Down, Argentine Way

A week before Christmas, the slow-motion collapse of Argentina suddenly turned swift and violent. Two days of rioting brought down the government and left 31 people dead. All but one were killed by gunfire from shopkeepers and police. Some died while shouting political slogans, others while looting food that they had no money to buy. A few died in their homes, hit by stray bullets, and many were killed outside grocery stores. One woman was shot in front of a Wal-Mart.

Most of the demonstrators in the streets were young men--the average age of the dead was 22. What led them to revolt? We will probably never know exactly what combination of popular fury, terrified self-defense, political opportunism, and simple larceny drove the uprising. But consider for a moment the life course of a typical young protestor: Born during the last military dictatorship, he would have lived most of his life under a democracy, but one that offered little more than unemployment and social exclusion. When he was 10 years old, he may have witnessed the previous round of looting, sparked by hyperinflation. A few years later, perhaps he dropped out of Argentina's once-vaunted educational system, like most of his peers, in hopes of finding work. Yet the boom of the early 1990s created few stable jobs for the poor. (After it peaked in 1994, it created almost no jobs at all.) He likely found something short-term or off the books, but even that would have turned sour as the economic crisis deepened. In the neighborhoods where many of the protesters grew up, unemployment climbed to 40 percent.

Clearly, the root causes of the recent social upheaval were the massive impoverishment of the past decade and official indifference to popular demands. Rumored incitements by the far right, the far left, and the Peronist Party opposition probably played a role, too. This much is clear: The worst violence occurred in the center of Buenos Aires and on official orders. Mounted police cracked skulls; uniformed police dragged protesters away by their hair; police in civilian dress fired into the crowd at will. At least seven people were murdered within blocks of the president's office. One human-rights activist whose parents had been "disappeared" by the military was kidnapped, beaten, and tortured with an electric cattle prod. He escaped only because the patrol car carrying him off crashed into a taxi and hospital attendants spirited him away from the police. The violence, reminiscent of Argentina's dark and not-so-distant past, was transmitted live over national television. The response of at least one government official was to try to yank broadcasting stations off the air.

When Fernando de la Rúa was elected president of Argentina in 1999, the economic boom triggered by earlier free-market reforms had gone bust and the fixed exchange rate--one peso equals one dollar--at the center of those reforms was becoming untenable. De la Rúa had campaigned on a platform of justice, work, and education for all. Once in office, however, he made pleasing investors and preserving the fixed exchange rate his sole priorities; he betrayed his allies, ignored his supporters, and renounced his campaign promises. Heeding the demands of the International Monetary Fund (IMF), he repeatedly cut spending and raised taxes, but this only deepened the depression he had inherited and destroyed his political base.

Growing evidence of the failure of these economic measures didn't change anything; nor did a crushing defeat at the polls this October. The government insisted on paying off the debt and upholding the exchange rate above all else. In late November, a run on the banks spurred the government to freeze bank accounts--a move that closed off the cash supply and abruptly forced into insolvency the shadow sector that encompasses nearly half of all the nation's economic activity. This desperate measure infuriated just about everyone and finally convinced the IMF to cut Argentina off. Yet the administration continued to ignore signs of rapidly increasing social discontent until it suddenly found itself facing an unstoppable wave of looting on December 19.

That evening, President de la Rúa went on national television to declare a state of siege, suspending constitutional rights. No sooner had he finished speaking than a low roar of banging pots filled the air of Buenos Aires. The looting had begun on the impoverished outskirts, but this noise was coming from the middle-class neighborhoods that had brought de la Rúa to power. Ignoring the state of siege, angry crowds demanding the president's resignation poured into the Plaza de Mayo. Massive police violence turned the plaza into a battlefield littered with bodies. Less than a day later, de la Rúa resigned.

The first act of the new Peronist administration was to declare default on the country's $132-billion debt. It was the largest government default in history, but it came as a relief to most--even to international creditors, who had been expecting it. At first, the aggressive action of the new authorities seemed like a welcome contrast to the vacillations of their predecessors, and the strength and unity of the protests appeared to mark an end to a decade of division and disarray. But building a broad consensus to remake a perverse economic order is a great challenge. And to judge from the first reactions to the fall of de la Rúa, political and economic leaders locally and abroad have learned very little.

Rushing headlong into the power vacuum left by de la Rúa, Peronists agreed that one of theirs should take office; but they could not agree on who or for how long. An all-night emergency session of the congress elected Adolfo Rodríguez Saá interim president and announced simultaneous primaries and elections within 60 days. Once in power, however, Rodríguez Saá alienated his more powerful rivals by signaling that he intended to stay there. He enraged the citizenry by appointing notoriously corrupt figures to his cabinet. He had been governor of the tiny province of San Luis for 18 years, but he was president of the nation for only seven days before renewed popular revolt forced him to resign. Another emergency session voted Peronist senator Eduardo Duhalde--who had lost to de la Rúa in 1999--president until the end of de la Rúa's term. Duhalde promised a government of "national unity."

Meanwhile, predictably, the IMF is distancing itself from the crack-up of its former model pupil. For a decade, the IMF had nothing but praise for Argentina, but now spokespeople for the fund can only seem to recall the country's errors--while forgetting that the IMF itself encouraged, approved, and enforced those mistakes.

The Bush administration has watched idly as its closest Latin-American ally has gone belly-up. While speculating informally about schemes for reducing Argentine debt, administration officials have offered no concrete proposals or political support. A joint statement by the United States, Canada, and Mexico stressed that Argentina should adhere to "fiscal austerity." Such exhortations seem either thoughtless or willfully blind.

The December upheaval was not the final crisis of an easily overthrown government but the opening installment of wrenching and prolonged social and economic conflict. The de la Rúa administration was right to fear devaluation and default, but this led it to cling too long to a model whose failure was obvious to all. Instead of undertaking a relatively orderly default or a possibly controlled devaluation, Argentina has squandered its reserves and will have to throw itself on the mercy of the markets and the overseas courts, where creditors can make their claims.

Now the resolution of the crisis is back in the hands of the Peronists, the party whose free-market reforms created the problem. Leading economists and bank presidents are openly speaking of the need to cut Argentine expectations and incomes down to size in order to make the country competitive again. A broad but diffuse protest movement is advocating a universal subsidy for the unemployed as a jolt to consumption and a start to paying off the "social debt." Out of the struggle to implement such proposals, a new Argentina will emerge. But everything about the collapse of the previous model and the impunity enjoyed by those who have bled the country dry suggests that in the absence of political leadership and international support, the brutal vision of the bank presidents is the most likely to prevail. "If what is behind us was unsustainable," journalist Julio Nudler wrote recently, "what is ahead of us will be unbearable."