State corruption in Argentina - is it mirrored in Europe?
Can parallels be drawn between the Argentine default of the 1990s and the eurozone crisis of today?
Funny money is my most enduring memory of Argentina's disorderly default. They were called "patacones" and were issued in 2001, by the government of the state of Buenos Aires - after it ran out of real money. Patacones were technically speaking government bonds, though they circulated just like banknotes. Most shopkeepers had no choice but to accept them and civil servants were paid at least part of their salaries with this flimsy-looking scrip. "Those who do not want to be paid this way have every right to go to court, but I don't have any Argentine pesos left to hand out," said the Buenos Aires state governor Carlos Ruckauf.
Before long, the decade-old one-to-one peg between the Argentine peso and the US dollar would come crashing down. With it came default, a 400 per cent devaluation and mass unemployment. The doorways on Avenida Corrientes, known in Buenos Aires as "the street that never sleeps" - due to its shops, theatres and clubs - were filled with cardboard beds belonging to those forced out of their homes.
Until the crash, Buenos Aires was known as a safe city. But as the recession worsened crime blossomed and then went ballistic. Friends were robbed by taxi drivers; European diplomats were bound and gagged in their own apartments; armed men entered bars and brazenly instructed all patrons to empty their pockets. A British bank manager was shot in the leg during a kidnap attempt. A coach full of tourists was hijacked on its way from the airport. The police, if they were not in on the act, were overwhelmed.
As the default became inevitable, those in government were forced to lie. First came the inflated GDP growth predictions, then came the warnings to speculators, then the assurances that all bank deposits were safe. Those who trusted the government came off worse. At the height of the crisis - banks were forced to close for several days, effectively shutting down the economy and emptying the streets. All dollar-denominated deposits were converted by law into pesos. Withdrawals were restricted when the bank run became a panic. The restriction was known locally as the "corralito" or animal pen.
In the newspapers, there was debate over economic policy and the role played by the International Monetary Fund – but, for me, Argentina collapsed in large part because of corruption. It was by no means the only corrupt country in the late 1990s, when President Carlos Menem was in power, but bribery was nevertheless a daily experience at all levels of society. When I arrived in Buenos Aires in 1998 I was asked for a bribe before leaving the airport. There were bureaucratic problems with the trunk I had sent on ahead, I was told, that could be solved for a certain sum. Soon after, I bribed the telephone company to have lines installed in my apartment. Taxi drivers carried 10-peso notes in one hand so as to be ready to bribe the police, when stopped. Even the horse races were fixed, according to a friend asked to investigate a large win on behalf of an insurance company.
Argentine politicians elaborated sophisticated scams. A parallel customs gang was in operation at ports and airports in the 1990s, passing its ill-gotten gains up the chain. Politicians had stooges - men who made strategic purchases on their behalf when they could not show their own faces. The government organised what I believe were fake tenders designed to rip-off foreign investors. An interested company from Europe or the US would be asked to hire a local "consultant" and would spend several hundred thousand dollars in fees before discovering the tender had been cancelled. Stories circulated of wild parties thrown by Argentine ministers travelling abroad. They would spend fortunes and then disappear back home, landing the local embassy with the bill.
The role played by corruption in Europe's current crisis is largely overlooked. Only now governments are desperate for revenues has attention focused on the huge parallel economies that have been allowed to exist for many years. In 2004, the European Commission warned Greece for apparently falsifying its Eurostat accounts. Why was it that the country's eurozone membership was not questioned back then? How many other black holes lie waiting to be uncovered across the eurozone?
Another lesson from Argentina centres on the currency peg. The rigid one-to-one peg with the dollar meant Argentina could not devalue. When recession set in the economy was forced to suffer a nasty bout of deflation to remain competitive. Supermarkets advertised their new prices on what seemed like a daily basis. Deflation was, though, not enough to save the peg. Does this ring any bells?
In the late 1990s, the political class in Argentina was morally bankrupt. Politicians were mostly self-serving or inept and had neither belief nor pride in their country. Can the same be said of Europe's leaders today? Argentina taught me not to trust the government. The official declarations that preceded the default could not have been more disconnected from reality. So when the European Commission press spokeswoman stands up and says "the euro is forever" I cannot help a wry smile. Can we really believe European Union Council President Herman Van Rompuy when he says the latest Greek bailout is an exceptional case that will not be repeated? Will the euro, in time, come to be considered funny money - a currency issued by bankrupt states? Let us hope not, because the consequences of a disorderly default are quite devastating.
This article first appeared in the newsletter of the trade union group Public Service Europe Justin Stares is the group’s Brussels correspondent. The photo is by Alex E. Proimos.