2. THE ONSET OF ARGENTINA’S FULL RETURN TO MULTILATERALISM IN THE LATE 1970s

On 24 March 1976, a military coup overthrew a Peronist populist government which had been in power for almost 3 years as part of a Latin American wave of political radicalisation that included Chile and Peru. The country had serious macroeconomic, institutional and political problems (De Riz 1981; Smith Reference Martinez de Hoz1991; Rougier and Fiszbein Reference Kedar2006; Veigel Reference Novaro and Palermo2009; Kedar Reference Ferrer2013). Foreign private investors suffered widespread political violence, nationalist and state-interventionist policies which restricted daily business and undercut their prospects and profitability. Relations with the IMF and the World Bank (IBRD) were in a stalemate. The Bank wanted to resume lending which had been interrupted in 1971 due to Argentina’s non-compliance with the terms of previous loans to state enterprises and economic policy disagreements. But Peronist officials’ lack of expertise in international finance, political and macroeconomic instability, the nationalist drive against foreign investors, and poor public policies further stalled this normalisationFootnote ² . Unlike other member nations, due to ideological discrepancies the government no longer allowed Fund missions to conduct full annual reviews of the economy known as Article IV ConsultationsFootnote ³ . Later, relative price distortions, rising inflation and fiscal deficits, and the deterioration in the balance of payments forced negotiations with the IMF to tide over the crisis through a «stand by» agreement. However, these talks failed and collateral financing from the U.S. Treasury and international bankers that usually further propped up the foreign exchange reserves of the BCRA was unavailableFootnote ⁴ . At the end of 1975 the government only obtained modest Oil Financing Facility and the Compensatory Financing Facility (CFF) aid available for member countries affected by the higher cost of oil imports and a deterioration of their terms of trade.

Consequently, basic infrastructure projects previously carried out with multilateral agencies’ support stalled. Bankers only granted short-term loans which were periodically rolled overFootnote ⁵ . Argentina also had problems repaying these loans and meeting other foreign debt payments. Moreover, in March 1976 there was skyrocketing inflation, an unprecedented fiscal deficit equivalent to 15 per cent of GDP, an unsustainable multiple exchange rates system, and serious balance of payments problems. Due to the maturity structure of its external debt the country was also heading for an international default because export earnings were insufficient, foreign exchange reserves of the central bank (BCRA) were severely depleted, and the country was virtually isolatedFootnote ⁶ .

The military inaugurated a strong anti-Communist regime that shared Washington’s Cold War concerns. They appointed Martínez de Hoz, from a traditional cattle-ranching family, as minister of economy with a mandate to restore macroeconomic order and break international isolation. He belonged to the generation of «old guard» liberals who opposed Peronism and state intervention in the economy arguing that they suffocated the private sector. Given his social and professional background, as well as local and international establishment respect for him, they also thought he would provide the new regime with a prestigious civilian image abroad (Veigel Reference Novaro and Palermo2009, pp. 51-53; Yofre Reference Reed2010, pp. 375-376). Adolfo Diz, a graduate from the University of Chicago with experience in international finance, became the new president of the BCRA. For the first time, an economic team gathered «old guard» liberals and younger «technocratic monetarists» based mainly at the central bank, which was responsible for monetary and credit policies. They were nicknamed «Chicago Boys» for their ideology, qualifications and public policy initiatives rooted in neoliberal ideas of the Department of Economics of the University of ChicagoFootnote ⁷ .

The early international finance concerns of the new economic team focussed on improving relations with the IMF, problems affecting foreign investors, the looming foreign debt default, and a credible and coherent economic programme. With no alternative options, the new policies combined orthodox central bank monetarist concerns and standard international finance procedures acceptable for bankers and multilateral lending agencies. A Fund mission resumed the standard Article IV Consultations and normalised relations with the IMF. Foreign investors were reassured by the forceful end of personal insecurity, a free market economic policy, a review of previous nationalisations and controls on foreign exchange remittances, the end of restrictions on banks’ operations, and a new foreign investments law. An international default was avoided through (a) U$S 300 million emergency loans with U.S. and West European bankers which replaced previous 30-day operations; and (b) a 6-month waiting period with other state creditorsFootnote ⁸ . Finally, on 2 April 1976, a moderate-free market economic policy was announced.

