Investigative reporter GREG PALAST obtained confidential documents from the International Monetary Fund and the World Bank. This is a special update for the International Socialist Review of the expose that will appear in Palast's new book, The Best Democracy Money Can Buy (Pluto Press, March 2002).

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In December, in Buenos Aires, the Paris of Latin America, police gunned down 27 Argentinians who chose to face bullets rather than starvation. The currency had crumbled and unemployment shot up from a grim 16 percent to millions beyond the ability of the collapsed government to measure. The economy had died, murdered in cold blood.

Whodunnit? This is an easy case to crack. Next to the still warm corpse of Argentina's economy, the killer left a smoking gun with his fingerprints all over it. The murder weapon is called "Technical Memorandum of Understanding," dated September 5, 2000. It was signed by Pedro Pou, president of the Central Bank of Argentina for transmission to Horst Kohler, managing director of the International Monetary Fund (IMF). I received a complete copy of the inside report from... well, let's just say the envelopes had no return address.

Close inspection leaves no doubt that this "understanding" fired the fatal fiscal bullies into Argentina's defenseless body To begin with, it required Argentina to cut the government budget deficit from $5.3 billion in 2000 to $4.1 billion in 2001. Think about that. In September 2000, Argentina was already on the cliff-edge of a deep recession. One in six workers was unemployed. Even the half-baked economists at the IMF should know that holding back government spending in a contracting economy is like turning off the engines of an airplane in stall. Cut the deficit? As my 4-year-old daughter would say, "That's stooopid."

The IMF is never wrong without being cruel as well. And so we read, under the boldface heading "Improving the conditions of the poor," the IMF's demand that Argentina drop salaries under the government emergency employment program by 20 percent, from $200 to $160 a month. But you can't save much by taking $40 a month from the poor. For further savings, the "Understanding" also promised "a 12-15 percent cut in salaries" of civil servants and a "rationalization" of pensions. "Rationalization" is IMF-speak for cutting payments to the aged by 13 percent under both public and private plans. Cut, cut, cut, in the midst of a recession. Stooopid.

Salted in the IMF's boneheaded recommendations and mean-spirited plans for pensioners and the poor were economic forecasts bordering on the delusional. In the "Understanding," the globalization geniuses projected that, once Argentina carried out the IMF plan to snuff consumer spending, somehow the nation's economic production would leap by 3.7 percent and unemployment would fall.

It didn't. The IMF plan kneecapped industrial production, which fell 25 percent in the first quarter of 2001 before it keeled over completely to interest rates on dollar-denominated earnings by that ran up to 90 percent by the summer.

Then, another envelope

Recently, another brown envelope walked onto my desk, containing the memorandum by James Wolfensohn, president of the World Bank, for Argentina's "Country Assistance Plan" for 2002. The document, dated June 25, 2001, "may be used by recipients only in the performance of their official duties."

My duty as a reporter is to tell you what's in it-a breath taking mix of cruelty and Titanic-sized self-deception. "Despite the setbacks," wrote Wolfensohn, "the goals set out in the last [year's] report remain valid and the strategy appropriate." The IMF's plan, cooked up with the World Bank, would "greatly improve the outlook for the remainder of 2001 and for 2002, with growth expected to recover in the later half of 2001."

In this strange document, the World Bank chieftain was particularly proud that Argentina's government had earlier made "a $3 billion cut in primary expenditures accommodating the increase in interest obligations" to creditors, mostly foreign banks. Crisis has its bright side. Wolfensohn crowed to his banker readers, "A major advance was made to eliminate outdated labor contracts." Wages, or "labor costs," as he calls them, had fallen, due to "labor market flexibility induced by the de facto liberalization of the market via increased informality." To translate: Workers lost unionized industrial jobs to sell trinkets in the street.

What on earth would lure Argentina into embracing the goofy program of the IMF and World Bank? The payoff for Argentina, if it followed the World Bank's diktat, was a $6.3 billion emergency loan at the beginning of 2001, and a promise of a $13.7 billion "standby" credit from the World Bank and its commercial banking partners.

But there is less to this generosity than meets the eye. The "Understanding" also required Argentina to peg its currency, the peso, to the Yankee dollar at an exchange rate of one-to-one. The currency peg didn't come cheap. American banks and speculators charged a whopping 16 percent above normal risk premium in return for the dollars needed to back the currency scheme.

Now do the arithmetic. On Argentina's $128 billion debt, normal interest plus the premium costs $27 billion a year. In other words, Argentina's people don't net one penny from the $20 billion loan package. None of the bailout money escapes New York, where it lingers to pay interest to U.S. creditors that hold the debt-big fish like Citibank and little biters like Steve Hanke.

I spoke with Hanke, president of Toronto Trust Argentina, an "emerging market fund" that loaded up 100 percent on Argentine bonds during the 1995 currency panic. Cry not for Steve, Argentina. His profit return that year of 79.25 percent put his trust at the top of the speculators' league. Hanke profits by betting on the failure of IMF policies. But "vulture" investing is merely Hanke's lucrative avocation. In his day job, as professor of economics at Johns Hopkins University in Maryland, Hanke freely offers a cure for Argentina's woes, advice that would put him out of business: Abolish the IMF.

