Monday, February 12, 2007

A note on Argentina, its crisis and the theory of exchange rate determination

A note on Argentina, its crisis and the theory of exchange rate determination
Mariano Féliz (CEIL-PIETTE / CONICET, Department of Economics / National University of La Plata, Department of Sociology and Department of Economics / National University of La Plata) *

(Este artículo ha sido publicado en el Review of Radical Political Economics 2007; 39, pp. 80-99.

Documento en formato PDF

“The rate of profit does not fall because labor becomes less productive, but because it becomes more productive”, Marx (Capital, volume III, section XIV).

1. Introduction
Why did capital accumulation falter in Argentina during the nineties even though the country was the IMF's most brilliant student? Why did Argentina crash even though capital's ability to exploit labor improved in an unprecedented scale? Why did it stumble even though global capital had in Argentina more than a fertile ground for its reproduction? These are questions that many scholars have tried to answer with little success. In general, the blame is placed on the State for failing to push reforms far enough or, on the contrary, for being too interventionist. However, it is clear that Argentina’s capitalist State did more than its fair share in order to warrant the expanded reproduction of capital. It pushed through neoliberal reforms far deeper than in most countries. It intervened, there’s no doubt about it, but to let capital take full control of society and not to displace it.
In this note we will try to provide an alternative explanation to the crisis of capital in Argentina. We will explain how the crisis was not the result of Argentina's lack of success in applying the so-called Structural Reforms. We will try to show that the Argentina's crisis was the result of the contradictory character of capital's strategy to control Argentina's labor class. This strategy had as its main weapon the Convertibility Plan that included the convertibility of the currency, the opening of the current and capital accounts of the balance of payments and the deregulation of the labor market, amongst others (see Carassai, 1998). We will show that this strategy was successful in its objective of increasing the exploitation of labor by capital. However, capital’s success would become the reason for its own failure since it would create the preconditions for its crisis.
In the following section we will discuss the reasons for the implementation of the Convertibility regime and the presumed evolution of the key macroeconomic variables. We will show that most analysts used the same basic theoretical framework when discussing the Convertibility’s future evolution. In section 3 we will comment on the assumed over-valuation of Argentina’s peso, which was seen as one of the main faults of the Convertibility. We will also provide an alternative evaluation of the exchange rate policy. Instead of following a pragmatic approach (such as determinants approach) we will work with a Marxian approach (following Anwar Shaikh’s work). In section 4 we will discuss the implications of such a framework for the evaluation of capital’s accumulation in Argentina during the nineties as well as for the understanding of the crisis of valorization of capital. We will show that the crisis of the Convertibility was the crisis of capital and was not a sign of its failure but of its success in restructuring Argentina’s productive organization. In section 5 we present the main conclusions.

