2. Argentina’s late arrival to the postwar international arena, 1955–1958

In September 1955, a military-civilian coup overthrew from power a Peronist populist government that had estranged Argentina from world financiers for a decade. Hereafter, the country began to undergo significant changes in its international financial relations. An incoming provisional government faced daunting challenges under the presidencies of Generals Eduardo Lonardi (September–November 1955) and Eugenio Aramburu (November 1955–May 1958). The earlier Peronist administration had confronted balance of payments problems, basic infrastructure deficits in electric power and transportation, and foreign exchange shortages, with local technical expertise and exchange inflows accruing from regular exports only. Strong nationalist and state interventionist policies, particularly the multiple exchange rate system, had failed. More importantly, they had discouraged significant external aid, the operations of foreign private investments, and additional flows to capitalize key sectors of the economy and help to overcome these bottlenecks.Footnote ⁴

Given the record of Peronism’s policies, and with some qualifications due to political constraints briefly discussed below, the provisional government meant to liberalize and deregulate the economy. They also intended to incorporate the country into the multilateral trade and payments system to end international financial isolation and foreign exchange shortages that provoked balance of payments crises and hobbled economic development. Argentina would join the IMF and the World Bank, resume relations with international bankers, and reach out to the U.S. and West European governments to tap their aid. All of them welcomed the intentions to dismantle state interventionism, abide by international “standard rules of the game” set up as from the Bretton Woods conference (Mc Kinnon, Reference Santiso1993, pp. 1–44), and establish less-regulated trade and financial relations with the world. However, despite their similar ideology, they also had specific goals and pre-determined conditions under which they would grant aid.

As a Fund member, Argentina would be eligible for economic stabilization support to meet foreign exchange shortfalls and short-term balance of payments problems.Footnote ⁵ Like all the member nations of the institution, and eventually with its technical assistance, Argentina should first compile and release consistent and trustworthy macroeconomic data for regular publication in the International Financial Statistics. IMF staff should also have full clearance to begin unconditional annual surveys of the economy known as Article IV consultations. Finally, the government should liberalize the economy, and abandon the multiple rates system that administered exchange shortages and currency convertibility problems since the early 1940s. As briefly discussed below (see pp. 7 and 11), with some caveats, this could be done either in one stroke or through a stage-by-stage approach.

The World Bank advocated that basic infrastructure in electric power, transportation, and roads—the flagship targets of its lending policies—was indispensable for sustained economic development. Loans were available for member-nations which respected foreign investors’ property rights, did not have pending foreign-debt settlements, followed consistent policies, and promoted private sector investments. This policy sought to preserve its prestige and credit standing for two reasons. Eugene Black, its president since 1949, was a former vice president of Chase Manhattan Bank of orthodox economic ideas who led a strong team of like-minded influential officials. Secondly, the institution needed to continue building up its sound development financing track record in U.S. capital markets, where it raised indispensable extra funding for loans that member nations’ contributions did not provide (Oliver, Reference Silenzi DE Stagni1995, pp. 39–41). Loan applications were processed through established and cumbersome bureaucratic procedures. Following the pioneer experience of bilateral relations with Colombia since the late 1940s, the World Bank’s preliminary and survey missions should prepare country studies and specific sector reports first. Based on their findings, staff would set a bilateral agenda, evaluate infrastructure and exchange financing needs, loan applications, and the board would make final decisions (International Bank for Reconstruction and Development, 1956, 1972; Alacevich, Reference Best2009; Mason and Asher, Reference Rabe1973, pp. 649–657; Oliver, Reference Silenzi DE Stagni1995).

Like the Bank, the U.S. government (i.e., the Treasury and the EXIMBANK) also insisted that prospective borrowing nations should liberalize their economies, respect private property rights, and reach fair settlements of private foreign companies’ claims. Good standing relations with the Bretton Woods institutions, and public policy continuity and credibility, were also indispensable. West European governments, in turn, expected fair agreements of unsolved claims affecting private companies that, in some cases, dragged on from the early 1940s. Additionally, they wanted to consolidate official debts originating in bilateral trade pacts of the 1930s and the 1940s, and deferred payments of indispensable imports of the earlier Peronist interlude.

