As Argentina’s government kicked off a radical blueprint for transformation late last year, thousands of demonstrators filled the streets, chanting “the country is not for sale.” The target of protesters’ ire was new president Javier Milei and a set of policies that have become hauntingly familiar for the developing world.
Acting to appease investors and the International Monetary Fund, of which Argentina is the world’s largest debtor, Milei had appeared at campaign rallies waving a chainsaw with promises of deep spending cuts. As president, he immediately devalued the currency by half, suspended public works, and cut subsidies for utilities and transportation despite runaway inflation.
Argentina’s protests have only gained momentum in the ensuing months, and they’re not alone. Across the world, governments have already begun or are about to embark on dramatic spending cuts in a desperate attempt to balance budgets and attract investors sitting in far-flung capitals. After a temporary spending boom during the pandemic, the world has entered a new era of painful adjustment, and nowhere is the picture clearer than on the streets of Buenos Aires.
“This is just an enormous transfer of wealth from the workers to big corporations,” Eduardo Belliboni, national director of the leftist Polo Obrero organization, who helped organize the marches, said in a phone interview. Argentina’s Economy Ministry did not respond to a request for comment.
Yet, while Milei, a self-described anarcho-capitalist, is the most outspoken proponent of austerity, it’s just the tip of the iceberg. According to IMF predictions, most developing nations are set to restrict spending this year after the temporary spending of the pandemic era. At the behest of private markets and organizations like the IMF, Argentina has merely joined a long list of countries that include nations like Pakistan, Nigeria, Egypt, Kenya, and Sri Lanka.
“We’re witnessing a new age of austerity,” said Nabil Abdo, a senior policy advisor at Oxfam International. “It hasn’t been declared as such officially, because the language is being tempered — but it’s definitely, definitely happening.”
Historic Crisis
While austerity has long featured in economic policy across the developing world, it’s a particularly difficult moment for it to resurface. A report from Development Finance International at the close of 2023 found that the global South faces “the worst debt crisis since global records began.”
On average, over a third of government revenue in developing nations is used to service debt. In Africa, that number is over half, dwarfing what African governments typically spend on education, health, and social spending.
Meanwhile, interest rates — which were hiked across the world in an effort to tame inflation — have stayed high, and may stay high for some time yet, raising not just debt payment obligations but the cost of borrowing at the same time.
“You have most of the global North already undergoing recovery to different degrees, with the US doing quite well and soaking up all the capital that had flown into the global South during the low interest rate period,” said Luiz Vieira, coordinator at the Bretton Woods Project in London. “It’s an exacerbation of an existing trend.”
In a mammoth 2022 study by Isabel Ortiz and Matthew Cummins, the authors wrote that most governments began scaling back public spending in 2021 in a trend that will continue at least until 2025, forcing more than 85% of the global population into some form of austerity.
“Austerity is an outdated policy that has become the new normal,” said Isabel Ortiz in emailed comments.
The authors added that something similar happened after the last global crisis that forced governments to raise spending: the financial crisis of 2008. Yet this time, the dangers are “far more premature and severe,” they wrote.
The combination of skyrocketing debt, little access to private lenders, and demands from institutions like the IMF has put most developing nations in the unenviable position of having to slash budgets even as debt costs rise and economic havoc continues.
Fire Sale
Just outside Cairo, a stone palace with sprawling gardens overlooking the pyramids of Giza was once the crown jewel of the Egyptian government’s state-owned hotels. The Mariott Mena House, which had housed dignitaries from Churchill to Sinatra and hosted Egypt-Israeli peace talks, once stood as a testament to the nation’s ambitions in the booming tourism sector. At the end of last year, it was sold off to private investors.
Mena House is just the start. As the Egyptian government struggles under the weight of a mounting debt burden and IMF demands to cut the budget, the nation has embarked on a fire sale of public assets: a majority stake in the company that owns seven major hotels including Mena House, stakes in public companies from telecoms to oil, and even plans to sell $22 billion worth of property on the country’s north coast.
Meanwhile, a similar push in Nigeria after the government of President Bola Tinubu ended over $10 billion worth of fuel subsidies has sent many into the waiting arms of payday lenders as millions tumbled into poverty at the end of last year.
Just like Argentina’s Milei, Tinubu also allowed the nation’s official exchange rate to plunge, following the initial salvo with a second major depreciation last month. Similar to Argentina, however, a weaker exchange rate also means higher costs for most people, particularly on imported goods.
“Austerity is for the workers, not for the millionaires.”
Eduardo Belliboni
In Kenya, dozens were killed during July demonstrations as the government embarked on a range of new taxation measures aimed at shoring up the country’s debt situation. A report from the Bretton Woods Project noted that while prices of food staples like maize had by then tripled, “private wealth, land holdings and large corporations remain unscathed by the reforms.”
On the other side of the world, mass protests erupted in Pakistan last year after the government hiked electricity prices to secure funds from the IMF. Similar sweeping budget cuts were demanded in Sri Lanka, where the Fund eventually unlocked loans for the nation as struggled to rebuild after declaring bankruptcy.
“We have an international financial architecture that clearly favors obligations toward creditors over government obligations to the people,” Oxfam’s Abdo said.
More than Budget Cuts
Even the IMF’s internal research shows that austerity measures are counterproductive. Cutting budgets at a time of economic stress hurts consumption, depressing the economy, and leading to worse economic effects over time. Critics of austerity often claim that such measures only typically help the budget balance in the short term, trapping nations in a downward spiral over the longer term.
The IMF, for its part, is quick to soften the language of austerity. Gita Gopinath, the first deputy managing director, said in February that it would be important to ensure that in Argentina, “the burden of the adjustment does not fall disproportionately on working families” — language often repeated in IMF communications. Yet softer language rarely translates into softer policy.
In meetings with Milei and Economy Minister Luis Caputo, “I recognized the important initial gains in restoring macroeconomic stability and establishing a strong fiscal anchor,” Gopinath said.
IMF officials did not respond to an emailed request for comment for this story.
Ortiz and Cummins set out a few recommendations to replace the Fund’s classic austerity prescription, among them: tax the rich, curtail illicit financial flows, and restructure and eliminate debt. The authors also propose changing the way IMF assets known as special drawing rights (or SDRs) are allocated and used. The change would allocate more SDRs — which function like an IMF-backed currency — to developing nations and allow countries to use those SDRs like a hard currency, enabling them to pay down debt and support the national budget.
“Given that the current system advantages financial institutions and other investors that are sitting in the global North, it makes sense for the global North to step up and provide some support for the global South,” said Vieira. “It’s support that would really massively alleviate the need for austerity.”
Yet for others, the issue goes well beyond simple budgets. Austerity is about more than money. It’s about discipline.
“We need to start thinking about austerity as actually a project in which resources are actively shifted away from the working people in favor of shareholders, the saving, investing elite,” said Clara Mattei, a professor at the New School for Social Research in New York and author of “The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism.”
For Mattei, austerity is a method of pushing working people to work harder, which she says is the reason austerity budgets are rarely real economic calculations.
“If you actually wanted to balance the budget, what you would need to do is tax the wealthy,” she said. “But that is not part of the austerity agenda.”
It’s a dynamic that protesters in Argentina know all too well, and it’s become a driving force behind brewing discontent around the world as the austerity wave builds.
“This is a devastating reality for workers,” Belliboni said, noting that protests were growing as poverty and suffering increased across Argentina. “Our economy is entirely based on speculation, and this is a model that the IMF pushed.”
“Austerity is for the workers, not for the millionaires,” he added.