2. Convertibility, overvaluation and capitalist strategy
One of the key instruments for capital's success in controlling labor in the nineties was the overvaluation of the peso. The combined strategy of fixing the exchange rate of the peso to the U.S. dollar while establishing the dollar-convertibility of the domestic currency and completely eliminating restrictions on current and capital account transactions, what was commonly known as the Convertibility Plan, induced an important appreciation of Argentina's peso.
This policy not only increased the value of the domestic currency but also precluded the monetization of the labor conflict through inflation. Now any wage concessions by firms would have to be absorbed by profits or by increased productivity. While overvaluation of the currency put at risk many individual capitals (especially, small enterprises) it was on the interest of capital as a whole to restructure and gain greater control of the labor process and the reproduction of society. During the eighties, high inflation was an important expression of class struggle (Bonnet, 2004). Capital, being unable to control labor’s demands for wage indexation and facing serious difficulties in sustaining its hegemony over society, used its control over prices to translate this conflict to society as a whole. In the meantime, Argentina’s economy suffered a violent and regressive productive reestructuration (Aspiazu and Notcheff, 1994). Within this process, which relied on capital’s concentration (Basualdo, 2000) and ever-higher inflation rates, capital looked forward to regain control over labor . The Convertibility Plan was thus a means for the consolidation of capital’s rule and not just the beginning of some new process (Féliz, 2004, Féliz and Pérez, 2004). The plan allowed for the consolidation of capital’s hegemony but satisfying, at least in the short run, the interests of productive capital and financial capital (Basualdo, 2000). While the Convertibility Plan gave productive capital (in particular, concentrated capital) greater control over the direct exploitation of labor-power as it allowed capital to restructure labor processes, to find new places/spaces for valorization and reduce the value of labor-power, it also gave financial capital the stability it needed to be able to obtain important short run profits implied by high real domestic interest rates and a massive external public debt .
Although the Convertibility Plan was mainly an instrument of capital most mainstream economist saw it mainly as a means to put an end to rampant inflation and economic inefficiency (Galiani, Heymann and Tommasi, 2003). As a means of economic policy, the Convertibility was analyzed as basically a neutral, even benevolent institution. After years of high inflation and especially after the hyperinflationary shocks of 1989 and 1990, labor gave in and accepted the convertibility of the currency and the whole set of Structural Reforms (the Convertibility Plan) as a need medicine for Argentina's “illness”. The subsequent decomposition of labor meant the reduction in its power to counter or oppose market reforms. For many years to come neo-liberal economic policies became something technical and not political; thus policies could not be rejected on “political” grounds. Capital had re-established its hegemony over society by turning economic policy into a non-political issue (Barbeito y Lo Vuolo, 1998).
As we stated, one of the most common critiques to the Convertibility Plan was that although it had allowed for the reduction of inflation, the real exchange rate established at the beginning of the Plan was too low for its inter-temporal sustainability (amongst many others see Canitrot, 1995, Fanelli, 1998; Feldstein, 2002; Perry and Servén, 2002; Calvo and Talvi, 2002; Alberola, López and Servén, 2004). The most widely cited sign of over-valuation of the peso was Argentina's growing current account deficit (Mayo, 1998). In fact, during the nineties the current account deficit was 2,6% of GDP on average, peaking at 4,3% in 1998.
According the neo-liberal economists (from the political right) if market forces were allowed to work by themselves domestic currency over-valuation would be corrected (Buscaglia, 2001; Powell, 2002; de la Torre, Levy Yeyati and Schmukler, 2002). The lack of competitiveness of national producers would force them to reduce their prices or go bankrupt. If they managed to reduce their prices this would be the result of higher productivity and/or reduced costs. In this conception, the State should not intervene within the market but had much to do in helping firms reduce their costs, especially by reducing the direct as well as the indirect cost of labor (Gerchunoff and Machinea, 1995). During the nineties, several steps were taken in this direction. Not only were most economic activities deregulated, but also the State took serious steps to reduce the cost of firms, in particular labor costs. De-regulation of the labor market was impressive and reduction of taxes on the use of labor force was important (Battistini, Deledicque and Féliz, 2002; Pérez, 2001). Besides, the State to several steps to generate new markets for private-capitalist businesses, in particular the privatization of State-firms and the creation of mandatory Pension Funds. As an alternative/complementary proposal, neo-liberal economists sustained that a reduction in public expenditure could be helpful in the process of price deflation (Gerchunoff and Machinea, 1995).
While most critical (left o progressive) economists in Argentina disagreed with the idea that market forces would revert by itself the over-valuation of the currency, in any case most of them thought that it could not be done without an important increase in labor productivity in export and import-competing industries which would require active State intervention (Lascano, 2001; Gerchunoff and Machinea, op.cit.; Diamand and Notcheff, 1999). Besides, they believed that this could not be done without a very high cost in terms of output and unemployment of the labor force since prices would not be flexible enough to regain competitiveness through within the framework of currency convertibility (Gerchunoff and Machinea, op.cit.: 61 ). However, as we will see, although the prognosis was good (market forces would not work on its own) we believe that their framework of analysis was somewhat flawed for they sustained the belief that, even within the Convertibility, with higher productivity the probability of collapse of Argentina’s economy could be greatly reduced if not eliminated (Diamand and Notcheff, op.cit.: 36).
To everyone’s regret as we shall see, although labor productivity grew at an outstanding rate and while the GDP grew faster than in many decades, in the end the economy stumbled, falling into its deepest crisis since the thirties. In our opinion, it was not the lack of success in adjusting but the contrary that caused the crisis.

