The New “Left Tide” Sweeping Latin America Just Hit a Couple of Big Rocks

Peru continues to stumble from crisis to crisis, scandal to scandal, and president to president. In Argentina, one of the towering figures of Latin America’s political left, Cristina Fernández de Kirchner, just received a 6-year prison sentence.

Over the past couple of years, as regular readers are well aware, Latin America has seen a new wave of leftist leaders taking office. Following Brazil’s election of Luiz Inácio Lula da Silva, aka Lula, in November, all six of the region’s largest economies (Brazil, Mexico, Argentina, Chile, Colombia and Peru) have — for the first time ever — left-of-center coalitions in power. But it was not going to be all smooth sailing; a push back was inevitable. Lo behold, last week Latin America’s new “leftist tide” hit a couple of big rocks.

First, Peru’s President Pedro Castillo was toppled, imprisoned and replaced by his vice-president Dina Boluarte, all in the space of just a few hours. That was on Wednesday. The day before that, Argentina’s current Peronist Vice President and former two-term President Cristina Fernández de Kirchner (aka CFK) was sentenced to six years in prison on corruption charges and barred from holding public office in the future.

Let’s begin with the recent events in Peru.

Close to Ungovernable

Over the past two decades, Peru has stumbled from crisis to crisis, scandal to scandal, president to president. The country has burnt through six presidents in the past four years alone. Of its last 12 presidents (including Pedro Castillo):

• Two resigned from their post in disgrace (Pedro Kuczynksi and Manuel Merino, whose term in office lasted just five days)
• Two were impeached (Pedro Castillo and Martín Vizcaro Cornejo)
• Four were arrested (Alberto Fujimori, Alejandro Toledo, Allanto Humala and now Pedro Castillo). Fujimori, Toledo and Humalla have all served jail time for, among other things, corruption charges relating to the Odebrecht scandal.
• One committed suicide before having to face justice (Alan Garcia)

Given such a backdrop, the downfall of Castillo, a virtual political unknown before being elected to presidential office in June 2021, hardly came as a shock. It was the culmination of months of corruption allegations, infighting among his left-wing coalition, and multiple attempts by the right-wing opposition to criminalize him.

On Wednesday afternoon, Castillo was impeached by Congress with 101 votes in favor, six against, and ten abstentions. That was after Castillo, with zero support from the military or judiciary, had declared on national television that he was dissolving Congress. It was a preemptive act of total desperation, taken three hours before the start of a congressional session to debate and vote on a motion to dismiss Castillo for “permanent moral incapacity” due to corruption allegations. Castillo also announced the start of an “exceptional emergency government” and the convening of a Constituent Assembly within nine months.

Hours later, Castillo was arrested and taken to jail on a string of charges including sedition. His lawyer is now claiming Castillo was drugged before making the television address. It is the latest chapter in one of the most bizarre and short lived of internal coups, in a country that has witnessed more than its share of coups d’état. Since winning independence from Spain in 1821 Peru has seen no fewer than 18 coups d’état (19 if you include Pedro Castillo’s attempt), 14 of which were successful. Seven/eight of them have occurred since the 1940s.

Oligarchy Making Moves

A virtual political nobody before riding to power on a crest of popular anger at Peru’s hyper-corrupt establishment parties, Castillo was always an outsider in Lima. He had zero control over Congress and failed miserably to overcome rabid right-wing opposition to his government. Even in his first year in office Castillo faced two impeachment attempts. As Manolo De Los Santos writes in People’s Dispatch, the political and business elite could never accept that a former schoolteacher and farmer from the high Andean plains could become president:

The oligarchic rulers of Peru could never accept that a rural schoolteacher and peasant leader could be brought into office by millions of poor, Black, and Indigenous people who saw their hope for a better future in Castillo. However, in the face of these attacks, Castillo became more and more distanced from his political base. Castillo formed four different cabinets to appease the business sectors, each time conceding to right-wing demands to remove leftist ministers who challenged the status quo.

In his last months in office, rather than mobilizing the peasant and Indigenous movements that had swept him into power, Castillo appealed for assistance from the Washington-based Organization of American States, which had played a major role in the removal of Bolivian President Evo Morales in 2019. By the end, an almost totally isolated Castillo was abandoned by his own vice-president as well as much of his own party.

