Argentina is the latest case of bullying tactics by the world finance bosses.
The country, one of the fastest growing economies with unemployment falling from around 22% to 7%, faces sanctions including exclusion from G20 by the IMF as the country's inflation rate appears at odds to the international boss.
The country is an example to other countries,
which the world masters consider as a threat to their order.
Some experts believe the IMF's managing director, Christine Lagarde, has lost patience with President Cristina Fernández de Kirchner's government.
A spokesman for the IMF has said that a report
will be submitted to its board.
None of the criminal charges have been upheld in
court, although she has been forced to pay fines for publishing her own
unofficial inflation rate, which like most others is now about 150% higher
than the government's published figure of around 10% per year.
Argentina has recorded nearly 8% growth since 2003 although critics say that the figures are suspect.
Growth has now
stalled, and attempts to conceal real inflation figures and suppress wage
demands, they argue, have got the government into an ever-worsening mess.
Elliott Capital Management, a vulture fund based in the tax haven Cayman Islands owned by conservative financier Paul Singer (a big donor to the Romney campaign), refused to accept the terms of the debt restructuring that was accepted by more than 92% of bondholders in 2005 and 2010.
It has demanded payment in full, and has actively pursued its case in different courts across the world. A few months ago, the Argentine frigate Libertad, which ironically means freedom in Spanish, was seized in Ghana after a local judge ruled in favor of Elliott Capital Management.
Judge Thomas Griesa has recently ruled in
a district court in New York that the Argentinean government must pay $1.3bn
to the same vulture fund - the full face value of their holdings plus
accumulated interest starting in late 2001 - on the basis of an unusual
interpretation of the pari passu clause in debt contracts.
They buy bonds at discount rates during a crisis with the explicit intention of taking the distressed countries to court in foreign jurisdictions, while also holding out for payment in full with no renegotiation of the debt.
Obviously vulture funds are not concerned with niceties such as,
They represent global finance in its most
nakedly aggressive and exploitative form.
This has far-reaching implications beyond this case, because it calls into question all debt restructuring deals that are not just likely, but also necessary to preserve international finance.
Why would those holding Greek bonds, for
example, accept a debt restructuring plan that might be necessary for a
solution and beneficial to all, if they know that vulture funds can hold out
and receive judicial support in international courts?
Creditors will only be making one-way bets if no
possibility of restructuring is accepted, making the only options all (full
payment) or nothing (complete default).
The current account is in balance, international reserves are above $46bn and the ratio of debt service payments to exports is less than 20%. In the recent past, Argentina has been one of the fastest growing economies in the world, with unemployment falling from around 22% to close to 7%.
So what explains all the downgrading and
undermining of the country in financial markets and the media?
After 2002, Argentina,
Real wages have increased, and wage inequalities
have been reduced.
Hence the eagerness to show that this is not a
success story after all, and to keep the pressure on Argentina through court
rulings, downgrades and similar measures.
Allowing vulture funds to get precedence over other bondholders that accept restructuring undermines any possibility of renegotiating debts, without which no credit system can function.
The "level of rancor" in Griesa's decision shows
how important it is to have judicial systems that are not loaded in favor of
purely profit-motivated private investors. Allowing rating agencies with
extensive conflicts of interest to function without regulating them and
setting up public alternatives creates misinformation without
So once again, international finance and its
partners may be biting the hands that have fed it, with potentially
disastrous consequences even for finance.