3. On the international value of the peso
As we said, the main criticism to Argentina’s economy policy for both the mainstream and its critics was that the peso was over-valued as could be judged by the persistent current account deficit. But was the current account deficit the best sign of overvaluation of the currency? In any case, was the overvaluation of the peso a real problem for capital accumulation or would the restructuring of Argentina's capital and the weakening of labor as a class be enough to avoid the collapse of the scheme? To answer those questions we need an appropriate theory of the real exchange rate determination.
The real exchange rate (rer) can be defined as the ratio between the price level of foreign production to the price level of domestic production both expressed in a common currency. In algebraic terms:
Where p* is the foreign price index, p is the domestic price index and e is the nominal exchange rate (pesos per dollar). That is, when the rer is low the value of the domestic currency (in our case, the Peso) is high in comparison with the dollar.
A common way to calculate the rer is to take as a proxy of the relevant price index the producer price index or consumer price index of each country. In the case of Argentina, the real exchange rate has shown the following performance (Figure 1).


Since the evolution has been roughly the same in the long run for both estimations, from now on we will always refer to the real exchange rate adjusted by the producer price index (unless noted otherwise).
Many discussions on Argentina's rer presented as complementary evidence of overvaluation of the domestic currency the fact that during the nineties the measured rer was very low compared to its level in the eighties. In the case of our estimation, for example, the average level for the rer from 1991 to 2001 was 20,7% lower than in the period 1980-1989.
Another way of looking at the problem that was usually taken as an example of currency overvaluation was to present the level of nominal wages expressed in dollars.


