of the experts backs their
conclusions to the point that they cannot put to doubt. Many of them
were even supporters of the general principles of economic policies
that were held during the 1976-1983 regime. Drs. Valle, Trocca,
Deheza, Argentato and García Vázquez  investigated the economic
policies followed between March 24, 1976 (when the military coup
against the constitutional government was given) and December 10,
1983, when the so called "Proceso Militar" (Junta Regime outside
Argentina) came to an end. Now, it is the debt contracted after 1983
that has to be investigated.

The remaining experts investigated the technical and banking
procedures employed by the regime in order to contract the debt.

29 witnesses were interrogated, besides, and 20 written reports were
asked from 20 high officials..

1.2.- The economic policies

The military regime that took power on March 24, 1976, installed Dr.
José Alfredo Martínez de Hoz at the Ministry of Economics. He
constituted his team with economists who were almost to the last one
Chicago University graduates. All of them, up to that moment, had
been acting as counselors and executives in foreign banks and firms.
Martínez de Hoz himself was (and still is) a member of the
International Consulting Council of the Chase Manhattan Bank owned by
DAvid Rockefeller and his family

Martínez de Hoz postulated, immediately after the military took
power, that his economic policies would have to basic aims:
* ellimination of inflation
* modernization ("deconstruction") of domestic manufacture. 

Please note that these are exactly the same two objectives proclaimed
by Drs. Carlos Menem and Domingo Cavallo en 1989 and 1991.

“Deconstruction” of our manufacture, according to Martínez de Hoz and
his team, meant "to destroy the existing manufacturing structure,
because it was inefficient, so that a new one, modern and efficient,
could be substituted in its stead, in order to accede to
international competition”.

What was decided, in order to attain these two central objectives
(win over inflation and "modernize" manufacture) after 1976?

Monetary emission from the Central Bank was drastically strangled.
Public service utilities (state owned in those times) were not
allowed to raise their rates and tariffs.
The economy was "opened up" to the commercial currents (commodity
export and import), by means of cuts in import taxes; this measure
was intended to force down the prices of domestic production.
Freedom of movement for international financial capitals was decreed
(any foreign currency could be introduced to or extracted from
Argentina without any impediment)

It is not necessary to be an economist to realize that:

Since local currency emission was drastically reduced, each time that
the State would face a fiscal budget deficit, the only way to cover
it was to contract a foreign loan.  There was no other way out,
because Argentinians did not have enough savings in pesos that could
be lent to the State.

Since the public utilities were not allowed to compensate for higher
costs due to inflation (which did not stop at all) through rises in
their prices, the then State owned firms were forced to contract
loans outside Argentina to settle their accounts.

Brutally low customs tariffs turned commodities imported from
coutries with lower wages or with more advanced technologies into a
tidal wave that swept domestic production from the market, thus
forcing local companies to ask for loans outside Argentina or

Finally, the decree that declared free the entrance and exit of
foreign capital would be particularly appealing to the short term
speculative capitals ("swallow" capitals): these come here, do a
swift speculation, and leave "freely" fleeing away with their

Summing up: an economic policy was intentionally adopted that pushed
the way towards an increase of foreign indebtedness, with or without
necessity. This policy also sought that the ensuing necessities of
foreign loans that would cover for these artificially generated debts
were covered by means of speculative, short term, capital.

With the pretext that he would thus make inflation fall down,
Martínez de Hoz adopted the so called "foreign exchange little
table": this was a table that allowed everyone to know, many months
in advance, at which price was the Central Bank forcing itself to
trade dollars every week.

Of course, as it could have been easily imagined, the interest rates
cashed by banks in Argentina were substantially higher than those in
the developed countries.  This is a very well known economic
phenomenon, that no economist ignores. Argentinian inflation (either
open or repressed) and the weakness of our economy "scare" investors
(speculative investors in particular), so that they claim for higher
interest rates when they lend their dollars.

A Mammooth sized "financial bicycle" was thus born, as we shall see.

Let us for a second watch the similitudes between the situation then
and the situation now. The only "technical" difference lies in that
in the times of Martínez de Hoz speculators were ensured to enjoy a
fixed exchange rate through the "little table", and that this is
obtained today through the "one to one" peso-dollar convertible

Back to the origin of the debt: the situation not only enticed, but
forced, whoever wanted to obtain a loan to look for it in a foreign
country. Things were made worse for State-owned companies, because
Martínez de Hoz and his team not only did not allow them to raise
their prices as a way to compensate for inflation, but they also
forced the companies to contract loans outside Argentina, even when
these loans were unnecessary. When the dollars reached Argentina, the
Central Bank (the mandatory entrance door) was ordered by the
Ministry of Economy that they would not deliver the dollars to the
state company that had asked for the loan; these would have to
receive the dollars at the artificially low official exchange rate
(which was many times lower than the "free market" exchange rate)

The Central Bank, however, was allowed to keep those dollars in its
own vaults or to deposit them in a foreign bank: they were thus
magically transformed into "international reserves";

The Bank was also allowed to sell those dollars "in the market" (that
is, to particulars and private companies that would want them; they
were almost always used in the "financial bicycle"); this allowed to
keep the "little exchange rate table" unmodified (the greatest part
of the dollars was wasted in this).