And abolish the peg. That one-peso-for-one-dollar exchange rate was the meat hook on which the IMF hung Argentina's finances. But it was not the peg itself that skewered the economy; therefore, the devaluation of the peso in January unleashed as many evils as it cured. Rather, the dollar peg permitted the IMF and World Bank to let loose in the pampas their Four Horsemen of neoliberal policy: liberalized financial markets, free trade, mass privatization, and government fiscal surpluses. "Liberalizing" financial markets means allowing capital to flow freely across a nation's borders. Capital has indeed flowed freely, with a vengeance. Argentina's panicked rich dumped their pesos for dollars and sent the hard loot to investment havens abroad, bleeding as much as $750 million dollars a day in hard currency holdings.

Once upon a time, government-owned national and provincial banks supported their nation's debts. But in the mid 1990s, the government of Carlos Menem sold these off to Citibank of New York, Fleet Bank of Boston, and other foreign operators. Former World Bank adviser Charles Calomiris told me that these bank privatizations were a "really wonderful story." Wonderful for whom? With the foreign-owned banks stripped of their capital, the government has widened the corralito, freezing, devaluing, and effectively seizing the savings accounts of Argentinians to pay foreign creditors.

To keep foreign creditors smiling, the 2000 "Understanding" also required "reform of the revenue sharing system." This is the World Bank's kinder, gentler way of stating that U.S. banks will be paid by siphoning off from the provinces tax receipts that were earmarked for education and other services. The "Understanding" also found cash in reforming the nation's health insurance system (cut, cut, cut).

But when cut, cut, cut isn't enough to pay debt holders, one can always sell la joyas de mi abuela, grandma's jewels, as journalist Mario del Carvil described his nation's privatization scheme to me. French water lord Vivendi picked up a big hunk of the water system in 1995-and promptly cut staff and raised prices in Tucuman province by 400 percent. In his confidential memo, Wolfensohn sighs, "Almost all major utilities have been privatized"-so now there's really nothing left to sell.

The final bullet of the "Understanding" is the imposition of "an open trade policy." This required Argentina's exporters, with their products priced via the peg in U.S. dollars, to enter into a pathetic, losing competition against Brazilian goods, which were priced in a devaluing currency. Stooopid.

Have the World Bank and IMF learned from their horrific errors? They learn the way a pig learns to sing-they can't, they won't. On January 9, 2002, with the capitol in flames, IMF deputy managing director Anne Krueger ordered Argentina's latest in temporary presidents, Eduardo Duhalde, to cut still deeper into the government's social spending budget. Notably, the IMF's mad advice was backed by George W. Bush, who, the same day, demanded that the U.S. Congress adopt a $50 billion deficit spending plan to spend America out of recession-a policy mix of hypocrisy, incompetence, and heartlessness toward South America unnoted in the North American Inflexible worker bees

Still, the World Bank/IMF scheme can work, writes Wolfensohn. All that is needed is to "reduce the cost of production"-requiring only a "flexible workforce," willing to bend to lower pensions, lower wages, or no wages at all. But to the dismay of Argentina's elite, the worker bees are proving inflexibly obstinate in agreeing to their own impoverishment.

One inflexible worker, Anibal Veron, a 37-year-old father of five, lost his job as a bus driver and his company owed him nine months' pay. Veron joined the piqueteros, the angry unemployed who blockade roads. In clearing a blockade, it is reported that the military police killed Veron with a bullet to the head. He was shot in November 2000-and the world did not notice.

Globalization boosters such as British prime minister Tony Blair portray resistance to the new world order as a lark of pampered Western youth, curing their ennui by, as he puts it, "indulging in protest, misguided" by naive notions. The media play to this theme, focusing on demonstrations in Seattle, Washington, and Genoa, Italy. The Euro-American press took no note of Argentina's general strike, honored by 7 million workers, that shook the country in June 2000. While the death in Genoa of demonstrator Carlo Giuliani was front-page news in the U.S. and Europe, the deaths of Carlos Santillan, 27, and Oscar Barrios, 17-gunned down in a churchyard in Salta province, north of Buenos Aires, when police fired on protesters-went without mention.

Only in December 2001, when Argentina failed to make an interest payment on foreign-held debt, did our press suddenly report a "crisis," feeding us the images we expect from Latin America: tear gas, burning cars, and a parade of new presidents taking the oath of office.

Accomplices

I had the evidence on the IMF and World Bank, but did they have accomplices? I spoke in Buenos Aires with Adolfo Perez Esquivel, leader of the Peace and Justice Service (SERPAJ). He is documenting cases of police torture of protesters in the town where Santillan and Barrios died. To Perez Esquivel, who won the Nobel Peace Prize in 1980, repression and economic liberalization are handmaidens. SERPAJ has filed a formal complaint, charging police with recruiting children as young as five years old to be informers for paramilitary squads, an operation he compares to the Hitler Youth.

Perez Esquivel, who last year led protests against the Free Trade Area of the Americas, doesn't agree with my verdict against the IMF in Argentina's death. He notes that the economically fatal "reforms" were embraced with enthusiasm at the time by the nation's finance minister, Domingo Cavallo. A favorite of the World Bank, Cavallo, who was fired after mass protests in December 2001, is best known by Argentinians as head of the Central Bank during the military dictatorship. For the aging pacifist Perez Esquivel, Cavallo's enthusiastic collaboration with the IMF and World Bank suggests that the untimely demise of the nation's economy wasn't murder, but suicide.

Greg Palast, investigative reporter for Britain's Guardian and Observer newspapers, was named Guerrilla News Networks 2001 Reporter of the Year for his expose's on the theft of the presidential election in Florida and his reports for BBC television on Bush's quashing of the investigation into Saudi Arabia's funding of terrorism. You can read his columns at www.gregpalast. com.