Bankers were the last potential source of exchange financing. As “market gatekeepers” of the international financial centers, they issued bonds and negotiated loans on behalf of governments, and raised indispensable collateral banking finance to round off foreign economic stabilization and development aid.Footnote ⁶ However, this depended on Argentina’s “good standing” relations with the Washington-based lending institutions and government agencies.Footnote ⁷ IMF and World Bank loans negotiated under the stiff conditions discussed above should certify borrowing nations’ creditworthiness and the quality and reliability of their economic policies. Finally, West European bankers’ support was challenging because of current exchange controls and strict market access limitations in Britain, the modest reconstruction of West European capital markets, and Argentina’s lack of a recent track record in the postwar international arena.Footnote ⁸

In late 1955, the provisional government faced a key turning point. In order to tap foreign sources, officials had to apply credible, consistent, and distinct liberal economic policies. It was the only way to build a creditworthiness record, stabilize the economy and modernize and expand basic infrastructure with external aid. Such policies, their continuity and consistency, hinged upon sweeping and indispensable institutional reforms in state commercial banks, which played a key role in the national economy; the companies that monopolized public utility services; and the central bank. This entailed significant changes in exchange, fiscal, monetary and banking affairs. Argentina should also follow cumbersome bureaucratic procedures and meet the conditionality criteria to qualify for Fund and World Bank aid. Yet this was the only way to pursue, with adequate financing, an economic stabilization and development agenda, and to corroborate that the country abided by mainstream rules of international finance.

To carry out these plans, and show a break with Peronist policies and their determination to draw on knowledgeable expertise, at first Presidents Lonardi and Aramburu relied on the advisory role of Raúl Prebisch. He was the former and prestigious general manager of the Argentine central bank between 1935 and 1943. In 1955, he held the post of Executive Secretary of the Economic Commission for Latin America (Dosman, Reference Flandreau, Flores, Gaillard and Nieto-Parra2008, pp. 297–320). Foreign financiers attached great importance to his standing, role and recommendations. They also prized the appointment in key posts of economists and lawyers who had worked with him in the central bank and other government bodies until Peronism’s rise to power in the early 1940s, and of other professionals of similar liberal ideas.Footnote ⁹ They valued their earlier public service experience, their ideology and professional connections with the private sector, and their committal with the economic reforms that the government was planning. As soon as the new government assumed power, John Phillimore, an influential senior manager and partner of Baring Brothers closely related to the Buenos Aires establishment, welcomed the news that Prebisch and “the best available Argentine brains” would address the economic and reconstruction challenges that lay ahead.Footnote ¹⁰ In March 1956, Burke Knapp, the powerful chairman of the World Banks’s loan committee, noted Prebisch’s orthodox recommendations on monetary and exchange policies, the need of agricultural development to increase Argentina’s exportable surpluses, and his criticism of budgetary deficits, particularly those of state enterprises.Footnote ¹¹ In response to Prebisch’s requests, in 1956–1957, the IMF provided technical assistance to help the central bank to reorganize its research department and prepare the mandatory statistical information for the International Financial Statistics.

These officials shared most of the institutional mindset and policy goals of bankers, the Bretton Woods institutions, and the U.S. and West European governments. They therefore emerged as key “sympathetic domestic interlocutors” for the impending reforms.Footnote ¹² Internal political conflicts and the possibility of a social backlash against a strong reform program, however, undermined the scope of their policymaking influence. The government therefore pursued a moderate economic policy compared to the more orthodox recipes of international financiers. Adalbert Krieger Vasena’s appointment as Minister of Economy in late March 1957 consolidated this orientation as official policy.Footnote ¹³ The pace and timing of the political and ideological constraints which undermined the government’s opening and culminated with this decision have already been discussed elsewhere (Spinelli, Reference Spinelli2005; Belini, Reference Di Tella and Dornubsuch2018). But, their relevance and significance for our study may be summarized as follows.

The provisional government was a coalition of military officers and civilians who had personal political aspirations and had just agreed to prevent Peronism’s return to power in order to restore a “true” democracy in the country.Footnote ¹⁴ A strong imprint of nationalism and state intervention in the economy undermined the prospects of overhauling earlier policies.Footnote ¹⁵ Most public opinion, leaders of influential political parties in the ruling coalition, and sometimes key cabinet members, did not believe that substantial policy changes and settlements of foreign investors’ claims were needed.Footnote ¹⁶ If this was not enough, a stronger and more determined presidential leadership was necessary to make concrete and decisive breakthroughs. Thus, for the World Bank, as of mid-1957 the government had made decisions “only on matters which are economically or politically urgent and inescapable.”Footnote ¹⁷ Finally, the generation of liberals called for public service lacked enough power to implement reforms that would fully overturn earlier policymaking criteria.Footnote ¹⁸

