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 Argentine energy company.
But what interests us most in this instance 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 bump him up to finance minister and eventually central bank governor, all in the space of just three years. During that time, Caputo held more sway over Argentina’s economy than just about anybody else in a government position. 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).
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This is just more comprador elite looting.
A good read that I’ll recommend to anyone who want to know more about the current state of the Argentinian economy. I’d be good to hear from the author though about these following points:
– After decades of privatization and neoliberalism, is there any copper left in the walls to sell? What other resources, be it minerals, grains, cheap labor to even political influence does Argentina still have?
– Just how brutal and debased the Argentinian elites will go in order to fortify their holdings from the hands of an increasingly hungry mass? I know vaguely about the corporate-owned plantations-in-all-but-name in Argentina.
– Where in Europe do the Argetinian elites and their money settle in anyway? Is there any effort to integrate themselves to the local elites like what the Gulf sheiks have been doing?
YPF the oil company is a great candidate to be (re)privatized.
And almost certainly will be, along with its huge stake in Vaca Muerta, the world’s second largest shale gas reserves and the fourth largest shale oil reserves. Argentina also boasts the world’s second largest reserves of lithium, which both the US government and Southern Command have expressed a keen interest in:
https://www.youtube.com/watch?v=xmIUpvGg5F0
When oil-endowed Ecuador’s currency-the Sucre went a cropper around the turn of the century, we rather enthusiastically had them adopt the almighty buck as their country’s manna, but there doesn’t seem to be any impetus to get ‘r done in Argentina, and its something you’d want if you were the hegemon, another country yoked to the $, in particular an oil producing country, not to mention all the soybeans they’ve been undercutting our farmers on in selling to the Chinese.
…maybe Argentina is just too far gone?
If it is shale gas, does that mean it would have to be fracked to get it up and out? What hydro-geo-eco damage would that do? ( From a map I saw, at least it is not under some of Argentina’s best farmland and/or grazing land).
Milei promised to destroy Argentina and has begun to do so. He is a great president and a man of his word.
After reading through all the material in this excellent post, I am going to have to reach here for my tin foil cap and surmise something. Before the end of the decade I think that we will find that this whole thing was just a massive con job. That people like Javier Milei and Luis Caputo may have been swept into power on the back of popular support but it will be found that they are actually working on behalf of the elites – not only in Argentina but also the US as well. Look at Caputo’s history – JP Morgan Chase, Deutsche Bank. Does this sound like a man of the people? The elites will use Milei’s Presidency to do a massive wealth drain of the country and send it overseas and when he is finally done, Milei and Caputo will fly to Florida and buy up a mansion or two. Maybe right next door to Juan Guaidó. Meanwhile it will be the Argentinian people that will be on the hook for all those IMF loans and already the government is cracking down on any protests at all. The idea may be to turn the country into a libertarian paradise but the people themselves will recognize it because they have already lived under fascists governments in the past-
https://english.elpais.com/international/2023-12-15/javier-mileis-government-announces-plan-to-crack-down-on-argentina-protests.html
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.
If it were a murder mystery I’d have said nick gave away the perp in the first chapter…
The Argentine people will be on the hook for the loans…
Not necessarily. Many will just turn to the black or alternate economy. This is like the third or fourth go round for them of devaluation and inflation, higher taxes, and they’ve had it.
In the U.S. the equivalent will be simply refusing to file income tax forms. Since Americans will be mostly renters and living paycheck to paycheck, what can the IRS seize? Make sure to buy your Christmas presents with cash, or give cash, instead of gift cards.
” That people like Javier Milei and Luis Caputo may have been swept into power on the back of popular support but it will be found that they are actually working on behalf of the elites”
And this pattern is going to be repeated throughout the West and its satelites. Look at Wilders in the Nederlands. Its the obvious rhing to do.
Wow just wow. And Trump apparently thinks Milei is great and called to congratulate him. Will he too exploit disgust with his predecessor to make radical changes?
Still, Argentina does have a legislature. Weren’t they supposed to put the brakes on Milei?
Well, it goes to show that re-electing Trump would pose certain social and economic risks of their own. They may be worth facing and bearing in order to punish the DemParty for several decades of bad actions.
But lets don’t pretend they aren’t there and aren’t real.
I’m going to be in Buenos Aires from December 24th to January 2nd, so I’ll have a front row seat to the some of the breakdown. But of course I’ll be in the tourist section of town. I’m traveling there because my son is doing a 3 week vacation in Argentina and has plans to stay there until January 16th, with his new girlfriend, who he’s trying to get interested in traveling. Hooboy!!