The plan mainly sought to reduce inflation drastically, improve government finances and the balance of payments, recover Argentina’s exports and markets, rebuild and modernise basic infrastructure and services, and eliminate macroeconomic distortions. It was neither suggested nor imposed by the IMF or the other foreign creditors. A Fund offer of technical assistance to prepare an emergency plan was rejected. The team also declined suggestions of an abrupt liberalisation of the foreign exchange market and a strong devaluation to dismantle earlier controls, end the overvaluation of local currency, and fix a real exchange rate. They feared that, as on identical previous occasions, they would provoke an inflationary flare-up. The IMF was informed that, after the Article IV consultations, when the emergency loans were credited at the BCRA, and the new programme was under way and showed positive results, they would seek support from all foreign creditors to restructure the debt and consolidate economic stabilisation (See Martinez de Hoz Reference Helleiner2014, pp. 30-32).

From advance warnings and an ideological imprint of the military discussed below, a severe adjustment which provoked further social strains or unrest and undercut the prestige of the armed forces and their anti-subversive campaign was clearly unthinkable (Heredia Reference Canitrot2004; Kedar Reference Ferrer2013, pp. 137; Pryluka Reference James2016, pp. 212-220). Also, IMF staff soon realised that the views and power of the BCRA monetarists who advocated strong measures such as deep cuts in monetary expansion and government expenditures were counterbalanced by the «old guard» who opposed them and accepted military impositionsFootnote ⁹ . The whole team, however, agreed that the new policy should end chaos, a poor macroeconomic record ascribed to state-interventionist recipes applied since the 1940s, and institutionalise as far as possible a market economy, a new era in international relations, and a better foreign investments climate. They also agreed that earlier expansive monetary and credit policies were responsible for rising inflation rates and the collapse of the BCRAFootnote ¹⁰ . For technical and ideological considerations, the bank’s charter was reformed. Previous policies were then overturned to gradually impose monetary and financial market conditions, and anticipated the financial reform of mid-1977 to be discussed later.

A balance of payments crisis was avoided. Argentina, however, needed U$S 1,200 million to consolidate its foreign debt with better repayment terms. Foreign technical and financial support for basic infrastructure, and high-priority state and private sector industrial projects were also necessaryFootnote ¹¹ . During the annual meeting of the Inter-American Development Bank (IDB) of May 1976 Martínez de Hoz had decisive meetings with Jorge Del Canto, director of the IMF Western Hemisphere Department, US Secretary of the Treasury William Simon, and IDB President Antonio Ortiz MenaFootnote ¹² . After resuming contacts with foreign creditors, the minister and central bank President Diz negotiated a larger economic stabilisation aid package, World Bank, IDB and private bankers’ loans. The first breakthroughs were a «stand by» with the IMF in August, and the usual supplementary loansFootnote ¹³ . In September the World Bank granted a U$S 115 million loan to modernise and expand services of the state-owned Servicios Eléctricos del Gran Buenos Aires, S.A. (SEGBA), the main power company in Buenos Aires and its suburbs. The decision followed positive reviews of the programme, its plans to streamline the public administration, state-owned public utilities, and therefore improve efficiency and reduce the fiscal deficitFootnote ¹⁴ . Since 1971 the Bank had wanted to resume lending to recover past institutional and policy-making influence, and the military government met the established «conditionality» criteria for loansFootnote ¹⁵ . Fund officials and staff preferred stronger economic adjustmentsFootnote ¹⁶ . However, they commended the break with earlier state-interventionist policies. Only some cuts recommended as the best means to streamline government finances were adopted. Yet they welcomed the news that between March and December 1976 the fiscal deficit fell from 15 per cent to 9.4 per cent of GDPFootnote ¹⁷ . They also accepted the delay of a full reform of the foreign exchange market until November 1976, when the local currency was devalued and a free unified rate was fixed. Moreover, they noted the liberalisation of current account operations, and the gradual lifting of controls on capital mobility in the capital account that would later become a recipe of mainstream economic thinking (Chwieroth Reference Baliño2010).