An excessively high dollar wage level would thus imply an over-priced domestic currency. Again, Argentina's experience showed that the dollar value of the nominal wages jumped by 117% between the eighties and the ten years of convertibility (Figure 2). This last fact, the excessive level of dollar-wages, was the most commonly used argument for the promotion of labor market de-regulation. According to this point of view, labor costs where too high in dollar terms and had to be reduced by direct State intervention (through de-regulation) or would be reduced by the invisible hand of the market (i.e., the pressure of growing unemployment).
In any case, however persuasive the previous data might be it is not possible to define the over-valuation of the currency unless we can show what the right level for the rer should have been. That is, we must compare the actual rer with the fundamental or equilibrium rer.
The neo-classical theory states that the equilibrium rer should reflect the evolution of some fundamental variables. These variables may include the relative money supply, the stock of debt, the level of public deficit, the level of productivity, etc., depending on the theoretical model (Harvey, 2001). However, the neo-classical exchange rate theory is severely flawed as its basic assumptions (such as the so-called Purchasing Power Parity theorem or the Full Employment assumption) have been shown not to hold (Harvey, 2001, Shaikh, 1999).
In contrast with neo-classical rer theory, recent developments from within the Marxist tradition provide a promising approach. In this line of work (developed mainly by Anwar Shaikh, 2002, 1999), the real exchange rate is expected to move (tendentially) to warrant that profit rates are equalized in the regulating capitals across industries worldwide. That is, the common-currency relative price of two set of tradable goods will tend to follow the best-practice vertically-integrated unit labor costs of these same bundles of tradable goods expressed in common-currency ( and ) (Shaikh, 2002).
As noted above, the real exchange rate can be defined as , the common-currency relative price of the two sets of tradable goods. International competition will force the relative price of tradable goods, ie. the real exchange rate, to follow the ratio between vertically-integrated real unit labor costs. If we assume that there is some bundle of tradable consumer goods whose international prices ( and ) are roughly equalized across countries and letting and be the general prices of consumer goods in both countries (comprising both tradable and non-tradable goods), then we can define the real best-practice vertically integrated unit labor costs as and letting , following Shaikh (2002) we can state that:
(2) This implies, in conclusion, that the relative international price of tradable goods in the two countries – which is the tradable-goods real exchange rate between them – will be regulated by the real labor costs of the regulating capitals of those commodity bundles ( ), adjusted for the tradable/non-tradable content (openness) of the consumption bundle (Shaikh, 2002).
According to this, if real hourly wages fall or hourly labor productivity increases, unit labor costs would fall thus increasing (cæteris paribus) capital's profitability. This increase in profitability in regulating capital would tend to induce increase their supply of commodities, which in turn would tend to reduce prices so that the profit rates in regulating capitals across industries will tend to equalize. That is, the reduction in one country's real unit labor costs would tend to increase its rer (thus depreciating its currency) by reducing the relevant price level within that country, other things being equal (Shaikh, 1999). In other terms, the reduction in the real unit labor costs implies an increase in the relationship between surplus and necessary labor, or a higher rate of exploitation.
It is important to highlight that within this framework a current account deficit would be sustainable in as much as the valorization of capital is possible within an economy. Capital flows (be it as Foreign Direct Investment (FDI), loans, etc.) will finance capitalist production within a country as long as it is possible to obtain the regulating profit rates in its production. Besides, changes in the rer would not tend to solve the current account imbalances as the neo-classical models assumes. On the contrary, these imbalances will be persistent and will continue to be financed by short run capital flows (and/or direct transferences). The devaluation of the currency will not by itself correct the foreign payments’ imbalance. It will only do so in as much as devaluation is able to change real unit labor costs by reducing real hourly wages and/or increasing labor productivity and/or changing the relative price of tradable versus non-tradable commodities (Shaikh, 2002).
Within this framework, increased labor productivity and/or reduced real wages will increase competitiveness and by reducing nominal prices, will increase the measured real exchange rate. However, there’s something missing from Shaikh’s framework. He assumes that every country has some industries with some sort of absolute cost advantage and thus actually sets the international price of some commodities. However, peripheral countries such as Argentina might not have capitals able to set any of the international prices of the commodities it produces. Thus, for these countries one would have to expect that nominal price level be sticky downward. In that case, increased competitiveness (i.e., reduced real unit labor costs) by a country would tend to produce a general glut of commodities within the markets were the country's producers participate, inducing a generalized inability to realize the increased profits rates. On the contrary, higher surplus labor would not be realized as value (and thus as higher profits) unless there's market space for the sale of commodities. If prices do not fall and reduced relative real unit labor costs cannot be taken advantage of, relative excess production would result. In this situation, excess capital would tend to flow out of the country, turning into the most general expression of value (world money). The transformation of capital into world money would imply a tendency for the domestic currency to depreciate in nominal terms. Thus, in this case, the reduction in real unit labor costs (rulc*) would also result in the real depreciation of the currency although thought a more indirect way. This last situation doesn’t seem problematic in cases of floating exchange rates. In contrast, in the case of a country with an extremely rigid exchange rate regime (such as Argentina’s Convertibility) the adjustment process could become problematic. We will keep this in mind in the analysis that follows.