Of course the new government has a plan to crack down on protests that will really escalate the outrage and violence
https://english.elpais.com/international/2023-12-15/javier-mileis-government-announces-plan-to-crack-down-on-argentina-protests.html
Do keep us informed, but keep yourself extra safe. Speak in ‘code,’ if you know what I mean.
Won’t the city be mostly empty that week because of the holidays? Thinking of maybe hitting the beach?
Whatever happened to his super exciting plan to burn down the central bank, ditch the peso, and adopt the dollar?
He meant the Argentine central bank. / ;)
Out of the frying pan, into the fire.
Yes, sorry about that. I was referring to Milie who was quoted as saying that the abolition of Argentine central bank was “non-negotiable”.
I believe Milie mentioned another non-negotiable, “Las Malvinas” (the Falkland Islands).
Who is Caputo?
Milei’s “right-hand man” might have some trouble with his Russian colleagues.
Just to note, this comment, whatever its merits, refers to Santiago Caputo, chief publicist for Milei, while N. Corbishley’s post refers to Luís Caputo, Minister of Economy.
Sounds like Argentina’s switch to the US dollar means JPMorgan and Deutsche bank will be running the Argentine economy. The neoliberal Chicago boys must love that. Somewhere, Milton Friedman is smiling. / sheesh.
adding: imo, the IMF loves outcomes like Argentina’s. The IMF goes around the world looking for countries to: 1. indebt, 2. loot of public properties, public wealth, and public infrastructures as debt repayment. Too cynical?
This was very informative, thank you. I had figured Millei would have to jettison most if not all of his program, but didn’t realise he was going to abandon it immediately. He seems to have gone even beyond Trump in terms of collaboration with the establishment he condemns.
Thank you, Nick, for this excellent recap of Argentina’s sad recent history.
On a different subject: Venezuela. I live in Denver, where we now have perhaps 30,000 people recently arrived from Venezuela, thanks partly to actions of the State of Texas. I’d like to understand the roots and development of this situation, and I’m looking at material on the history of US and other sanctions on Venezuela. The ‘crisis in Venezuela’ seems to have begun with the election of Hugo Chavez. Is there any chance that you might employ your expertise to elucidate this history and point me, and perhaps others, to the most credible material? I suspect that the long-standing structure of US-Venezuela relations is fundamental.
I second that!
Keith,
Here are links to a couple of reasonably balanced English-language articles on Venezuela’s economic crisis, particularly the role of US sanctions:
https://korbel.du.edu/regional-studies/news-events/all-articles/how-sanctions-contributed-venezuelas-economic-collapse
https://venezuelanalysis.com/analysis/how-us-sanctions-are-a-tpol-of-war-the-case-of-venezuela/
Declassified UK has done a pretty good job of documenting UK meddling in Venezuela and the wider region:
https://www.declassifieduk.org/tag/venezuela/
In the first week of the new government, the Argentine peso was devalued 54% against the dollar. In two price adjustments, the price of gasoline increased 64%. Caputo himself has said that inflation is now running at 1% per day.
It will never stop being amazing to see turkeys voting for Thanksgiving.
And voting is mandatory in Argentina. It’s not like this is just a fraction of the population like in the US.
Why is the visage of Thatchers first cabinet meetings, were she holds aloft Hayek’s Canon, and authoritatively states this is – OUR[tm] – road map to the future doing laps around in my head …
Reminiscent of someone that says anything to get the job, then once past the post and sitting down at the previous persons computer looks all their old files, tweaks them a little bit and calls them their own …
Because the real boss is found on DC’s 19th street, and this guy is just another hand puppet.
Hello friends! It’s the first time that I post in the blog, but I’m a usual reader. Congratulations Yves!!
I’m Javier from Argentina. I live in a small city within the country (that it’s now in state of alert due to the rise of Parana’s river). In addendum to the situation of the possible flood on our city (I keep my fingers crossed for that not to happen), we now have the Milei Era. It’s the first time in my adult life that I see this level of price increases (I’m 43yrs and was very young in ’89) and it’s certainly frightening.
We come from several years of financial stress, but this seems way worse. Everyone that I talk with is absolutely terrifying of the times to come. I was working with my mother and sister in their travel agency, but the inflation made impossible to price anything with several months in advance (thus making impossible the organization and selling of tourist groups, which is the main activity of the agency). I worked for 11 years in a tech company as infrastructure engineer but decided to leave 2 years ago to make our agency grow, but all this make it impossible. Just yesterday I made up my mind to go seach for a tech remote job to see if I can avoid the general misery that will certainly reach all my surroundings. Wish me luck!