By the last quarter of 1976 the economic team had avoided default and secured economic stabilisation aid supported by a «stand by» agreement with the Fund. Relations with foreign bankers had also been rebuilt thanks to the new climate for foreign business and the help of leading personalities with whom Martínez de Hoz had close relationshipsFootnote ¹⁸ . They tapped the rising capital market of Tokyo for the first time, and reinstated technical-assistance relations with the FundFootnote ¹⁹ . Washington was considering the U.S. EXIMBANK loans carrying a repayment guarantee for collateral financing. The IBRD had granted its first loan of the Martínez de Hoz interlude and the IDB was speedily processing loan applications. In sum, multilateral agencies, foreign bankers and financial officials praised Argentina’s return to international financial orthodoxy and the rules of the game for three reasons. Economic policies had the «seal of quality» of a «stand by» with the Fund. The central bank had recovered its institutional and policy-making independence to apply «sound» policies. Finally, balance of payment problems would no longer be tackled through multiple currency policies, exchange controls or restrictions on transactions in the current and capital account.

As of late 1976 the economic team also overcame three emerging challenges. The first was the early impact of policies which elicited a first wave of scholarly criticism by the early 1980s (Canitrot Reference Avenburg1980, Reference Alvarez1981; Palacio Deheza Reference Hurtado de Mendoza1981; Ferrer Reference Battilossi1982; Schvarzer Reference Kershaw1983; Sourrouille Reference Milobsky and Galambos1983). U.S. Congress and the press demanded economic sanctions against Argentina to halt human rights violations during the repression against the guerrilla and their alleged sympathisers. Yet, for the Ford administration then in power, human rights were not a key foreign policy issue and Secretary of the Treasury Simon openly praised Martínez de Hoz and his programme. This administration also supported dictatorships on political and ideological grounds reflecting strong Cold War national security concerns. Washington also realised that such a boycott was bound to fail because the military had alternative financing, and multilateral lending organisations would approve loan applications due to the merits of the Martínez de Hoz programme and the projects submitted for reviewFootnote ²⁰ . Within the military there was powerful and influential nationalist, developmentalist and statist opposition to the economic team. Objections to the opening and liberalisation of the economy and efforts to streamline the military industrial complex, led the Junta to begin to cross-examine the minister and his programmeFootnote ²¹ . For the time being, however, neither this opposition nor the «social cost» of current policies matched overseas confidence in their achievementsFootnote ²² .

The Argentine government did not comply with all targets of the 1976 «stand by» (Manzetti Reference Helleiner1991, pp. 114-118). Yet, the Fund wanted to keep its influence, and Argentina still needed their «seal of approval» to obtain additional financing abroad for her foreign exchange gap. In mid-1977 a controversial financial reform («Reforma Financiera») deregulated banking and financial markets and ended subsidised active interest rates. This reform rounded off the central bank reforms discussed above and ended what bankers and economists with a strong intellectual influence on BCRA officials labelled as a detrimental «financial repression» for developing country economiesFootnote ²³ . It also forced the state and the private sector to turn to market financing at real rates that were higher than inflation and occasionally reached record levelsFootnote ²⁴ . Moreover, in June 1977 IMF staff had reported that Martínez de Hoz had reservations about further «stand by»-supported policies which only the central bank was prepared to applyFootnote ²⁵ . But Argentina finally accepted an established «routine of dependency» (Kedar Reference Ferrer2013, p. 144) and in September signed another «stand by» and the usual supplementary financing agreements.