4. Argentina's real exchange rate and the crisis of capital
Following Shaikh's theoretical proposition for defining the long run, tendencial, real exchange rate (rulc*), we will estimate it for Argentina and use this estimation to analyze the development and crisis of capital accumulation in this country. We will work with data on industrial manufacturing productivity and wages since there is no adequate information for the economy as a whole.
However, we will include one minor modification so as to take into account the effect of one important fact: the steep reduction of the indirect cost of labor (taxes on labor) in particular during the nineties in Argentina (Pérez, op.cit.). In fact, what is important for capital is not just the direct real wage received by labor but the gross cost of hiring labor, which includes taxes on labor and other costs of using the labor-force. While the restructuring and general de-regulation of the labor market (higher unemployment and/or greater precariousness in labor contracts) should work its way into reduced real unit labor cost though increased labor productivity and/or the reductions in real wages, the reduction of taxes on the payroll should reduce these costs directly regardless of any other change. Since labor taxes are part of the price that capital has to pay for the use of the labor-force, changes in the payroll taxes will imply changes in rulc*, other things being equal.
In the case of Argentina, as we've mentioned, there was a very strong State intervention with regards to the reduction of payroll taxes. As it can be seen (Figure 3) payroll taxes, paid by the employer, fell from 38% of the nominal wage in 1990 to an average of 9.8% by 2001.


As a matter of fact, the reduction of labor taxes meant an important redistribution of resources. It is estimated that the State lost some 25000 million pesos (25000 million dollars, at the official exchange rate) or some 1,3% of GDP between 1993 and 1999 due to reduced income from taxes on the payroll (Pérez, 2002). Accordingly, in Argentina the real labor unit costs have fallen more than can be seen by the evolution of real wages and labor productivity alone.
While direct labor costs fell only slightly up until the mid-eighties due to labor's resistance to reductions in the real wage (but mainly due to their rejection of capital's imposition of higher productivity and thus higher exploitation) and very fast between 1985 and 1991 (as labor’s temporary defeat set in), in the nineties structural reforms produced an important increase on labor productivity while holding down real wages (Figure 4). Labor productivity was increased in several ways. Firstly, productivity was augmented through the introduction of newer technology in the form of imports of new machinery; while imports grew by almost 300% to more than 30000 million dollars (Mayo, 1998), the value of imported capital goods and spare parts for machinery rose from 25 percent of total imports in 1991 to 45 percent in 1998 (Halevi, 2002). Secondly, the changes in the labor processes implied the increasing intensity of labor though the reduction in lunch breaks, the introduction of multi-tasking by workers, etc. (Martínez, 1998; Battistini, Deledicque and Féliz, 2002); many of these changes were introduced in new Collective Bargaining Agreements but many were forced in directly by capitalists (Battistini, Deledicque and Féliz, op.cit.).


As a consequence, while the real exchange rate may have been low during the first years of the convertibility according to the rough estimate already mentioned (Figure 1), this surely changed rapidly. From the year 1991, the real unit labor costs in Argentina descended much faster than in the United States (Figure 5).
Between 1991 and 1997 Argentina’s real labor unit costs fell at an average 6,1% a year (7,7% including reductions in payroll taxes). Afterwards, the increasing difficulties by capital to continue to augment labor productivity, growing conflicts over the organization of social production (both within the factories and outside them) were only partially neutralized by the reduction in payroll taxes. As an average, after 1997 the real unit labor costs went down in Argentina at a 4% (6,4% with taxes) yearly rate (during the eighties the average yearly reduction was 4% and 3,8% without including labor taxes and including them, respectively).


Since in the United States the reduction on the real unit labor costs (in the manufacturing industry) was far smaller (at an average of just 2,4% a year since 1991), between 1991 and 2001 Argentina’s long run real exchange rate (rulc*) increase by 51,4% (from now on indications on rulc* will refer to the estimation including labor taxes, unless stated otherwise) (Figure 6) .


