Ten Years Of Privatization Made Argentina's Crisis Worse

by Viviana Alonso

Argentina's privatization process began in 1989. In just 10 years, the state had transferred the country's oil, gas, telecommunications, power and water companies to the private sector, as well as railways, subways, airports, ports and some health services. Many of the purchasers were foreign, mainly American, corporations.

In that decade, privatization of public enterprises brought the state coffers $23.8 billion, including $19.4 billion (81 percent) in revenues for the national government and $4.4 billion (19 percent) for the provinces, according to Economy Ministry figures.

In that same period, Mexico took in fiscal revenues of $31.7 billion and Brazil $71.1 billion through sales of public companies and utilities, according to the World Bank's Global Development Finance 2001 report.

Between 1990 and 1999, the privatization of public enterprises brought the nations of Latin America and the Caribbean a combined total of $177.8 billion in revenues.

Little of this money filtered down to the public. Indeed, most of it was acquired by high officials and quickly sent to overseas banks.

In Argentina, most sales of public companies took place between 1990 and 1994, indicating the speed with which the privatizations were carried out.

Although many public utilities were badly managed and provided poor services, Argentines reacted with mistrust to the privatizations, and accused the Carlos Menem (1989-1999) administration of "selling off grandmother's jewels," which became a common way of describing the privatization process.

By the late 1980s, Argentina was in the grip of an economic crisis, mostly due to an enormous debt to foreign banks, that began during the 1976-1983 military dictatorship and became acute in 1988, when the country stopped payments on the debt.

In 1989, the government of Raul Alfons’n was forced to step down early, amidst heavy pressure by foreign and local creditors, hyperinflation, and riots in the streets.

Menem, Alfons’n's successor, sought the support of the national economic elite and international lenders interested in recouping their money through the sales of Argentina's public enterprises.

Privatizations were part of the formula pushed on developing countries like Argentina by the World Bank and International Monetary Fund (IMF), which provided technical and financial assistance to that end.

To overcome the crisis, the government obtained special powers and tools from Congress, which enacted new legislation authorizing the sale of state companies and the capitalization of debt as a form of payment.

The new debts only deepened the nation's crisis. Unemployment and inflation remain extremely high.

The decision taken by the new government of President Nˇstor Kirchner reflects repeated demands from consumers and opposition political leaders for the state to review the contracts and carry out stricter controls of the services provided by the privatized companies.

"Once the results of the reviews of the contracts and the conclusions of the 'renegotiating commission' are divulged, Argentines will have a more accurate view of the economic and social effects of the privatization process," Nestor Litter, a member of the Consumers' Forum, told IPS.

The commission, made up of representatives of the ministries of the Economy and Planning, the agencies that regulate the privatized companies, and the Forum, which groups consumers' associations, "has not met since December 2002," said Litter, an adviser to the Argentines for a Republic of Equals (ARI) opposition party.

"It's a good idea to take stock of the incompliance by concessionaires and the owners of companies that were state-owned, and to decide on what should happen with them in the future," Claudio Lozano, an economist with the Argentine Workers Central union's (CTA) Institute of Studies and Training, said in an interview.

"There are many irregularities and illegalities in those processes, and in the performance of the privatized companies," he added.

An "economic emergency" law enabled the executive branch to legislate by decree, without having to first submit its proposed laws to parliament.

But before the public companies were transferred to private hands, the government considerably increased utility rates and transferred the companies' debts, amounting to around $20 billion, to the state.

According to a study by the Latin American Faculty of Social Sciences (FLACSO), the privatizations in Argentina benefited the same elites whose economic power was consolidated during the dictatorship, although foreign banks and transnational corporations now came on the scene as partners.

FLACSO also pointed out that the executive branch was granted special powers by the legislature and courts, which made the privatization process possible.

The large increases in the rates of public services, added to weak regulatory frameworks and constant renegotiations of concession contracts, brought large profits to the privatized companies, said FLACSO.

"The reviews should include a close look at the fees charged by privatized companies, as well as the use they make of natural resources, particularly non-renewable resources," said Lozano.

Between 1993 and 2000, the 200 largest companies in Argentina racked up $28.4 billion in profits, 56.8 percent of which were earned by privatized companies, 26.3 percent by firms that had ties to those companies, and 16.9 percent by other companies.

In the 1990s, inflation virtually disappeared in Argentina. But utility fees rose in line with the U.S. inflation rate, constituting an additional source of earnings for the newly privatized companies.

The linking of public services fees charged in Argentina to the U.S. inflation rate "enabled the privatized companies to pocket $9 billion dollars by late 2000," stated a study by ARI.

In addition, "the privatized firms sent 70 percent of their earnings abroad," while failing to pay the annual concession fees and to make all of the investments stipulated by the contracts, the study added.

The companies also imported large quantities of inputs and goods produced by associated firms, contracting heavy debts in dollars while violating the law that required them to give priority to Argentine products when making purchases.

Shortly after he took office on May 25, Kirchner announced that he would not renew the contracts with the concessionaires operating national highway toll booths, because they had failed to comply with 65 percent of the works and investments to which they had committed themselves.

He also decided to cancel the renegotiation that his predecessor Eduardo Duhalde had recently agreed with the group Aeropuertos Argentina 2000 (AA2000).

The owners of AA2000 are Argentine businessman Eduardo Eurnekian, Corporaci—n Amˇrica Sudamericana, a Panamanian company, and the Italian government, which holds a 28 percent share through the SEA-Aeropuerto in Milan.

After winning a competitive tender in February 1998, AA2000 agreed to pay an annual concession fee of $171 million, and to invest $562 million in the first four years.

Last year, Duhalde decreed that the airport fees paid by passengers and airlines were to be in dollars. That measure was loudly opposed by consumers' rights groups and oversight bodies, and a final decision is pending a court ruling to be handed down on the matter.

As of late last year, AA2000 owed the state $102 million, having only paid the annual concession fee for the first year. It had also failed to make good on the promised investments.

Nevertheless, Duhalde decided to lower its annual tax to $23.5 million, and to exempt the group from the obligation to move the Jorge Newberry airport to a site outside the Buenos Aires city limits -- a requirement that had been included in the contract based on safety reasons.

In August 1999, 15 months after AA2000 began to operate the air terminals, a plane rolled off the Jorge Newberry airport's short runway, which is located in a densely populated area, onto a sports field full of players, killing 67 people and destroying roads and a number of cars.