I am so so sorry about your situation and yes, I do wish you luck.
Argentine political scientist here, long time reader, first time posting.
I wont dispute the main points of Nick’s column regarding Mr. Caputo, however I feel some additional context is in order. Reading this leaves the impression that all our woes are a result of the supposedly “neoliberal” Macri government, which is far from correct. No mention is made for example, that both Macri and Milei inherited sizable inflationary “bombs” which were deliberately left behind by their predecessors.
Inflation in Argentina is largely driven by insufficiently funded public spending, which leads the government to use the central bank to finance the treasury (and crowd out the private sector from the financial system – you can google up central bank “leliqs” and how they are used to get an idea of how this works).
The Sergio Massa government (he was economy minister, but for the last year or so he has de facto been the president in all but name) now spent close to 1,5% of GDP in extra public spending as a way of campaigning (we call this “plan platita”, basically flush the economy with cash short term to give people the illusion of increased wealth in the run up to elections). But this creates an inflationary inertia which will be felt for some time.
That bailout you mention of the largest importers is a case in point: the outgoing Massa government basically sold importers future dollars at a low official price that everyone knew to be fictional, ie severely underpriced, knowing that the next administration would have to deal with it. The importers who took that bait are not innocent for sure, but the peronist government enabled that. Cristina Kirchner did something similar to Macri, google up on “dólar futuro” if you want.
I am cautiously optimistic in the sense that, for all the handwringing about Mileis supposed extremism, he is showing an unexpected degree of pragmatism. I thinkndollarization is a terrible idea, and I am glad it is off t the table for now, rethoric notwhistanding. The fact that he is including members of the much hated political “caste” in his government is not necessarily a bad thing, if he does not form coalitions with other political forces his government will quickly grind to a standstill and collapse.
Unlike Trump, who took over a major established political party, he basically campaigned on his charisma. But being in the minority in Congress, and with little to no party structure in the provinces, there simply is no other way to govern for now.
> Argentine political scientist here, long time reader, first time posting
I’m glad you’re here to give some on-the-ground perspective.
I wonder if you could comment on Argentina’s history and social structure as described in the following link:
https://www.gatewaytosouthamerica-newsblog.com/in-argentina-the-upper-class-dominated-rural-land-ownership/
What do the elite think? Does the above link describe them accurately?
You literally do not understand the very basics of economics. You still are parroting the old and busted “government spending = inflation” , it feels like you are more of an Milei shill than an actual ‘political scientist’. The entire Milei campaign is based on these economic myths.
Literally just read Michael Hudson so you can stop being this embarrassing.
The MAIN issue of Argentina is its FOREIGN DEBT, even Milei has admited that ,AND EVEN HE has in an interview BLAMED Caputo for that. The entire Milei plan is just yet another austerity package to pay the IMF, literally the same thing that has happened all over the world over and over again.
I’d say it used to be historically accurate, but not anymore. All these landed families may still be elites in the sense they have money, but most of them dont have any political power anymore.
The fertile lands of the argentine territory were originally divided among some +200 families or so, iirc. But the largest estates have long been broken up between descendants over the course of generations. A lot of their palaces, including some mentioned in that article, are now embassies, museums or ministries.
The economic analysis presented there looks dated, cattle ranching is not the moneymaker it used to be. Not sure exactly when it changed, must have been with the increasing tecnification of agriculture in the 90s or early 00s, and the changing profile of international commodities demand brought on by the rise of China, but here I am speculating (This is not a subject I follow very closely, my area of expertise is rather international security).
Especially after price and export controls on meat were introduced from 2006 onwards, cattle ranching stagnated and was displaced to more peripheral areas of lesser productivity, being replaced by cash crops like soybean.
The days of exorbitant rents are long past, most of the agricultural rent (I’d say between 70% and 85%, it varies over time) is captured by the state through different tax schemes, and through the chronic undervaluing of the official exchange rate, at which the exports have to be sold. If the landed elite had any real political power, this would not be so.
This was supposed to be a reply to Lamberts question.
Check a list of argentinian multimillionaires, and you will find the first spots are occupied by industrialists and constructors (Rocca, Perez Companc), pharma (Roemmers), energy (Bulgheroni), real estate (Costantini), technology (Galperin), some combination thereof (Eurnekian). The only big names from agribusiness i can come up with off the top of my head are Grobocopatel (Los Grobo) and Uribelarrea (MSU holdings).