Therefore, contrary to what is usually believed the long run real exchange rate (as estimated from the evolution of relative real unit labor costs, rulc*) increased some 63,4% on average between the eighties and the nineties. In the nineties, a (precarious) triumph of capital, allowed it to engage in a full-blown attack on labor. After years of struggle, capital's reorganization and labor class decomposition gave place to a phase of deep social restructuring which allowed for the huge increase of the long run real exchange rate. Following Shaikh’s model, the steep increase in productivity and the direct reduction in labor costs in Argentina relative to the United States gave place to an important increase in capital’s potential profitability. However, as we have proposed, the absence of regulating capitals in Argentina precluded the reduction of prices and thus the increase in actual profitability (competitiveness).
While during the eighties the rulc* remained fairly stable, the actual rer was very high (the value of the Peso was extremely low). This was mainly due to the difficulty found by capital to control labor and reorganize production. As a matter of fact, during the eighties Argentina witnessed one great battle between capital and labor for the control of social production. The difficulties found by capital to control labor were apparent in its impossibility to stop labor's wage demands (directly within the factories or indirectly by means of State intervention). This difficulty reflected most openly in the process of capital flight that grew from 15000 million dollars to more than 43000 million dollars in the decade (Basualdo y Kulfas, 2000). Since capital could not get a grip on labor, it preferred to fly to (apparently) more quiet grounds. Besides, at a social level, during the eighties the debt crisis put an enormous strain on Argentina’s capital accumulation (gross fixed investment fell at a 1,7% yearly rate between 1984 and 1990; see Féliz y Pérez, 2004). Capital flight in a moment of relative dollar scarcity put great pressure on the foreign exchange markets. This process helps explain the extremely high exchange rate that predominated through the eighties.
In the nineties, on the contrary, capital's offensive was fed by millions of dollars in money-capital. The possibility of higher rates of exploitation and thus (potentially) higher profit rates lured financial capital into Argentina. Money-capital continued to enter Argentina in the light of lower(ing) relative real unit labor costs and thus growing expected profit rates. However, the regulation of money through the Convertibility entered in conflict with the need to actually realize surplus value.
While the relative real unit labor costs were being reduced in Argentina in relation to the United States, the long run real exchange rate (rulc*) was increasing to allow for the equalization of profit rates. However, the actual rer (as measured by ) would not increase fast enough. With the nominal exchange fixed by law, the pressure to adjust was put on nominal prices. With real unit labor costs falling, expected profit rates were increasing. Thus productive capacity and actual production also increased (between 1991 and 1997, real manufacturing production increased by 22,5%). Higher production would not be sold unless there was increased domestic and/or foreign effective demand. However, growing unemployment of the labor-force and falling household incomes limited domestic consumption demand while the fixed exchange rate and slow world-demand growth put a lid on foreign demand. In conclusion deflationary pressures begun to build up: by the year 1997, the annual variation of producer prices had reduced to just 0,1% (while, for example, they grew by 1,9% in the United States). From 1998 onwards, producer prices showed an outright reduction (-5,4% from 1998 to 2001). Falling domestic prices would allow for domestic capitals to increase their market share in world markets and thus realize their higher surplus value in higher profits.
But the deflation, which some mainstream economists expected to solve the problem, was extremely dangerous for the circuit of capital as a whole. While the nominal devaluation of the domestic currency would have allowed for the actual real exchange rate (rer) to keep up with the evolution of the rulc*, domestic price deflation could achieve the same objective but at the risk of stalling the process of expanded reproduction of capital. A growing pressure to reduce prices was a negative sign for investment (since it would be a signal of falling profitability) and thus for capital accumulation. Reduced prices meant an immediately reduced cash flow and thus greater difficulties to make room for debt payments . Cash flow problems would then translate to trouble for the financial system. Besides, increased exploitation at a countrywide scale meant a lower participation of labor on value added and a probable reduction on popular consumption that would act in feedback fashion to increase relative excess supply. In fact, the participation of wages in total value added dropped from 35,5% in 1991 to just over 27% in 1997 . To this, we might add the increasing pressure of competition by capital in Brazil (which had devalued its currency by late 1998) and latter the crisis in the so-called Asian Tigers and Russia. In this situation, capital pressured for greater reductions in real unit labor costs and asked for even lower taxes. While from the individual capital's point of view it would make sense to keep reducing unit costs, from the perspective of productive capital as a whole it would only add to the already excessive productive capacity.