No state owned company escaped this Catch 22: YPF (the National
Oilfields), YCF (the National Coalfields), SEGBA (Light & Power of
the Greater Buenos Aires), OSN (National Sewage), Aerolíneas
Argentinas (the national airway), ELMA (the national overseas fleet),
and so on. Each and every one of them. All of them.

As a result, our state owned companies took unnecessary debt, but
never saw the dollars. The Central Bank gave devaluated pesos to
them.  When the credits had to be paid for, the state owned companies
asked from the Central Bank to, at least, sell them the dollars at
the official exchange rate (which, we repeat, was much cheaper than
the "free market"dollar). This was denied to them by the Bank,
although the private companies, as we shall see, _did_ obtain their
dollars at the official exchange rate because in 1981 Dr. Domingo
Cavallo had granted them what was called an "exchange insurance", to
be guaranteed by the state (later on, Cavallo became the Minister of
Economy of Menem, creator of the currency board scheme that now
strangles Argentina, and "dollarization consultant" for Ecuador
today). The public companies, much to the contrary, were forced to
buy expensive, brutally expensive, dollars, at "market" prices, in
order to honor the payment of foreign credit that they had not needed
to contract, and the dollars of which they had never been allowed to
cash. The experts determined that, for example, the National
Oilfields YPF company was forced to contract this kind of a debt for
a sum total of 6 billion dollars. Between february 1979 and march
1980,  YPF was forced to accept 153 foreign loans, most of them with
terms of less than six months

The ban on price rises for public utilities, by decree from Martínez
de Hoz in spite of spiralling inflation was, together with this
unbelievable trick, the main reason why public utilities began to
display an increasing deficit. This is why Dr. Jorge Ballestero
states in his ruling on the trial that began with the denunciation of
Alejandro Olmos that this artificial (actually "concocted") debt of
the state companies made it possible that when Menem and Cavallo
turned them private afterwards, they were sold out at a price that
was much below their actual value.

The dollars that were forced into the country through the public
companies were, at the same time, put in the "market" by the Central
Bank.  They were used by large domestic and foreign firms, as well as
by petty local speculators, to obtain impunished benefit from the
"financial bicycle" that the economic policy fostered. Those cheap
dollars were purchased by an "investor" (Argentinian or not), they
were exchanged for pesos, and the pesos were invested at fixed term,
harvesting interest rates of between 9% and 25% according to the
moment in time, for dollars that would have never obtained more than
3 to 7% outside Argentina.

There were even many who took a loan abroad, at low interest rates,
brought them here, exchanged them for pesos, and invested them at
fixed term with high interests.  After six months or one year, they
cashed the fixed term loan, turned the pesos into dollars, paid for
the loan obtained outside Argentina, and kept a juicy profit which,
of course, was extracted from the country.  The whole schema was made
all the easier and safer, let us recall this, by the "little table",
which allowed the "investor" to have a cheap dollar, with an exchange
rate that was known beforehand, as well as by the freedom for capital
flow, which ensured free entrance and exit..

Sure, there were petty investors (speculators themselves) who managed
to organize their own little "bicycles" for some thousands of
dollars. But the billions we lost were originated by gigantic
"bicycles" of economic groups with an overwhelmign power, most
usually in intimate vinculation with the highest economic officials
of the regime.

Dr. Enrique García Vázquez, on this particular point, furnished the
with this information of the greatest importance:

Between 1978 and 1981, unjustified remittances of dollars abroad (that is, fled
capitals) surpassed the amount of 38.5 billion dollars
Our foreign debt, by the end of 1981, was of slightly less than 31.8 billion
dollars. Simply put: if the profits that  large domestic and foreign companies
and speculators obtained through concentration of wealth and "financial
bicycles", had not been fled away, not only we would not have had any foreign
debt in December 1981, we would have had a surplus of more than 6.7 billion

Dr. José Alberto Deheza, for a period quite similar to that investigated by Dr.
Vázquez, reaches almost the same conclusions.
Between 1976 and 1981, our debt grew in almost 27.6 billions, but our account
current deficit (exports against imports, plus deficits in the line "interests,
services, insurance, 'royalties', etc.), _the only one that truly generates a
need for foreign loans_, was of 5.6 billion only. That is, there is an
indebtedness surplus of 22 billion dollars that can only be explained by the
gigantic flight of capitals that the government itself fostered.

These are the broad strokes of the economic policy that produced Argentinian
indebtedness up to 1983, a policy that is still in practice and thus puts us in
further and Mammooth sized debt.

Up to this moment in our exposition, we have only given attention to the
analyses by the experts who worked for Judge Ballestero. Let us turn to an
investigation by Lic. Eduardo Basualdo, at the Instituto de  Estudio sobre
Estado y Participación (IDEP), who performed the following computation (not
included in the ruling by Judge Ballestero):

The concentration of wealth has given businessmen in Argentina an
extra profit of 70.4 billion dollars during the 1991-1998 period
against the 1970-1975 average (the date for comparison is very
important, since those were the last years of "normal" Argentina,
before the financial gang of robbers took the lead). At the same
time, that is during 1991-1998, dollars were extracted from Argentina
for an amount of approximately 63.4 billion. A highly striking
similitude of amounts...

Néstor Miguel Gorojovsky
gorojovsky at

More information about the Marxism mailing list