Under these circumstances, which measures did the government manage to take during its first year and a half in office? A full liberalization under a unified par value rate was the Fund’s recipe for the exchange market, but not all member nations were able to comply with it.Footnote ¹⁹ In Argentina, it could become effective only when the authorities had stabilized the market and the balance of payments situation allowed the elimination of all trade and exchange restrictions. In October 1955, therefore, the “peso” was devalued and the multiple exchange rates system was abandoned. Until December 1958, Argentina had only an official market with a unitary rate agreed with the Fund; and a free market (see p. 11). In mid-1956, the first missions went to the United States and Western Europe to reestablish full relations and seek stabilization and development aid. Meanwhile, in Buenos Aires, officials took the first decisions to improve government finance and efficiency in state-owned public utilities such as the railways.Footnote ²⁰ They also began to tackle conflicts with foreign private companies, which clouded relations with world powers since the 1940s. They intended to demonstrate that private property rights would be respected hereafter and facilitate aid negotiations abroad.Footnote ²¹

In May 1956, Roberto Verrier, one of Prebisch’s former aides in the central bank, was sent to Paris as a special envoy to settle debts with West European countries and pave the way for Argentina’s incorporation into the postwar system of multilateral trade and payments.Footnote ²² A month later, he signed a preliminary agreement to repay them over a ten-year period, which laid the basis for a final settlement a year and a half later (see p. 9). Since then, an informal gathering which, due to its origins and procedures, was known as the “Paris Club,” dealt with Argentina’s foreign debt and trade issues with these countries.Footnote ²³

In mid-1956, the government sent to the United States a first delegation led by Carlos Coll Benegas, another former aid of Raúl Prebisch in the central bank.Footnote ²⁴ This mission was instructed to finalize Argentina’s entry into the Bretton Woods institutions, and explore the prospects of economic development and stabilization aid from these agencies, the U.S. government, and in the New York capital market. In Washington, they laboriously obtained a US$100 million loan from the US EXIMBANK to modernize the transport infrastructure, and particularly the railway network that was the main means to move exportable grain harvests to the main ports. They also finalized the paperwork whereby in September 1956 Argentina joined the IMF and the World Bank. Mission members and Coll Benegas, however, soon realized that their earlier wishful thinking and overoptimistic assumptions that foreign financiers would generously support Argentina’s opening without strings were unwarranted. Hence, on their return to Buenos Aires, they reported their conclusions to the authorities.Footnote ²⁵

Strict and long World Bank bureaucratic procedures did not match with the immediate financial urgencies and the need to legitimize liberal ideas in borrowing nations that intended to abandon state intervention in the economy.Footnote ²⁶ As mentioned above, the institution also expected prompt and fair solutions to foreign investors’ pending claims against Argentina.Footnote ²⁷ But, due to their complexity and political constraints discussed above, at times, the authorities could not even hold meaningful negotiations to meet this demand. The IMF was just beginning to familiarize itself with Argentina’s macroeconomic situation. Therefore, management and staff met informally with the Argentine delegation for two purposes. They wanted to update themselves with recent developments in Buenos Aires, and begin to remedy macroeconomic data gaps and failings that technical missions would tackle later.Footnote ²⁸ U.S. bankers would risk neither their “reputation” nor the “brand value” of their services. In their view, Argentina was a potential customer lacking a recent credit history, strong domestic institutions, and a proven record of “sound” policies and creditworthiness which only IMF and World Bank loans could certify.Footnote ²⁹ Finally, the IMF and the U.S. government expected West European creditors to share the burden of helping Argentina to obtain U.S. dollars to alleviate balance of payments and debt repayment problems. Thus, in August 1956 they demanded that exchange accruing from European banking loans and Argentine exports should be convertible into U.S. dollars.Footnote ³⁰

In 1957, the provisional government also had to content itself with a mixed record of achievements. In November, a banking reform dismantled a hitherto state-dominated system, sanctioned new charters to overhaul the central bank, the main state banks, and streamlined their balance sheets.Footnote ³¹ This initiative sought to institutionalize more efficient and professionalized state entities and a more market-oriented banking system. It restricted central bank financing to the treasury’s fiscal deficit and its seasonal shortfalls. It also partially restored the independence to formulate and apply monetary and credit policies that the central bank had until Peronism’s rise to power.Footnote ³² After almost a year and a half of complex negotiations which followed Verrier’s mission of mid-1956 (see p. 7), in November 1957 the government also reached a final agreement to repay pending debts to West European creditors.Footnote ³³

The first Fund missions sent to Buenos Aires to compile the information for the International Financial Statistics reported that the government had not kept basic banking, monetary, and government financial data since the late 1940s.Footnote ³⁴ The earlier Peronist administration had also considered this information a national security secret.Footnote ³⁵ Hence, at first, it was difficult to ensure that central bank bureaucrats would abandon this criterion and cooperate with later missions.Footnote ³⁶ Ultimately, the staff completed their technical assistance work, and in June 1958 the Fund began to publish fairly comprehensive statistical information on Argentina. On the other hand, continuing difficulties in loan talks with U.S. bankers, the IMF and the World Bank overshadowed these breakthroughs.

