3. The Normalization Program

A few days after being appointed Minister of Economy and Labor Krieger Vasena departed for the United States, where the Interamerican Committee of the Alliance for Progress approved his plans for the Argentine economy—which were not yet public knowledge in Argentina.^[20] Since the confrontations between the CGT and the government were monopolizing media attention at the time, there was little news coverage of the activities of the new economic team. But immediately after the CGT surrendered, Krieger Vasena took center stage. In a speech of March 13, 1967, he announced some far-reaching decisions: (1) a devaluation of the peso to a rate of 350 to the U.S. dollar (a 40% drop); (2) a "fiscal compensation" for the devaluation, in the form of a tax on foreign exchange holdings and a withholding tax on agricultural and livestock exports, which meant that for both exporters and meat and cereals producers the effective exchange rate remained, as before, at 245 pesos per U.S. dollar; (3) a significant reduction of import duties; (4) "liberalization" of the foreign currency market; and (5) various measures designed to "streamline" public spending. Equally important was the tone of the speech, which introduced the new policies as the first steps of a broad program designed to reduce inflation rapidly (but without recessionary effects) while promoting competition, "efficiency," and foreign investment. The program, it was asserted, would lay the foundations for stable

[*] See, for example, the Social Welfare Minister's refusal to receive a CGT delegation because it included leaders of unions that the government had intervened (La Nación, April 19, 1967, p. 4).

economic development.^[21] Other policies adopted in rapid succession included: (6) the suspension of collective bargaining and the granting of an average pay increase of 15 percent for workers in the private sector; shortly after a similar raise was granted to state employees, after which wages were frozen for the next twenty-one months;^[22] (7) the termination of automatic extensions of leases of rural property (which had been established during the Peronist era and, to the perpetual protest of the landowners, had not been abolished by the 1955–66 governments);^[23] (8) the conclusion of a voluntary price agreement with representatives of eighty-five leading industrial firms who agreed to freeze prices for six months in exchange for special access to bank credit and state contracts;^[24] (9) tax write-offs for the purchase of agricultural and industrial machinery;^[25] (10) a change in the method of valuation of corporate assets, which significantly decreased corporations' tax liability;^[26] (11) a 50 percent tax reduction on housing investments;^[27] and (12) the establishment of special credit lines for the financing of durable consumer goods purchases and housing improvements.^[28] Other steps were taken whose impact was less direct but which offered transnational capital further proof of the government's commitment to economic orthodoxy.^[*]

These policies were applauded by the upper bourgeoisie and its organizations.^[†] Foreign actors were also quick to express their approval: no sooner had the March 13 speech ended than the wire services relayed news of the "confidence" it had awakened in Europe and the United States.^[29] This approval was confirmed days later by the IMF's announcement

[*] Particularly the Hydrocarbons Law of June 24, 1967 (no. 17,318) and the prompt and full satisfaction of claims by transnational oil companies for compensation for the cancellations of exploration and exploitation rights. These cancellations had been decided by the Illia government (La Nación, April 17, 1967, p. 1).

[†] For the reaction of the UIA, see La Nación, March 15, p. 1 (although this organization protested the reduction of import duties), April 7, p. 1 and September 2, p. 16, 1967; of the CAC, La Nación, March 15, p. 1, March 23, p. 7 and May 3, p. 6, 1967 (telegram to Krieger Vasena congratulating him on the "external support" won by the program), and August 2, 1967, p. 1; of the ACIEL, La Nación, March 18, 1967, p. 3 (although requesting that the government tighten the screws further in matters of "labor policy" and fiscal deficit); of the Buenos Aires Stock Exchange, La Nación, April 20, 1967, p. 6. For the reactions of leading periodicals see, for example, the editorials in La Nación, March 16, p. 6, May 2, p. 6, and July 15, p. 6, 1967, and Economic Survey, issues of March and April 1967. The CGE and the CGI adopted a cautious attitude, expressing only their "concern" with the cost increases they assumed would accompany devaluation and their distress over the government's "inexplicable failure to consult" with them before adopting these measures (La Nación, March 18, 1967, p. 3). The organizations of the Pampa bourgeoisie (SRA and CARBAP in particular) registered their opposition to the withholding tax on exports in a lukewarm manner, and they expressed their enthusiastic support for remaining policies, especially the law concerning rural leases (La Nación, May 4, 1967, p. 18). For more details on the reactions of these organizations see their respective Memorias for the period we are studying.

that it had granted Argentina a standby loan of $125 million,^[30] which opened the way for new credits from a consortium of European banks (US$100 million), United States banks (US$100 million), and the United States Treasury (US$75 million).^[31] Finally, the U.S. Department of State—which had publicly criticized the 1966 coup—declared its support for Krieger Vasena's program, saying it "had modified [United States] policy with respect to the granting of aid to Argentina."^[32]

Krieger Vasena's March 13 speech marked the beginning of an offensive by the upper bourgeoisie, based on the defeat of the unions and on the control exercised over economic policy by a team intimately linked to the most powerful fractions of the dominant classes. The major short-term goal of this offensive was to eradicate inflation and relieve pressure on the balance of payments. It was assumed that once this goal had been achieved and reinforced by inducements to domestic and foreign investors (and by the favorable "business climate" that all of this would generate), stable growth would soon follow.^[*]

Prior to Krieger Vasena's ministry, Argentine stabilization programs had been based on the premise that excessive demand was the main cause of balance-of-payments deficits and inflation. The remedies that followed from this diagnosis were recessionary: cutbacks on credit and public spending, restrictions of the money supply, deliberate reductions in real salaries and wages, and sharp devaluations of the peso. Such decisions temporarily improved the balance of payments by reducing domestic economic activity, which diminished the demand for imports and increased the surpluses available for export. However, since devaluation meant higher domestic prices for imports and exportable goods, and since credit and monetary restrictions meant higher interest rates, inflation, instead of abating, increased.^[33]

The innovation of the program inaugurated in March 1967 was its diagnosis that the main causes of inflation were to be found on the side of costs and in the psychological factors involved in expectations of high inflation. It followed from this assumption that the cure for inflation would lie not in restrictive management of monetary variables but in reversing expectations and stabilizing factor costs. This diagnosis helps explain why the new economic team tried to control a number of crucial prices, including those of (1) labor, in the form of a mandatory wage freeze that was to last almost two years; (2) industrial products, the

[*] The emphasis on reducing inflation and gaining internal and external confidence is evident in speeches by Krieger Vasena reprinted in Política económica Argentina, Ministerio de Economía y Trabajo.

prices of which were controlled at the wholesale level through a voluntary price agreement supported by a growing number of industrial firms; (3) exportable commodities (mostly foods) sold on the domestic market, whose export value in pesos was held constant by the above-mentioned withholding tax; (4) fuel and public services, which, after being increased sharply during the first months of the program, were subsidized with revenues accruing to the Treasury as a result of the withholding tax on exports; and (5) foreign exchange, in that another formal^[*] devaluation was ruled out for the foreseeable future.

A second innovation of the March 1967 program was the withholding tax on exports to compensate for the effects of the devaluation. In the past, devaluations led to windfall profits for exporters and Pampean producers of agricultural and livestock goods, and to sharp rises in the prices of meat and grain sold on the domestic market. These changes resulted in often enormous (if quite rapidly reversed) transfers of income from the urban sector to exporters, to the financial sector, and to the Pampa bourgeoisie. The withholding tax that accompanied the March 1967 devaluation gave the state apparatus a large amount of new revenue, demonstrating that Krieger Vasena, his team, and their principal social base were neither "oligarchs" nor "anti-statists."