In a nutshell, the growing difficulties for the expanded reproduction of capital expressed the contradiction between capital’s drive for accumulation together with its inner tendency to reduce the variable (value producing) part of capital; the mounting crisis was the actualization (the turning into an actual event) of the tendency for the profit rate to fall.
Besides, by 1998 the labor class had consolidated a new political composition that would allow it to confront capital with greater success. After more than a decade of defeats, labor had begun to confront in an organized manner capital's advances.
In the factories, labor productivity begun to stagnate after several years of pronounced increases. Labor productivity growth in manufacturing fell from an annual average of 5,7% between 1991 and 1997 to just 4% a year afterwards. This was showing the growing loss of momentum of the process of reforms in the midst of increasing social and political turmoil.
Outside capitalists’ enterprises, the labor class had begun to successfully resist neo-liberal reforms. Unemployed workers, State-employees, students, petty producers, small farmers, peasants, amongst others, where confronting the State in its attempts to help capital counter the growing crisis. While capital found greater difficulties to realize surplus value into actual profits, it demanded from the State a deepening in structural reforms. The struggle for the reduction in taxes and in public spending (particularly of wages and salaries of public sector’s employees) as well as for further reforms became the new battlefront. If profits could not be realized in the market, capital’s intent was to obtain then through direct transfers of value by the State, especially through income tax cuts and further reductions in payroll taxes. However, a growing public sector deficit (which reached 2,5% of GDP in 2000) and increasing difficulties to serve public debt (which by the year 2000 had reached 51% of GDP) where making increasingly difficult for the State to give capital a hand.
In the midst of growing difficulties to realize profits and deflation knocking at the door, with increasing social and political conflict, capital turned into its most liquid form, money-capital, and tried to fly out before it was too late. This changed the direction in the flows of capital as it accelerated the process of adjustment that was threatening to blow capital away. The story after this is well known: banking crisis, loss of reserves, financial troubles, etc. (see, for example, Mussa, 2002). Eventually, capital's dominant agents accepted that there was no alternative but to op-out of the convertibility of the currency. Thus, devaluation of the peso followed. In January 2002 the peso was allowed to float; from December 2001 to December 2003 the nominal peso value of the US dollar increased by 198%.
It is my understanding that capital took devaluation as the last available choice. Devaluation was a troublesome option since reestructuration had been financed mainly by a growing external (foreign currency denominated) debt. Accordingly, devaluation meant a huge redistribution of surplus value. Concentrated capital took a risky bet when it accepted getting rid of the convertible currency. Growing popular discontent meant that the effects (social, political and economic) of devaluation where uncertain; no one knew what the reaction of the workers would be to higher food and fuel prices, what the state’s margin was to absorb and socialize private’s sector external debt, etc. However, standing by the Convertibility was, at the moment, turning into a ticking bomb.
Devaluation has caused a further reduction in real wages (-15,95% from December 2001 to December 2003), increasing the rulc*. Most importantly, devaluation has generated a change in the measured rer, thus taking it closer to its tendencial level (rulc*). The measured real exchange rate has jumped by 122% between December 2001 and December 2003, more than offsetting the increase in the rulc* between 1991 and 2001 (51,4%).
I have stated the crisis was to be expected since the Convertibility regime created the preconditions for its own demise. However, does this mean that without the convertibility capital would have been able to avoid the crisis? I believe not, since the Convertibility Plan was precisely an integral, if contested, strategy of capital to counter the power of labor. This program of reforms was in fact very successful from capital's point of view since it allowed it to gain greater control over labor (by re-structuring most production processes). Besides, it gave capital the chance to appropriate of new spaces for the valorization of value (privatization of social security, privatization of natural resources, greater participation in the provision of health and educational services, privatized state-enterprises, etc.). As a result of this process, capital as a whole has not only increased the real subjection of labor, and thus of society, under its rule but it has also been able to increase the ratio of surplus to necessary labor. This expressed in increasing productivity of labor and correspondingly, as we showed, rising tendencial real exchange rate.