Full access to Fund economic stabilization aid remained as Argentina’s acrimonious bone of contention with the institution. This controversy emerged after the Suez Canal crisis of 1956. It was due to a precarious balance of payments situation originating in a fall in foreign exchange accruing from traditional exports, and higher prices in imported oil and its freight rates. Argentina’s situation called for upper “tranche” disbursements subject to the conditionality criteria mentioned above (see pp. 3–4). But the government did not submit a consistent program to qualify for them. In April 1957, therefore, the Fund just authorized a US$ 75 million withdrawal of the “gold tranche” of Argentina’s drawing rights in the institution to shore up the international reserves of the central bank.

Stiff requirements mentioned above also continued to undercut Argentina’s search for prompt World Bank loans (see p. 4). In late August 1957, Burke Knapp, the influential chairman of its exacting Loan Committee, visited Buenos Aires to give a final cut to earlier bilateral discussions. In an off-the-record memorandum and in person, he bluntly confirmed to Minister of Economy Krieger Vasena, Coll Benegas, and their closest aides the strict terms and timing under which the institution would eventually support Argentina.Footnote ³⁷

Private U.S. bankers stuck to their established lending policy criteria. As an exception, in October 1957, they granted an emergency, 1-year U$S 27 million revolving loan to prop up the central bank’s foreign exchange reserves. Executives, however, first consulted U.S. Under-Secretary of State for Economic Affairs Douglas Dillon, who came from a very influential banking family in New York (The Wall Street Journal 1957; Rabe, Reference Szusterman1988, p. 111).

In May 1958, the provisional authorities transferred power to a constitutional government elected in February. But they had made just the modest breakthroughs discussed above in the “confidence game” played so far to obtain full creditworthiness and substantial foreign loans.Footnote ³⁸ Building up a good track record, accumulating “reputational capital,” and eliciting foreign confidence demanded a long “seasoning process” that did not match with Argentina’s need of prompt economic stabilization and development aid.Footnote ³⁹ A new administration would therefore take up pending issues, embedded policymaking challenges, and strive for more significant foreign financing and creditworthiness inroads. This drive did not rule out West European aid like in earlier years. But it would focus on the aid programs of Washington-based government agencies and lending institutions, and the opening of international capital markets.

3. Maturing and early developmentalist achievements, 1958–1961

A constitutional government presided by Arturo Frondizi, a leading politician with a long career in one of Argentina’s traditional parties, came to power in Argentina in mid-1958. At first, Frondizi applied state-interventionist and expansive monetary and credit policies promised during the electoral campaign. Hence, he did not meet foreign financiers’ expectations that the central bank would no longer finance inflationary and deficit financing policies.Footnote ⁴⁰ Frondizi, however, was quite pragmatic and aware of the need of a trustworthy record to remedy basic infrastructure shortcomings and low investment rates with external aid and foreign capital. His views reflected modern “developmentalist” ideas that were influencing Latin American economic policymaking and gradually informed government policies.Footnote ⁴¹ Officials therefore pursued basic infrastructure works in the electric power supply sector, began to resolve pending conflicts with private foreign investors, and relaxed the oil-production monopoly of YPF, the state company (Garcia Heras, Reference Grittersova2018).

In the last quarter of 1958, rising inflation and fiscal deficit rates and a looming balance of payments crisis due to their early policies forced the Frondizi administration to begin to turn toward a classic economic stabilization program with foreign support. Central bank President Mazar Barnett and other staunch “developmentalist” officials insisted on the merits of expansive monetary and credit policies to advance their agenda. Still, they gradually had to give priority to macroeconomic stability. At first, however, they took isolated and gradualist corrective measures “outside the IMF framework” (Cho, 2014, p. 311) with a high risk of policy reversal. Local establishment spokesmen, the U.S. government, and the IMF welcomed the decision to abandon policies which they considered detrimental for Argentina and discriminatory against foreign investors.Footnote ⁴² But they called for more consistency and a stronger determination to implement “good” policies to stabilize the economy.Footnote ⁴³ The World Bank endorsed these criteria. Like in earlier years, they also stuck to their established working agenda and policies. As of mid-1958 they had just completed a first country survey on Argentina which identified electric power supply and transportation as basic infrastructure needs. Also, before getting fully involved in the country, management and staff insisted on the need of (a) “appropriate settlements” of pending conflicts with the foreign electric power companies; (b) concrete evidence that the government would put the railways “on a financially self-supporting basis”; (c) background studies on the electric power and transportation sectors; and (d) a detailed financing program for specific basic infrastructure projects, with cost-efficiency criteria and clear priorities.Footnote ⁴⁴