In the United States the incoming Carter administration introduced more foreign aid restrictions to curb human rights violations and demanded the same policy from multilateral development banks. However, Washington had very limited voting power in these institutions (Babb 2009, p. 40). The World Bank needed to maintain its position as a significant source of development aid (Sharma Reference Kiguel and Kiguel2013a, Reference Manzetti2013b) and refused to base lending policies on political considerations. Argentine creditworthiness and prospects for sustained progress also looked excellent. Hence, in 1977 Argentina obtained more loans for basic infrastructure, exports promotion and state projectsFootnote ²⁶ . The IDB also had key loans ready and granted the first, for a natural gas pipeline in Southern Argentina, in August 1976. Like the IBRD, it stood firm despite cuts Congress imposed on U.S. government appropriations to its budget with the argument that both institutions were supporting a notorious human rights violator in the Southern Cone (Sharma Reference Kiguel and Kiguel2013a, pp. 595-596).

At the end of the 1977, the «stand by» economic programme was at a crossroads. Fund staff and officials suggested another agreement to address unsolved fiscal and inflationary problems but the government decided otherwise. The OF and CFF loans of 1975 and the 1976 debts with bankers and the IMF were repaid with central bank reserves in September 1978, well before they were due. The IMF lost all influence on Argentine policies and access to alternative foreign financing. Annual review missions and reports, however, became routine tasks. Most restrictions on international capital mobility had been lifted. Since the BCRA remained independent and applied «sound» policies, both parties remained on very good termsFootnote ²⁷ .

The government justified both decisions, pointing out that 1977s «stand by» resources had not been used thanks to the improvement of the balance of payments, the strong foreign reserves position of the central bank, and higher total exports. Yet a complex scenario of failures, successes and political constraints in Argentina and abroad also influenced them.

As of late 1978, U.S. government opposition to IDB and IBRD loans and bilateral aid cuts had not disciplined the military regime. The Carter administration refused to restrict American private sector deals with Argentina. Secretary of the Treasury Blumenthal endorsed the economic programme and perfunctorily conveyed the humanitarian foreign policy views of his administration to Martínez de Hoz. With the fall of the Somoza dynasty in Nicaragua and the Soviet invasion of Afghanistan, the revival of Cold War concerns turned human rights into a low priority for U.S. policy, and strategic needs called for more moderation towards dictatorshipsFootnote ²⁸ . Moreover, for various reasons Argentina had access to alternative financing.

Minister Martínez de Hoz’s prestige abroad offset this boycottFootnote ²⁹ . West European allies and Canada did not endorse the Carter administration’s human rights crusade because they wanted to reassert their political and diplomatic independence. They also supported their businessmen to take opportunities in arms sales, nuclear cooperation, contracts for public works and trade which Americans could not meet for lack of EXIMBANK financingFootnote ³⁰ . Although Argentina refused to sign international non-proliferation treaties, West German official institutions, industrialists and private banks, continued cooperating with a nuclear power programme that met growing electric power needs and was of key geopolitical importance for the military. In 1974 they completed the Atucha I nuclear power station, and in October 1979 signed contracts for another, known as Atucha II. Canada followed the same policy and competed with West Germany, but had to make do with the completion of the Embalse Río Tercero power stationFootnote ³¹ . Whitehall officials remembered earlier political violence and diplomatic clashes over the sovereignty of the Falkland Islands. Early in 1977, therefore, they thought that the excellent prospects and high calibre of the economic team justified «a strong revival of interest in Britain in doing business with Argentina»Footnote ³² . Finally, bankers had begun to finance foreign exchange needs which neither multilateral nor bilateral sources metFootnote ³³ . One field was state and private sector financing which was no longer covered by the national budget or via expansive central bank policiesFootnote ³⁴ . Another was purchases of arms and military supplies which escalated until the South Atlantic War with Great Britain in 1982Footnote ³⁵ .