German Connection

The concerted efforts to topple Castillo’s government were allegedly not entirely home grown. In February the weekly newspaper ‘Hildebrandt en sus trece’ reported that several opposition lawmakers, including the president of Congress María del Carmen Alva, had met with representatives of the Friedrich Neumann Foundation for Freedom (FNF), a German foundation for (neo)liberal politics, to discuss ways of modifying the constitution to expedite the removal of Castillo from office.

The FNF had supported the scandal-tarnished right-wing populist Keiko Fujimori and her party Popular Force in the 2021 general election. The group financed the travel costs of Venezuelan opposition leader Leopoldo López to visit Peru in support of Fujimori. It also sponsored right-wing groups that planned to remove Castillo from office, which they have now finally achieved.

Castillo’s replacement, Dina Boluarte, originally planned to see through the rest of the Castillo government’s term, until 2026. But as tensions in the country have risen, she has brought the elections forward to April 2024. For the moment there is no end in sight for Peru’s political crisis and a heck of a lot can happen between now and then.

In the impoverished regions of the north and south of the country support remains strong for Castillo, who by now is little more than a symbol of the widespread public disenchantment with Peru’s political establishment. In his last weeks in office, two-thirds of the public may have disapproved of Castillo’s government, but Peru’s Congress enjoys even lower levels of public approval (27%).

Widespread protests have already begun against Castillo’s removal. The inevitable crackdown from Lima has so far cost the lives of two protesters.

As the veteran journalist César Hildebrandt notes, what brought Castillo to the presidential palace in the first place was the establishment’s obstinate support for mafia-style neoliberalism, which has lost all legitimacy among the voting public. If they continue along the same path, “they will soon see the emergence of another Castillo”.

A Big Blow in Argentina

Latin America’s new wave of leftist governments hit an even bigger rock in Argentina. Last Tuesday,  one of the country’s most prominent politicians, Cristina Fernández de Kirchner (aka CFK) was sentenced to six years in prison. CFK is unlikely to have to serve that sentence since her currenct government roles as both vice president and head of the Senate grant her immunity. But if the verdict against her is upheld on appeal, she will be banned from ever holding public office again. And that, according to CFK and her allies, is the ultimate goal.

CFK has dominated Argentina’s political landscape for decades, first as a senator, then as first lady, then as president and currently as vice president. She and her late husband, former President Nestor Kirchner, are perhaps best known at home and abroad for famously saying “basta ya” (enough already) to the IMF in a rare act of defiance against the Washington-based institution.

As Mark Weisbrot reported in a 2010 article for The Guardian, the IMF had played an instrumental role in bringing about Argentina’s devastating economic collapse in 2001-2 “by supporting, among other bad policies, an overvalued exchange rate with ever-increasing indebtedness at rising interest rates.” When the crisis hit, the IMF was nowhere to be seen:

[W]hen Argentina’s economy inevitably collapsed, the IMF offered no help, just a series of conditions that would impede the economy’s recovery.

The IMF was trying to get a better deal for the foreign creditor. Kirchner rightly refused its conditions, and the IMF refused to roll over Argentina’s debt.

In September of 2003, the battle came to a head when Kirchner temporarily defaulted to the IMF rather than accept its conditions. This was an extraordinarily gutsy move – no middle-income country had ever defaulted to the IMF; only a handful of failed or pariah states like Iraq or Congo. That’s because the IMF was seen as having the power to cut off even trade credits to a country that defaulted to them.

No one knew for sure what would happen. But the IMF backed down and rolled over the loans.

The overwhelming majority of bondholders eventually agreed to write down Argentina’s debt to a sum that realistically could be paid. In 2005, the Kirchner government paid the final instalment of Argentina’s renegotiated debt with the IMF. From that moment on, Argentina was able to operate much more independently.

In 2007, Nestor’s wife, Cristina, took over the reins as president. The economy was growing again, helped along by the global commodities boom and China’s growing investments in Latin America. Poverty, unemployment and inequality all fell sharply during this period. Government debt as a proportion of GDP also plunged, for a while at least.

It began to rise again, albeit gradually, in 2012. And then it exploded by an eye-watering 30 percentage points in 2018 alone, from 57% of GDP to 87%. The cause? A $57 billion loan from the IMF, the largest ever in the fund’s history. The loan was requested by Kirchner’s presidential successor and long-time rival, Mauricio Macri, and it placed Argentina once again under the yolk of the IMF’s structural conditions.