These pressures imposed the “enforcement power” of the IMF.Footnote ⁴⁵ In December 1958, the government launched an economic stabilization program financed by the Fund, the U.S. Treasury, and American bankers. The IMF and U.S. Treasury commitments unlocked indispensable collateral banking finance to round off coverage of the exchange gap. These disbursements were tied to an agreement whereby, finally, positive balances of Argentina’s trade with the Paris Club countries would be freely convertible for trade and debt payments in U.S. dollars.Footnote ⁴⁶ The plan included a full liberalization of the exchange market under a unified rate that again fell short of the par value parity advocated by the Fund because the balance of payments situation did not allow the government to guarantee that it could comply with such a commitment.Footnote ⁴⁷ It also established the creditworthiness benchmarks, which Argentina followed to obtain foreign balance of payments support until late 1961. The only change was that in 1959 and 1960 the government renewed collateral financing from U.S. banks, and added West European banks’ support. Such additional banking support was a possibility that central bank Vice President González del Solar had been considering since the onset of the first “standby” agreement with the Fund.Footnote ⁴⁸

Argentina did not meet all macroeconomic targets committed in December 1958 (Manzetti, Reference Oosterlinck1991, pp. 68–72). But, on balance bankers, the IMF, the World Bank, and the U.S. and the British governments prized the results of President Frondizi’s policies. Until late 1961, several considerations appeared to justify continuing creditworthiness. Above all, ongoing policies had continuity and were thought to be on the right track.Footnote ⁴⁹ By May 1960, therefore, for the U.S. ambassador in Buenos Aires, Argentina was a noteworthy cooperative developing country that warranted further aid.Footnote ⁵⁰ In June, the Executive Director for the United Kingdom at the World Bank viewed Argentina as “an example of success of the economic doctrine to which the Bank and the IMF subscribe and propagate.”Footnote ⁵¹ Argentine officials followed standard procedures to obtain IMF and collateral banking support. Despite its controversial and intrusive nature, between December 1958 and May 1960 Argentina had a resident Fund representative at the central bank to monitor the stabilization and ensure that quarterly targets were met.Footnote ⁵² Finally, knowledgeable and more experienced “sympathetic domestic interlocutors” who in some cases had spearheaded the earlier international opening gradually filled influential government posts.Footnote ⁵³ The most important were Minister of Economy Roberto Alemann; secretary of finance Guillermo Walter Klein; and central bank President Méndez Delfino, and Vice President González del Solar.Footnote ⁵⁴

With the economic stabilization program on track and foreign support for it assured, Frondizi’s government resumed with great determination the search for basic infrastructure financing. The first stage of this drive targeted World Bank loans in four fields which carried their attention and were well within the institution’s expertise and competence: (1) a road-building program for a network which lacked significant investments since the early 1940s; (2) the Chocón-Cerros Colorados hydroelectric power dam which was considered indispensable for regional development in Southern Argentina; (3) an electric power station known as the South Dock Power Project that would be run by SEGBA, a state company, in Greater Buenos Aires, the main power-consuming district; and (4) the reorganization of a dilapidated state railway network that was the hub of the transportation infrastructure, and a millstone for the national budget.Footnote ⁵⁵

Like Burke Knapp in August 1957 (see p. 9), Bank President Eugene Black reiterated their strict procedures and conditionality criteria to President Frondizi when he visited the United States in January 1959.Footnote ⁵⁶ Argentine officials and technicians also had problems preparing specific loan proposals for review in the United States.Footnote ⁵⁷ Solving complex conflicts with influential foreign private companies that had lost electric power concessions due to their nationalization, was taking a long time. Bank officials had strong personal contacts with top officials at the central bank. Yet, as of May 1961, a mission sent to Buenos Aires could not obtain indispensable information to assess the government’s ability to undertake urgent basic infrastructure projects.Footnote ⁵⁸