In Argentina, despite protracted inflation and fiscal deficits, since early 1978 widespread objections to the impact of current policies precluded a deeper adjustment. The most vocal criticism focussed on an industrial recession, rising unemployment, regressive income distribution, and high interest rates due to central bank policies and the financial reformFootnote ³⁶ . Influential spokesmen of Argentina’s liberal establishment argued that the programme did not break with past policies and contrasted its failings with the apparent economic success of the Pinochet regime in Chile (Pryluka Reference James2016, pp. 212-220, 223-228). Powerful military commanders forced the ruling Junta to make extra efforts to enforce the financial reform, solve foreign investment disputes and double-check that current policy met the guidelines of early 1976 and had real prospects of successFootnote ³⁷ .

By December 1978 the economic team had no other policy options and a diminished capacity to withstand more pressure and criticism. They therefore accepted and launched a foreign exchange rate policy reform proposed by the BCRA monetarists which was rooted in the «monetary approach to the balance of payments» theory developed by leading economists of the University of Chicago. The «Tablita Cambiaria», its nickname, was a schedule of preannounced corrections of the free exchange rate between the peso and the U.S. dollar. Like the reduction of imports tariffs enforced a few months later, it was used as a last-ditch tool against inflation until the Martínez de Hoz team left office in March 1981Footnote ³⁸ . Its basic premise was that a strong commitment to its implementation in a full exchange freedom environment was bound to lower inflation without the «social costs» of the «shock therapy» of IMF-supported policiesFootnote ³⁹ . Moreover, it also marked the rise of central bank «monetarists», whose policies led to an international financial relations strategy which no longer hinged upon the procedures and sources of economic development and stabilisation discussed so far.

3. CENTRAL BANK ORTHODOXY, STATE BANKS AND THE «DEEPENING» OF ARGENTINA’S FOREIGN INDEBTEDNESS

The «Tablita cambiaria» was a compromise solution for an economic team that badly needed to regain the initiativeFootnote ⁴⁰ . All officials, however, viewed it as evidence of the continuity of the April 1976 programme and, therefore, as a springboard for closer relations with international markets and further financing for the government and the private sector. This assessment led to a novel drive with the same high-risk maturity, cross-currency and interest rate mismatches that Mexican banks ran into until the onset of the foreign debt crisis of 1982Footnote ⁴¹ . The government, state and private companies contracted foreign loans either on their own or with the financial intermediation of state banks. The most notorious were the armed forces which, without central bank control and adequate planning, contracted substantial loans to finance their re-equipment during the escalation of a boundaries dispute with Chile in 1978-1979 and for the South Atlantic War of 1982 with BritainFootnote ⁴² .

Other interrelated national, international and institutional factors also stimulated foreign indebtedness and the overseas expansion of state banks. In Argentina, rate adjustments of the «Tablita» lagged behind inflationFootnote ⁴³ . They therefore sustained a free market with an overvalued currency which was uncompetitive for exports, stimulated foreign indebtedness as discussed below and inflows of competing imports for local goods that triggered further industrial unemployment and a deeper recession. With the financial reform of 1977, significant «spreads» between local and foreign interest rates turned external loans into cheaper options for working and investment capital needs as long as the «Tablita» stood firm (see Calvo 1983, p. 211; Baliño 1990, p. 50). Higher real active interest rates than abroad also stimulated poorly regulated over-exposure and short-term foreign capital inflows and outflows that fuelled risky though profitable relending operations, financial speculation and future balance of payment imbalances. Both reforms, however, were steadfastly enforced although as from 1979 two shocks hit Argentina: rises in oil prices, after the Islamic Revolution in Iran, and in interest rates due to the anti-inflationary policy of the Federal Reserve Bank in the United States.

