Meet the new boss, same as the old.
In Spanish, as in English, the word “kaput,” taken from the German “kaputt”, means done for, knackered, wiped out. The surname of Argentina’s new Economy Minister, Luis “Toto” Caputo, is similar, just with a “c” instead of a “k” and ending in “o”, which is probably fitting given that his first dose of economic shock therapy — including a 54% devaluation of the Argentine peso, to bring the official exchange rate closer to the informal “blue” one; a halt on all public works; the freezing of public sector salaries; a sharp rise in taxes, and the elimination of many public subsidies — could wipe out what remains of Argentina’s fragile economy.
Predictably, the package of measures places the lion’s share of the burden on the already buckling shoulders of Argentina’s middle and working classes while the so-called political and economic caste — whom Milei vowed to eliminate during his election campaign — will emerge either largely unscathed or even wealthier. In fact, as I will explain later, Argentina’s central bank, also under new (and old) management, has prepared what many are calling a generous bailout of some of the country’s largest importing companies.
But before that, who is Luis “Toto” Caputo, and why does his name sound so familiar? After all, one of the key pledges Argentina’s Milei made during the election campaign, besides slashing taxes, getting rid of the central bank and dollarising the economy, all of which have been quickly forgotten or reversed, was to do away with the political caste that has dominated Argentine politics for decades. Yet few epitomise that “caste” better than Caputo.
Who is Caputo?
Caputo is a life-long friend of former President Mauricio Macri, whose government (2015-19), with Caputo’s help, did more harm to Argentina’s economy than any other since Carlos Menem’s disastrous ten-year tenure in the 1990’s.
Caputo began his career as an investment banker, first as chief of trading for Latin America at JP Morgan Chase (1994-8) before slotting into a similar role at Deutsche Bank (1998-2003). He was later appointed chairman of Deutsche Bank’s Argentine subsidiary. In more recent years, he has managed his own investment fund and sat on the board of an Argentina energy company.
But what interests us most is Caputo’s brief period in the public sector, which began in 2015. First, Macri appointed his old school chum as secretary of finance, only to quickly bump him up to finance minister and eventually central bank governor, all in the space of just three years. During that time, Caputo held arguably more sway over Argentina’s economy than anyone else. And it was during that time that the seeds of Argentina’s current crisis, including its out-of-control inflation, were sown.
First, the government offered to pay off the vulture funds that had bought, for cents on the US dollar, the bonds of the investment funds that had refused to accept previous write-downs of Argentina’s debt, in 2005 and 2010. They included US billionaire Paul Singer’s Elliot Management. The government’s goal was to return to international debt markets so as to access cheaper (foreign-denominated) debt, which it then gorged on with reckless abandon.
Between 2016 and 2018 Argentina’s foreign debt mushroomed from 17.7% of GDP to 41.8% and gross debt in foreign currency almost doubled, from 36.3% of GDP to 65.8%. Inflation also surged, from around 15% in late 2015 to over 50% by the end of Macri’s term. Even the Spanish-language Wikipedia page for Caputo includes a section documenting the myriad irregularities and potential fraud involved in the settlement reached with the holdouts (translation my own).
In 2016, the prosecutor Federico Delgado called for an investigation of the State’s payment to the holdouts, through a document in which he demonstrated possible legal and procedural irregularities in the indebtedness and payment, and declared that the $16.5 billion debt the administration took on to write off the $12.5 billion “owed” to the bondholders was “the finishing touch to a gigantic scam against the national State.”
A year later, the American journalist Greg Palast gave an interview in which he stated that Paul Singer financed Mauricio Macri’s presidential campaign with $2.5 million, thus ensuring an exponential profit on his lawsuit against Argentina. In this manoeuvre and in the deal the Macri government would reach with the fund, Singer obtained profits of 10,000%. Asked about his relationship with Paul Singer, Macri declared that he did not know him and that he was not aware that he had made a contribution to his campaign.
But it is what happened next, when Caputo was central bank governor, that set the stage for Argentina’s current woes. In 2018, with elections looming, inflation surging and Argentina’s debt situation once again spiralling out of control, the Macri government asked the IMF for a $57 billion bailout, the largest in the fund’s history, of which $44 billion would be disbursed.
As Michael Hudson recounted in an interview with the Real News Network, which we cross-posted here, since Argentina’s 2001 bailout, which was almost entirely used to enable capital flight, rank-and-file staff at the IMF had adopted a slogan : “no more Argentinas!” But the Fund’s senior ranks, led at the time by President Christine Lagarde, now at the helm of the European Central Bank, ignored that hard-earned lesson, or perhaps just didn’t care. After all, Macri’s administration was exactly the kind of government the IMF likes to do business with.
The money,or at least most of it, was quickly disbursed though, once again, it didn’t last long in the country. In the absence of capital controls, Argentina’s oligarchy simply took their share and sent it aboard. Once again, an IMF bailout had been used to subsidise capital flight so that Argentina’s wealthiest businesses and citizens could yank their money out of the country before the currency collapsed — all on the government’s tab.
Which brings us back to the present, and the biggest insult of all: to hear Caputo, the man who more than almost anyone else set this current crisis in motion, as even Milei admitted in a televised interview a few years ago, introduce his reform package on Tuesday with the following words: “the legacy we are inheriting is the worst in history.”
Incidentally, Milei’s choice for central bank chief, Santiago Bausili, was until recently a partner in Caputo’s investment fund. Like Caputo, he worked for JP Morgan , for 11 years, before joining Deutsche Bank, for another eight. He also worked under Caputo in the Macri government, first as under secretary of finance and later as secretary of finance.