Eventually, the Argentine government broke this stalemate. Subject to stiff conditions, in July 1961 they obtained a US$ 40 million loan for road-building, and another for US$ 95 million in January 1962 to help finance the electric power station in Greater Buenos Aires. To qualify for both loans, the government allowed customary external audits of work progress. The electric power loan contract specified that SEGBA should be independent from partisan politics; its rates should meet operating costs and a moderate income; and collateral banking loans would finance imported equipment and technical services. Moreover, to ensure that a strong and professional management followed sound, technical, commercial and financial criteria, the Bank was entitled to approve the candidate for the executive vice-presidency, the key decision-making post in the company.Footnote ⁵⁹ Argentina had not tapped world capital markets since Morgan Stanley organized the flotation of a bond series in New York in 1939. The country lacked a recent creditworthiness record in private capital markets.Footnote ⁶⁰ The World Bank loan of 1961 was therefore a “seal of approval” for Argentina’s policies that finally allowed an ambitious drive to tap them. It cleared the way to float a modest first series of government bonds which central bank Vice President Del Solar had been striving for in road shows in Europe and the United States since early January 1961.Footnote ⁶¹

In July 1961, Credit Suisse led a consortium of prestigious first-tier banks that, with high pricing, floated a first US$ 25 million tranche of these securities.Footnote ⁶² The key market was the Frankfurt Stock Exchange, but to reach more investors the bonds were also floated in other West European financial centers. In October 1961, a second tranche for U$S 114.8 million was issued in the same markets under identical terms. The local press in Buenos Aires hailed this news as a restoration of Argentina’s international credit standing.Footnote ⁶³ But later events discussed below suggest that such optimism was exaggerated.Footnote ⁶⁴

In the second semester of 1961, Minister of Economy Roberto Alemann and central bank Vice President Del Solar failed to tap U.S. and West European markets again.Footnote ⁶⁵ In August, Morgan Stanley interrupted negotiations for a bond issue in New York. Executives argued that international markets were quite unstable, and that permanent military discontent with government policies cast doubts about Argentina’s political stability, presidential authority, and the continuity of the current economic policy.Footnote ⁶⁶ In October, Hermann Abs, one of Argentina’s powerful interlocutors in international financial circles since late 1955, chaired a gathering of West German bankers who refused to float a second series of bonds.Footnote ⁶⁷ In their view, market prospects were not good. The first series of the bonds floated in July had an excellent early pricing, but would be quoted in the Swiss and German stock exchanges only in early 1962.Footnote ⁶⁸ Finally, the banks participating in this operation kept these securities in their portfolio investments because private investors were not interested in them. On the other hand, balance of payment problems in Britain, which at times impaired relations with Commonwealth nations, and capital market limitations in France, also precluded operations in their stock exchanges.Footnote ⁶⁹

In sum, as of late 1961, Frondizi’s government had built up quite positive records in private capital markets. Prestigious managers and underwriters had certified the quality of the sovereign bonds issued to raise a small proportion of the foreign exchange needs. Key bankers with whom Argentine “sympathetic domestic interlocutors” had established close relations since 1955 were committed with the issues.Footnote ⁷⁰ Yet, despite officials’ knowledgeable roadshows and personal prestige and contacts, good reputation of prospective borrowers was slow to come. Markets had reacted quickly to local events suggesting political and macroeconomic uncertainty because investors did not wish to assume a high “country risk.”Footnote ⁷¹ Moreover, to safeguard the “brand value” of their “certification services” (Flandreau et al, Reference Garcia Heras2009, pp. 1–3), bankers followed up investors’ reception of Argentine securities, and their performance in international markets. Hence, officials had to make do with “market gatekeeping” policies and a “seasoning process” that did not match with the government’s financial urgencies and the need of continuing international achievements to legitimize their “developmentalist” and stabilization policies.Footnote ⁷²

4. The turning point and collapse of limited foreign creditworthiness, 1961–1962

The last months of Frondizi’s government were a troublesome turning point for their policies and creditworthiness before the World Bank and the Fund. Full compliance with the targets of a “standby” agreement of December 1961 with the IMF, the situation of the railways, and the aftermath of an unexpected cabinet reshuffle in January 1962 were the hub of decisive controversies and disagreements with both institutions.