As of the late 1970s, multilateral and bilateral financing were insufficient for developing countries’ needs, quite often did not meet their needs and were subject to bureaucratic delays, and conditionality clausesFootnote ⁴⁴ . On the contrary, established and new capital markets overflowed with prompt funding that could be raised through various financial instrumentsFootnote ⁴⁵ . Foreign financial regulatory bodies and monetary authorities did not have the power to regulate bankers’ overseas lending operations in order to sustain sound institutions and avoid systemic risks and market instabilities (Frydl 1979-19Reference Cassis80; Carlozzi Reference Babb1981; Schenk Reference Kedar2010; Altamura 2015). The Fund had to concede that it could not control deficit countries’ all-too-easy banking loans which delayed indispensable economic stabilisation policies (Witteveen Reference Pryluka1976; Helleiner Reference Canitrot1985, Reference Canelo1994; James Reference Chwieroth2005; Schenk Reference Kedar2006, Reference Kedar2010). After the 1973-1974 oil crisis, therefore, all of them welcomed the recycling of petrodollars as an effective, efficient and timely relief for the balance of payment problems of oil-importing nations. In brief, with the liberalisation of capital flows and their capacity to meet the pressing needs of potential borrowers, bankers had regained past influence and held the upper hand in international finance (Altamura 2015, pp. 139-139, 161-162, 164, 227-228). Moreover, in February 1980 a Bank of England official noted that, despite some concerns about growing debts, managers seemed prepared to assume greater risks to make further profits in overexposed countries such as BrazilFootnote ⁴⁶ .

After 1976 several institutional changes shaped the policies of the most powerful state commercial banks in Argentina, the Banco de la Nación Argentina (BNA), and the Banco de la Provincia de Buenos Aires (BAPRO). Their new CEOs came from traditional families involved mainly in the cattle-ranching business. Like Martínez de Hoz, they belonged to the Sociedad Rural Argentina, the influential business association of Argentina’s most powerful landowners and cattle breeders. In one case (Juan María Ocampo) the family was also the majority shareholder in the Banco Ganadero, which served the livestock sector. The other (Roberto Bullrich) had interests in rural real estate and cattle trading. In view of their social background, ideology and professional experience in the private sector they deplored state intervention in the economy. Thus, they hailed the end of «financial repression» in 1977, and were fully committed to the Martínez de Hoz plan. Their appointment also signalled strong military support for pastoral activities which earlier Peronist policies had discriminated against, even though they were decisive in rebuilding vital exports. However, neither of them was a professional banker and both were quite inexperienced in recent international finance. They were dazzled by the cheap financing available abroad and involved their institutions in the negotiations and risky business deals that prevailedFootnote ⁴⁷ . Pressing needs to compensate for domestic funding shortages and profit-making considerations discussed below pushed them into this drive. They were also convinced that their century-old institutions should do away with their «provincial» imprint and record, and build upon their prestige and past history to reach out into the international arenaFootnote ⁴⁸ .

The BNA began to contract loans on its own, as a member, or leader of banking consortia which arranged syndicated loans for single borrowersFootnote ⁴⁹ . In late 1976 it became a member of the Euro-Latin American Bank (EULABANK), a consortium of European and Latin American banks founded in 1974 to intermediate Eurocurrency loans to the state and the private sector in Latin AmericaFootnote ⁵⁰ . To seek more funding and business opportunities, it began financial intermediation in hard currencies from the head office in Buenos Aires and an expanding network of branches and representative offices abroadFootnote ⁵¹ . Later, it opened a «shell branch» in the Cayman Islands, an offshore financial centreFootnote ⁵² . This was just a booking office (or «nominal branch») with relatively cheap and quick access to the Euromarkets that registered contracts and kept the accounting of transactions set up in established financial centres.

