18 December, 2012
from
CounterCurrents Website
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.
Ed Butler reported:[1]
Argentina faces the prospect of eviction
from the world economic community after its apparent failure to respond
to a three-month deadline set by the International Monetary Fund to
produce accurate inflation and growth statistics.
Ejection from the IMF could lead to a variety of economic and political
penalties, including exclusion from the G20 of industrial nations. IMF
rules state that member states "must not co-operate with a non-member in
practices that would be contrary to… the purposes of the Fund".
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.
Official inflation statistics in Argentina show prices rising at around 10%
but independent assessments have prices rising at 25% and more.
Criticism of Argentina dates back to 2007, when the inflation rate first
began to rise sharply into double-figures. The trade ministry responded at
the time by replacing the director of consumer pricing at the government
statistics agency, Graciela Bevacqua.
As well as losing her job, Bevacqua faced prosecution on a range of charges,
from damaging the Argentine economy to embezzlement and receiving bribes.
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.
Rising prices have been a major spur to recent mass protests against
Kirchner's government in the capital Buenos Aires.
Gabriela Cerruti, an MP from the governing party, echoes the
Argentine president's argument that the country must not give in to what
they see as international blackmail, and the view, widely held in Argentina,
that
the IMF was itself the cause of many of the
problems that led to the country's major default and crisis in 2001.
"All these big world organizations are
trying to say what we have to do with our economy. They are saying we
have no transparency just because we don't do what the big world
organizations want us to do.
We are doing very well, so maybe it's time
for other countries to see what's going on here," Cerruti said.
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.
Jayati Ghosh and Matías Vernengo’s article [2]
provide a background of the IMF threat to Argentina.
They wrote:
Argentina is in the news again. The country
that successfully managed an external debt restructuring after a major
financial crisis in 2001-02, and eschewed the standard austerity package
to benefit from a remarkable economic recovery, is being attacked by a
combination of court rulings and aggressive moves in financial markets.
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.
Elliott and other "vulture funds" are not conventional investors.
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,
-
how the debt was accumulated
-
the principle that debts
should be served according to the debtor's capacity to pay
-
how the
enforced payments will affect the wellbeing of the most vulnerable
They represent global finance in its most
nakedly aggressive and exploitative form.
The Griesa ruling also contained an injunction that prohibited third parties
from "aiding and abetting" any violation of his order, thereby preventing
Argentina from being able to continue payments to the creditors that had
accepted the restructuring.
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?
The ruling also contradicts US internal bankruptcy laws, which force
minority creditors to confirm to deals accepted by 70% of creditors. If this
ruling is supported in the higher courts (both Argentina and other creditors
have already appealed) it will create an unviable situation for global bond
markets.
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).
But that is not the only onslaught Argentina is facing. This week the rating
agency Fitch, which earlier gave US sub-prime bonds Triple A ratings,
lowered Argentinean bonds to slightly above junk status. Many financial
analysts are now predicting another Argentinean default.
But there is no reason to believe that the country is close to a 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?
The real reason may lie in the very success of the country's economy after
its default and forced debt restructuring process.
After 2002, Argentina,
-
reversed the austerity measures promoted by the IMF
-
renationalized key
productive sectors like aviation, pensions and most recently oil
-
increased
social protection and income transfers to the poor
-
reduced poverty
substantially
Real wages have increased, and wage inequalities
have been reduced.
This is a dangerously successful story. It shows that there is life after a
default, and that austerity is not the best way out of a crisis. These are
two lessons that clearly frighten financial markets and their allies within
the judicial system, and obviously there is concern that other countries in
financial distress could seek to emulate this example.
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.
Ironically, this may turn out to be counterproductive. It is not just that
these recent moves are deeply unjust and anti-democratic - it is also that
they threaten the
global financial system itself.
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
accountability.
Even a blatantly unjust capitalist system cannot survive this way for very
long.
So once again, international finance and its
partners may be biting the hands that have fed it, with potentially
disastrous consequences even for finance.
Source
[1] The Guardian, “Argentina
faces IMF penalties over failure to meet inflation deadline”,
Dec. 16, 2012
[2] guardian.co.uk, “Why Argentina is now paying for its dangerously
successful economic story”, Dec. 3, 2012