As Michael Hudson told the Left Out podcast at the time, in a conversation that was cross-posted here, the loan was a massive bailout, “not only [of] speculators, but [also] the domestic oligarchy of bondholders, landowners and corporate owners. The wealthy Argentinians who deal with foreign banks want to keep their money offshore, in currencies other than the peso. They realize that the game is over and that it’s time to take the money and run.”

Macri himself said in 2020 that the money was needed to “pay the commercial banks that wanted to leave because they feared that ‘Kirchnerismo’ was making a comeback.” Then when the banks and other bondholders received the money, they yanked it out of the country as quickly as they could, in direct contravention of the loan’s conditions. As happened in 2001, the IMF loan was used by foreign investors, including domestic bondholders, to transfer their money out of Argentina and get many more dollars than they would have without the loan.

An Economic Crime

In an opinion piece in December 2021 the Uruguayan journalist Victor Hugo Morales described Macri’s actions as an economic crime. Months earlier, criminal prosecutors representing the Argentinean State launched an investigation into whether Macri had indeed broken the law in securing the record loan from the IMF.

If course, the loan would never have been necessary it weren’t for the infamous 2014 ruling by US Judge Thomas Griesa in favor of hedge fund hold-outs like Paul Singer’s Elliott Management. Griesa ruled that the sovereign Republic of Argentina was in “contempt of court” and that its restructured debt repayments were illegal (more on that here and here), despite the fact that 99% of bondholders had agreed to the terms.

As Greg Palast reported at the time (h/t Joe Well), Obama could have intervened to stop vulture funds like Elliot Management from collecting on Argentina’s debt by invoking the US constitution’s “Separation of Powers” clause:

Under the principle known as “comity”, Obama only need inform US federal judge Thomas Griesa that Singer’s suit interferes with the president’s sole authority to conduct foreign policy.

He didn’t, of course. The inevitable result was a rapid sell off of Argentinean bonds and an equally rapid rise in the country’s bond yields. A new debt crisis ensued.

By late 2021 the investigation into Macri’s request for an IMF loan had stagnated and there were concerns that the statute of limitations would be invoked. But what if CFK was reelected and was to make the case against Macri & Co a priority? As I reported in my last piece on the race for lithium in Latin America, a Kirchner government would also probably have driven a much harder bargain for Argentina’s precious resources, including the huge gas reserves discovered at Vaca Muerta in Patagonia and the vast lithium deposits in the salt flats in the north of the country. That may have complicated Washington’s designs on Argentina’s gas and lithium.

Put simply, the last thing Macri, his constituents (i.e., Argentina’s business and financial elite) and Washington need is another Kirchner term. The IMF is also probably loath to have its historic loan agreement with Argentina put under the microscope.

Which is why CFK’s prosecution is damn convenient, especially coming less than a year before presidential elections. Recently leaked messages strongly suggest that Argentina’s corrupt judges and prosecutors conspired with the right-wing owners of the Clarín media empire and British billionaire Joe Lewis to launch a judicial coup against the vice president. And they have got what they wanted: CFK has announced she will not run for president, or any other kind of elected office, in the 2023 elections. If the verdict is upheld on appeal, she will be barred from public office for life.

The parallels with what happened to Brazil’s President Elect Luiz Inácio Lula da Silva in 2018 are striking. Lula was jailed on spurious charges of corruption during the lead up to the general elections, which he would almost certainly have won. An exposé by The Intercept revealed the extent to which the US Department of Justice had orchestrated the now-disgraced Operation Car Wash in Brazil, which led to the downfall of Dilma Rousseff’s government, the imprisonment of former President Lula, and the eventual election of far-right president Jair Bolsonaro.

This is not to say that Kirchner is not guilty of corrupt practices. In a country like Argentina (or just about any country, for that matter) one does not reach presidential office without getting one’s hands a little (or a lot) dirty. The problem is the selective application of justice. As traditional neoliberal parties are increasingly rejected at the ballot box, the political and business elite in Latin America are increasingly resorting to what has come to be known as “lawfare” — the use of a nation’s legal system and institutions to damage or delegitimize an opponent — to maintain their stranglehold over the political institutions.

We have already seen this play out in Brazil and Ecuador, and now it’s happened in Peru and Argentina. To paraphrase De Los Santos, the arrest of Castillo and prosecution of Kirchner are stark reminders that the ruling elites of Latin America will not concede any power without a bitter fight.