Established Argentine private banks, provincial state banks which no longer received central bank financing, and Latin American private banks and major state-owned companies which were new customers received multiple loansFootnote ⁵³ . Quite often operations were rolled over for periods of 90 days. Between 1977 and 1980 the BNA also participated in syndicated loans to the national government, occasionally for specific public worksFootnote ⁵⁴ . According to a special survey carried out by Euromoney, by early 1981 the bank was a leading Latin American borrower in the syndicated loan marketFootnote ⁵⁵ . Financing the military build-up became a standard practice. The Panama branch raised funds to grant U$S 160.3 million loans to the Army in August and November 1978Footnote ⁵⁶ . In March 1980 the London branch intermediated a U$S 23 million loan from a syndicate led by Morgan Grenfell & Co. Ltd for Navy purchases of Lynx helicopters and their spare partsFootnote ⁵⁷ . Moreover, the executive board built upon an impressive track record of loans by foreign branches, and in October 1980 contracted short-term loans and issued bonds at floating interest rates in the Tokyo, Singapore and Hong Kong capital marketsFootnote ⁵⁸ . This decision ignored the impact of the international oil and interest rates shocks of 1979 in Argentina, a banking crisis due to the financial reform of 1977, and a foreign exchange crisis with spill-over effects on the banking sector which would start a few months later as a result of the «Tablita».

The BAPRO is an almost identical and notorious case (BAPRO 1984; De Paula and Girbal de Blacha 1998, pp. 184-199, 236-251). Between 1977 and 1980 it inaugurated full branches in Miami, Los Angeles and New York; and a «shell branch» in the Cayman Islands in October 1979. It also raised U$S 1,700 million in capital markets of which about 30 per cent were earmarked to its main cattle-breeding and agricultural customers. The rest financed high-risk loans in overexposed countries such as Brazil, Poland and MexicoFootnote ⁵⁹ . As with the BNA, cross-border financial intermediation departed from its previous track record and did not contribute to the socio-economic development of the province that it was expected to promote.

The balance sheets of the BNA and the BAPRO showed a problematic increase in foreign liabilities for three reasons by the early 1980s. Due to the new monetary and credit policies, between 1975 and 1981 central bank financing to the BAPRO for regular and emergency liquidity needs fell from 58.7 per cent to 1.2 per cent of total resources (BAPRO 1984, p. 48). At the BNA such financing fell from 80.8 to 0.6 of total resources between 1975 and 1977 (see Banco de la Nacion Argentina 1976-1977, pp. 21, 28). Catastrophes such as the floods of 1980 in the Province of Buenos Aires raised emergency funding needsFootnote ⁶⁰ . Finally, like Mexican banks, both banks ran into maturity, cross-currency and interest mismatches already mentioned (see page 13) and indulged in overseas borrowing and financial intermediation sprees to make profits without central bank monitoring and an adequate safety net.

As a result of debt-financed lending, the international shocks of 1979, the default that followed the outbreak of the South Atlantic war, and the Latin American debt crisis, like its customers the BNA ended up heavily indebted and unable to meet normal repayment of loans. In 1979 U$S 4.3 billion debts of the armed forces with the BNA were equivalent to 35.5 per cent of total loans the institution granted that year. In mid-1982 a DM 30 million emergency loan from the Deutsche Sudamerikanische Bank bailed out the New York branchFootnote ⁶¹ . At the end of the dictatorship the BNA was the main creditor of the military (Basualdo et al. 2016, pp. 152-154, 159). Moreover, in early December 1983 the central bank provided U$S 1.6 billion for the repayment of loans granted to the armed forces and state provincial banksFootnote ⁶² . The BAPRO was in the same situation. Immediately after the democratic restoration of December 1983 its new president had to commission an audit of its finances which disclosed the cost of «transnationalisation», and was the basis of a significant though uphill institutional reconstruction, recapitalisation and policy overhaul. According to this survey, at the end of 1980 the BAPRO had external liabilities equivalent to 7 per cent of Argentina’s foreign debt, and by 1981 61 per cent of its resources were foreign loans. As of December 1983 the institution had also granted one-third of foreign currency loans in high-risk countries such as Brazil, Mexico and Poland. Thus, a high proportion of all loans were non-performing (BAPRO 1984, pp. 48, 54, 65). Moreover, despite cross-currency mismatches, profit incentives had led managers to take advantage of the financial reform and the «Tablita» to induce presumably qualifying local customers to take cheaper loans in hard currenciesFootnote ⁶³ .