The “standby” agreement had fiscal, monetary, inflationary, exchange rate and credit targets, and restrictions on short-term foreign suppliers’ credits that were quite difficult to comply with. Minister Alemann and central bank President Méndez Delfino were under growing state and private sector pressure to relax their staunch orthodoxy in an inflationary economy that traditionally depended on the central bank to meet liquidity shortfalls and suffered monetary stringency due to their policies.Footnote ⁷³ As of late December 1961, during an emergency meeting of the central bank board that was convened to discuss the situation, Minister Roberto Alemann acknowledged liquidity problems, but resisted pressures to abandon monetary orthodoxy. Like Méndez Delfino, he argued that monetary stability was at stake and should have priority over economic development, and warned about the inflationary risks of additional monetary expansion.Footnote ⁷⁴ Meanwhile, the central bank had lost a significant amount of reserves trying to stop capital flight that put pressure against the current exchange rates and could end with a peso devaluation of devastating inflationary consequences.Footnote ⁷⁵

Argentine officials still relied on foreign suppliers’ credits to finance some investments. Unlike World Bank and official bilateral loans, they were a relatively ready form of finance that was not subject to strict conditionality criteria.Footnote ⁷⁶ Fund staff and management were dissatisfied with their modest efforts to restrict them. In their view, they dangerously increased foreign indebtedness, had short repayment terms, and did not appear to finance carefully crafted investment programs. They also distrusted Alemann’s and Méndez Delfino’s claims that they were injecting seasonal monetary liquidity into the economy only through temporary reductions in minimum cash reserve requirements to avoid a recession and an inflationary bout. In their opinion, their arguments did not guarantee that such reductions would not be permanent.Footnote ⁷⁷ They also demanded strict controls of wage increases and foreign indebtedness, that the central bank should stop all advances to the Treasury, and close the rediscount window that financed the fiscal deficit. The last straw was the failure of a railway reform in November 1961.

By the early 1960s, Argentina lacked good railway services for commuters in Buenos Aires, its suburbs, and an efficient long-distance network (Lopez et al, Reference Mc Kinnon2016, pp. 174–175). Their operating deficit also had a strong bearing on the national budget deficits.Footnote ⁷⁸ Hence, the government launched a deep and highly publicized reform of services, the network, management, administration, and working conditions of the staff and personnel. This plan was based on the findings of a survey commissioned by the World Bank which was known as the Larkin Report. A loan from the institution would help finance it so long as the government took strong rationalization measures before implementing it.Footnote ⁷⁹ Ministers of economy Roberto Alemann and of public works Arturo Acevedo, two key cabinet members of orthodox ideas, were strongly committed with this reform.Footnote ⁸⁰ Their well-known determination and public statements about the policies they intended to follow had elicited great expectations at the IMF and the World Bank.Footnote ⁸¹ A prolonged strike against the plan, however, forced the government to make significant concessions to the strikers in order to minimize conflicts before forthcoming congressional and gubernatorial elections of March 1962 that were a crucial test for the government’s strength and support. This decision watered down the plan and compromised the current stabilization policies.

Minister Alemann endeavored to reassure the Fund about his determination to keep the economic program on track and overturn the adverse impact of the strike. Yet monetary expansion and the fiscal deficit had exceeded the targets of the recent “standby” agreement.Footnote ⁸² The government had not consulted him and Minister Acevedo about how they intended to solve the conflict. Consequently, both ministers resigned.Footnote ⁸³ The Fund realized that, however limited, “country ownership” of the stabilization program had suffered a severe blow.Footnote ⁸⁴ World Bank President Eugene Black wrote a strong letter to President Frondizi to overturn these events but failed.Footnote ⁸⁵ Therefore, the board cancelled the railway loan.

Carlos Coll Benegas, a respected moderate liberal who had played a key role in the provisional government’s opening to foreign financiers, succeeded Roberto Alemann as Minister of Economy.Footnote ⁸⁶ His appointment, however, crowned Argentina’s fallout with multilateral organizations and bankers because he forced orthodox central bank President Méndez Delfino to apply expansive monetary and credit policies that, like former Minister Alemann, so far he had rejected. Coll Benegas’ purpose was to meet liquidity needs of the state and the private sector to reverse an unfolding economic crisis and improve the government’s prospects in the forthcoming elections. In doing so he ignored strong central bank warnings and concerns of IMF staff and officials about their fiscal and inflationary consequences.Footnote ⁸⁷ He also followed more lenient criteria to approve new foreign suppliers’ credits, which already worried the Fund and the central bank. These decisions stimulated earlier inflationary expectations, a more serious run against the Argentine peso, and further capital flight that continued depleting the central bank reserves, and put pressure for higher rates in the exchange market.Footnote ⁸⁸ They also broke fiscal, monetary, and foreign indebtedness targets agreed with the IMF and deepened the economic downturn. Coll Benegas’ clashes over these decisions with the central bank president became public, and added further macroeconomic uncertainty and doubts about Argentina’s “country ownership” of stabilization policies which the aftermath of the railway showdown had triggered.Footnote ⁸⁹

Given the policy changes that were at odds with its orthodox recipes and results, the Fund followed the Bank’s policy and cancelled the “standby” with Argentina.Footnote ⁹⁰ Shortly afterward, the government suffered serious setbacks in the elections mentioned above. Its results unleashed a political crisis, culminating in a military coup that overthrew the Frondizi government and inaugurated another stage in Argentina’s search for foreign creditworthiness.