5. Conclusion
Argentina proved to be, during the nineties, the IMF’s most brilliant student. However, neoliberal reforms did not bring a prolonged period of stability and prosperity, but resulted in the deepest crisis in the country’s history.
However, the crisis was not due to capital’s failure to restructure and regain control over labor, though Washington’s Consensus class reforms. It was precisely its success that created the preconditions for its own demise.
Capital’s reestructuration increased productivity, created new spaces for the valorization of value (i.e., the expansion of surplus value) and disorganized traditional working class resistance. This process (re)created, nonetheless, the chronic limitations of dependent capitalism. While reestructuration allowed for an important increase in labor productivity and thus in potential surplus-value, the impossibility to translate such increases into lower prices and thus greater profits, created the preconditions for Argentina’s crisis.
The crisis was then not caused by the labor’s resistance (although it did play an important role in the events that took to the end of Convertibility) or by Argentina’s capitals lack of success in increasing its productivity (Bonnet, 2002), but on the contrary, it was precisely the result of capital’s tremendous success. In fact, after devaluation real wages fell significantly showing labor’s difficulties to confront capital in the new correlation of power.

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7. Figures

Figure 1. Real exchange rate. Argentina. Index numbers, 1991=100.

Source: Elaborated based on official data from the National Institute of Statistics and Census (INDEC) and Ministry of the Economy and Public Works of Argentina. Note: the real exchange rate was calculated as the nominal exchange rate (pesos per dollar) times the United States relevant price index (ppi: producer prices, cpi: consumer prices) divided by Argentina’s relevant prices index (idem).

Figure 2. Real hourly wages and dollar hourly wages. Argentina.

Source: Ministry of Labor and Social Security of Argentina.

Figure 3. Tax rate on the payroll. Argentina.

Source: Ministry of Labor and Social Security of Argentina.

Figure 4. Labor productivity and real wages. Argentina. Index number, 1991=100.

Source: Elaborated based on official data from the National Institute of Statistics and Census (INDEC) and Ministry of the Economy and Public Works of Argentina and FIEL (private foundation).

Figure 5. Real unit labor cost index. Argentina (vr) and United States (vr*). Index number, 1991=100.

Source: Elaborated based on official data from the National Institute of Statistics and Census (INDEC) and Ministry of the Economy and Public Works of Argentina and the Bureau of Labor Statistics of the United States. Note: in the case of Argentina, the labor cost is corrected for changes in payroll taxes. Note 2: vr and vr* are calculated as the real hourly wages divided by real hourly labor productivity for each country’s industry.

Figure 6. Real exchange rate (peso-dollar) and relative real unit labor cost (rulc*). Argentina. Index number, 1991=100.

Source: Elaborated based on official data from the National Institute of Statistics and Census (INDEC) and Ministry of the Economy and Public Works of Argentina and the Bureau of Labor Statistics of the United States. Note: the rulc* is calculated as vr* / vr. The real exchange rate, rer(ppi), is calculated as explained for figure 1.

Figure 7. Real exchange rate (peso-dollar), relative real unit labor cost (rulc*) and rulc* corrected by tradable/no tradable content of consumption basket. Argentina. Index number, 1991=100.

Source: Elaborated based on official data from the National Institute of Statistics and Census (INDEC) and Ministry of the Economy and Public Works of Argentina and the Bureau of Labor Statistics of the United States. Note: the rulc* is calculated as vr* / vr. The rulc* corrected by the tradable/no-tradable content of the consumption basket (corrected rulc*) was calculated as rulc* times / , where and are the ratios between the producer price index and the consumer price index for the United States and Argentina, respectively. The real exchange rate, rer(ppi), is calculated as explained for figure 1.