Until the economic team left office in March 1981, there were further debates and criticism mostly focussed on the consequences of industrial policies, the financial reform, the «Tablita Cambiaria», and rising foreign debts. In private, «traditional» liberal Secretaries of Commerce and Finance, Alejandro Estrada and Juan Alemann, respectively, had reservations about the exchange and financial reforms, and the lack of a proper adjustment. Article IV Consultation reports and internal memoranda also showed increasing IMF concern that would peak after Martínez de Hoz left office. Objections focussed on the uneven economic adjustment, the failings of the «Tablita», the financial reform, the banking and foreign currency crises they might trigger, and the purposes and high cost of foreign borrowing hitherto underestimated, arguing that neither the national government nor the central bank was directly responsible for itFootnote ⁶⁴ .

The minister and most of the team disregarded criticism because it carried no decision-making influence. After all, Argentina was not subject to a «stand by» and foreign investors and financiers such as David Rockefeller, Wilfried Guth and former Secretary of the Treasury William Simon supported the programmeFootnote ⁶⁵ . Notwithstanding internal disagreements, simmering clashes and the resignation of key officials due to the reforms of late 1978, they insistently underlined the benefits of the programme and the need to persevere with it. During the annual meetings of the IMF and the World Bank in 1980, the minister also contrasted the gloomy prospects of the world economy after the international shocks of 1979 with his belief that their impact on the national economy should not be overestimated, and that Argentina no longer had balance of payments problemsFootnote ⁶⁶ . World Bank President McNamara’s renewed support for his programme and its achievements during a meeting with the Argentine delegation also enhanced such optimismFootnote ⁶⁷ . Moreover, McNamara had hinted that for two reasons «middle income» members deserving aid such as Argentina should hasten to tap the IBRD again for lending to fund projects. For the time being the board had shelved a controversial «graduation policy» whereby eventually these nations would no longer be eligible for such fundingFootnote ⁶⁸ . Also, the Bank had just begun to grant Structural Adjustment Loans that committed borrowing nations to significant macroeconomic reforms (Sharma Reference Kiguel and Kiguel2013a).

However, on his return to Buenos Aires Martínez de Hoz faced two problems stemming from the financial and exchange reforms that persisted until well after he left office. The banking and financial crisis which broke out in March 1980 had worsened and the government had to take emergency measures to ensure stability and public confidence in the banking systemFootnote ⁶⁹ . Also, continuous foreign exchange losses and overheating in the exchange market, due to capital flight, would force ineffectual devaluations of the peso in February, April and June 1981, and later raise prospects of another foreign debt defaultFootnote ⁷⁰ . Yet, neither these developments nor the aftermath of the South Atlantic war with Britain, the outbreak of the Latin American foreign debt crisis, and the fact that the White House had begun to track the Argentine situation quite closely, led Martínez de Hoz to change his viewsFootnote ⁷¹ . He insisted that foreign loans were sound and legitimate tools, that national credit standing had been restored, the economy had been recapitalised, and that their annual service demanded a low percentage of gross domestic product and the value of exportsFootnote ⁷² . To arrest rising criticism he focussed on the results of the early drive for economic stabilisation and development aid that followed the criteria of the Bretton Woods era. However, he studiously ignored post-December 1978 trends in which flawed central bank policies and cross-border financial intermediation played a key role. Ultimately he also blamed Argentina’s macroeconomic problems and rising foreign debt on unexpected external shocks, the recent war, and foreign-debt-management mistakes of the economic teams that followed him in office.