Most controversially, Bausili received a significant share package worth $180,000 from his former employer, Deutsche Bank, at the same time as he was fulfilling his duties as a public servant. Those duties allegedly included helping the government issue foreign debt bonds as part of the agreement reached with the overseas vulture funds. As luck would have it, Deutsche Bank would end up charging the second highest fees for helping to place the foreign debt bonds issued by the Macri government between 2016 and 2017, as Página 12 reports.
In 2021, Bausili was accused of conflicts of interest in his interactions with Deutsche Bank during his time in government. The judge in the case, Sebastián Casanello, concluded that the evidence presented had demonstrated “Bausili’s detachment from the high standards of ethics and transparency that his role required of him,” adding that all of the actions taken by Bausili in that period “were prohibited by law.” Four months after Bausili’s prosecution, an appeals court overturned the ruling.
Casanello continued his investigation, however, accumulating more evidence against Bausili. In September 2022, he insisted on reopening the case. But this Tuesday, one day before Bausili was confirmed as the next head of the central bank, the Buenos Aires Federal Chamber once again blocked the prosecution.
Parallels with “Fujishock”
Caputo’s new economic reform package has drawn parallels with the neoliberal reforms enacted by Peru’s former President (and long-term inmate of Barbadillo prison) Alberto Fujimori during his first term in office, known as “Fujishock”. As even Wikipedia notes, Fujimori’s economic program “bore little resemblance to his campaign platform and was more drastic than anything [his rival candidate], Mario Vargas Llosa, had proposed.” What followed was “economic agony” (again, Wikipedia’s words) as “electricity costs quintupled, water prices rose eightfold, and gasoline prices rose 3000%.” Eventually, the economy stabilised.
It will be a similar story for Argentina — a country that has, for a host of reasons, been in a near-constant state of crisis for most of its history, as Jeffrey Sachs said in a recent interview with The Duran — but with one key difference: the Argentine economy is unlikely to stabilise any time soon; in fact, it could well collapse once again.
One thing that is clear is that most Argentinians, many of whom voted for Milei out of a mixture of desperation, frustration and anger with the establishment parties, face a crushing loss of purchasing power as the devaluation and rising import taxes drive inflation even higher while wages and pensions stagnate and public subsidies on energy and public transport are withdrawn.
In a complete departure from the libertarian ideals he espoused as a TV pundit before becoming a politician, Milei has also proposed a three percentage-point increase on practically all exports, from 12% to 15%. As Reuters reports, the government “is desperate for funds, especially foreign currency, with the grains sector the dominant driver of exports.” The government has also hiked import taxes from 7% to 17.5%, which will also fuel further inflation, and is considering reimposing income tax on struggling families.
These reforms will unleash much higher inflation for at least the months to come, as the Milei government itself has admitted, while ripping away all of the social protections that have allowed people on modest incomes to eke out an existence. This is in a country where the poverty rate is already above 40%, affecting 18.6 million Argentinians. As NC has reported before, this kind of austerity literally kills, through desperation, suicide and lack of access to basic health services.
IMF Support
Even so, the IMF was lightening-quick to approve Caputo’s raft of measures. In fact, it is probably safe to assume that the Fund provided some input on the drafting of the measures. As the Argentine financial journalist Alejandro Bercovich notes, what we are seeing is a classic IMF package: “The aim is to generate recession, reduce imports in order to accumulate dollars and thus continue servicing the debt owed to the Fund and lower inflation by cooling demand.”
The punchline from the IMF’s statement (emphasis my own):
“These strong initial actions aim to significantly improve public finances in a way that protects the most vulnerable in society and to strengthen the exchange rate regime.”
Of course, the IMF has a long, storied history of getting things badly wrong, especially wrt Argentina. In March 2018, for example, the-then managing director Lagarde described the first two years of [Macri’s] reforms as “amazing”.
To its credit, the Fund’s research arm has in recent years churned out studies confirming that both austerity and highly mobile capital increase inequality, making life much more difficulty for the most vulnerable in society, and that inequality is a drag on growth, which does nothing but hinder a struggling government’s ability to pay back its debts. Unfortunately, none of this appears to have informed the fund’s policy making.
Lastly, in another dark blast from the past, the Milei government’s economic reform package appears to include a public bailout of private sector debts. Again, not what you’d expect from a self-proclaimed “anarcho-capitalist”. From Izquierda Diario (machine translated):
The Central Bank will go into debt for a sum of up to US$30 billion to rescue the private debt of importing companies. It will issue Bonds for the Reconstruction of a Free Argentina (BOPREAL) that importers of goods and services will be able to access in pesos, which will then be settled in 2027 in dollars. After announcing a financial war plan that will destroy salaries and pensions, Caputo endorses this scandalous debt package…
The debt of importers with foreign suppliers, which generally hovered around $30 billion in recent years, surged to almost $58 billion in 2023, as a result of a foreign currency shortage caused by [Argentina’s historic] drought. This led the central bank to delay or reduce the delivery of foreign currency, causing a sharp rise in non-payment to suppliers. Now, the new head of the central bank wants to “resolve” this issue by selling this new bond to importers so that they can pay off their debts. It is a liability that will preserve its value in dollars while generating returns [of up to 5% per year] until 2027. Of all the possible solutions to the problem of rising private debt, the central bank chose the worst: its conversion into public debt.
If there is one crowning lesson to take away from all of this, it is, as the French say, plus ça change, plus c’est la même chose (the more things change, the more they stay the same).