5. Conclusions: was it worth playing the international “confidence game”?

In a devastating commentary against neoliberalism published during the peak of the East Asian crises of the late 1990s, Paul Krugman wondered whether emerging countries should play a “confidence game” to gain international creditworthiness, and if such policies catered to the perceptions, prejudices, and whims of the markets (Krugman, Reference Martinez and Santiso1998, pp. 23–25). Although he referred to a later period, his views are a relevant prompt to review the benchmarks and results of Argentina’s search for foreign creditworthiness until the early 1960s.

Foreign lenders called for sound and sustainable macroeconomic policies, as well as a clear will to keep a steady long-term agenda, and tackle head-on, major problems regardless of political constraints. Such demands originated in their belief that Argentina needed to redress an earlier macroeconomic performance and the record of Peronist policies. However, the provisional government never overcame all its domestic constraints and avoided the inevitable political costs of hard decisions. Moreover, according to the IMF and the World Bank, the settlement of the railway strike in late 1961 proved that the tide of what many years later a renowned orthodox economist considered “good economics” for Latin America had receded (Haberger, Reference Macchione Saes and Lanciotti1996, pp. 301–311).

Argentine policymakers were also expected to know the formal and informal rules of mainstream international finance, and to adhere to them to rebuild Argentina’s international reputation. However, playing such “confidence game” demanded a long “seasoning process,” and lacked a predetermined timetable. As early as mid-1956, the first Argentine mission sent to the United States also realized that its results were uncertain and at odds with their political and financial urgencies. In 1961, Minister Alemann and central bank Vice President González del Solar finally opened the West European markets for government bonds. But bankers prudently tailored their involvement and support for this drive to the fact that Argentina was just emerging from a long period of financial isolation.

The insistence on credible, efficient and highly professionalized state institutions focused on the central bank and key state enterprises such as the railways and SEGBA, the main electric power company in the country. Argentina’s macroeconomic record and the central bank’s performance during the earlier Peronist interlude corroborated their belief that institutional independence and professional management of monetary and credit policies were indispensable. Both prerequisites were seen as the only means to guarantee continuing stability, reduce annual inflation, force judicious government expenditures, and discipline the private sector into a true market economy. Bank of England officials were the strongest advocates of good central bank governance in Argentina throughout these years. Thus, they permanently insisted that “true central bankers” should be at the helm of the institution.

The railways charged low rates and lacked consistent policies and professional management. Therefore, their impact on the fiscal deficit turned them into another notorious and understandable concern for the Bank and the IMF. Hence, to build and run an electric power station in Greater Buenos Aires, in the early 1960s Argentine officials set up SEGBA as an autonomous state entity ruled by a special bylaw to ensure its efficiency, sound management, and independence from partisan politics. As a result of this decision the government obtained a key Bank loan, completed this project with its support within the scheduled time-period, and SEGBA became a key supplier for rising electric power demands in Greater Buenos Aires (Garcia Heras, Reference Grittersova2018, pp. 114–115).

Bankers and the multilateral lending organizations attached great importance to the presence, influence, and policymaking role in Argentina’s political establishment and economic teams of an emerging generation of postwar liberals who broadly shared their ideology and goals. These officials wielded limited political power and could not impose a permanent and far-reaching liberal imprint on Argentina’s economic policies. However, at turning points, their personal prestige, resourcefulness, earlier international experience, and ability turned the tide in favor of Argentina’s search for external financing. Alemann and del Solar persevered with their knowledgeable strategy and commendable teamwork until bankers opened West European capital markets for Argentine bonds. They also played a key role in the Frondizi administration’s “reputation acquisition through good behavior” process (Flandreau and Flores, Reference Garrison DE Vries2012, p. 238), culminating with the World Bank loan for SEGBA’s power station in January 1962.

A few months later a coup overthrew President Frondizi’s government and put an abrupt end to Argentina’s foreign creditworthiness drive during the early post Peronist years. As shown in this article, a wide range of sources are available to review a record of later years during the Bretton Woods era that historians have not examined in detail and bears a striking relevance for current events.