Argentina Passes 'Zero Deficit Law' Under IMF Pressure, Cutting Salaries and Pensions 13%

The Argentine Congress passes the Zero Deficit Law under intense IMF pressure, delivering drastic cuts in public spending including 13% reductions in state salaries and pensions in a desperate attempt to satisfy creditors and maintain access to IMF loans. The law represents the culmination of four years of failed IMF orthodoxy: since 1998, the Fund has insisted that ‘failures in fiscal policy constitute the root cause of the current crisis’ and prescribed fiscal and monetary austerity to revive investor confidence. However, this approach has catastrophically failed—the economy has already lost more than 20% of GDP since the last business cycle peak in 1998 and continues contracting. The Zero Deficit Law accelerates the economic death spiral by removing government spending from an already depressed economy, deepening the recession while generating intense public anger. The savage austerity cuts real incomes for millions of public employees and pensioners, many already struggling with unemployment rates approaching 20% and rising poverty. The law proves to be among the final straws: just five months later in December 2001, the government imposes the ‘corralito’ bank freeze, triggering massive protests that kill 39 people, force President de la Rúa’s resignation, cycle through five presidents in two weeks, and culminate in Argentina’s historic default—the largest sovereign default in world history at that time. The Zero Deficit Law exemplifies a core pattern of IMF structural adjustment: demanding pro-cyclical austerity during recessions that deepens economic collapse while causing immense human suffering. The policy actively worsens the crisis it purports to solve, demonstrating that IMF ‘medicine’ serves creditor interests in extracting payments rather than debtor interests in achieving recovery. Argentina’s catastrophic experience becomes a cautionary tale, yet the IMF continues imposing identical policies on Greece, Ecuador, and other countries in subsequent decades.