Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
WE NEED YOU NOW MORE THAN EVER!

We don’t ask often, but when we do we really mean it. It costs a lot to keep our website afloat, and our growing audience, well over two million unique viewers a month (you read that right), eats up a lot of bandwidth–and bandwidth isn’t free. We aren’t supported by corporate donors, advertisers or big foundations. We survive solely on your support. Please, drop us a few dollars if you have the means.

FacebookTwitterGoogle+RedditEmail

Argentina and the Vultures: the Political Economy of the Settlement

by

After 15 years of court battles, injunctions, smear campaigns, lobbying, and other interventions, the vulture funds have finally won a tentative agreement with the new Argentine government. Vulture funds — the name preceded this particular dispute — are so called because they buy up defaulted debt for a very small fraction of its face value, then sue (and use other tactics) to collect an exorbitant return. In the case of Argentina, the chief vulture, American billionaire and major Republican campaign donor Paul Singer, will get an estimated 370 percent return; another vulture fund in the settlement did even better, with a return of 950 percent.

The agreement is tentative because President Mauricio Macri of Argentina still has to get the nation’s Congress, in which he does not have a majority, to change some laws in order to finalize the deal. And he will also have to reach agreement with some remaining “holdout” creditors. And now the vulture funds are appealing the judge’s order that would allowed Argentina to issue new debt, presumably in an effort to extract even more concessions. But assuming it all works out, though, there are some important lessons to be learned from this long war over sovereign debt.

Argentina arguably had no alternative but to default in 2002, but the government also did the right thing by standing up to the IMF and its international creditors until it reached a deal (in 2003 and 2005) that would allow the economy to recover. International lenders — in this case a creditors’ cartel headed by the IMF — often succeed in getting a settlement that keeps thefailedweisbrot country trapped in recession, depression, or very low growth with an unsustainable debt burden; as well as numerous conditions (cuts to social spending, public pensions, public employment) that harm the majority of the debtor country’s citizens. Some of the worst recent examples of these abuses can be seen in countries like Greece and Jamaica, and will likely include Puerto Rico if there is a debt restructuring there.

By taking a hard line with its foreign creditors, Argentina reached an agreement with 93 percent of them that allowed the country to do very well over the ensuing 14 years. Instead of a prolonged depression as in Greece, or limping along from one crisis to the next, Argentina began an extraordinarily robust recovery just three months after its default and enjoyed very high growth — more than 90 percent in real GDP from 2002–2015. (There is some dispute over the exact number but it does not change the story.) This enabled Argentina to reduce poverty by about 70 percent and extreme poverty by 80 percent, in the decade 2003–2013.

So, even though the country would later run into economic trouble — in the world recession of 2009, but also in the last four years — there is no doubt that it pursued very successful economic policies, which it would not have been able to implement under a less favorable agreement with its creditors. Now, about the slowdown of the past four years, in which the economy has grown by about 1.1 percent annually: Part of the problem was that Argentina could not borrow on international markets, due to its inability to settle with the vulture funds. For Argentina’ detractors, this proves that the default and subsequent tough negotiation were wrong. But clearly that is not the case; the alternative offered by the IMF and the creditors was vastly worse.

The problem is really the vulture funds, and also the foreign policy goals of certain actors within the United States, who were against the prior government of Argentina.  Here is Judge Thomas Griesa, of the Federal District court for the Southern District of New York, to whom the New York Times devoted a news article describing his incompetence:  “Put simply, President Macri’s election changed everything.” This is from Griesa’s decision of February 19, explaining why he decided to conditionally lift the injunction he had imposed against Argentina in 2014, which the Financial Times editorial board generously described as “eccentric rulings,” and which prevented Argentina from making its debt payments. In other words, he much preferred the new, right-wing, pro-Washington government, as opposed to the prior, left government that he helped get rid of. Griesa’s unprecedented decision to take 93 percent of Argentina’s creditors hostage on behalf of the vulture funds was obviously political at the time. Now he has admitted it, to the chagrin of our legal system.

Argentina had appealed Griesa’s injunction to the U.S. Supreme Court, and the governments of France, Brazil and Mexico, and the Nobel Prize-winning economist Joseph Stiglitz filed briefs on its behalf. Interestingly, the IMF announced that it, too, would file a brief on behalf of Argentina. This was not because the IMF loved the Argentine government, but because Griesa’s decision was considered a threat to the stability of the international financial system. But the U.S. Treasury forced the IMF into an embarrassing retreat, most likely due to pressure from the vulture lobby and some anti-Argentina members of Congress, in particular from Florida, who could threaten to hold up legislation that the Fund needed.

Did I mention that the vulture fund chief Paul Singer is a major contributor to Florida Senator Marco Rubio, and is currently rumored to become finance chair for his presidential campaign?

The U.S. government also stopped blocking loans to Argentina at the World Bank and the Inter-American Development Bank, just after Macri was elected. Macri himself also has an interesting history with the U.S. State Department: In conversations with U.S. officials leaked by WikiLeaks, Macri chastised them for being “too soft” on the Argentine government and encouraging its “abusive treatment” of the U.S.

The main lesson from this whole episode is the importance of national economic sovereignty for middle-income countries like Argentina. This is what allowed Argentina to recover from disastrous economic policies implemented under IMF tutelage; and it was the infringement on this sovereignty by U.S. courts and other actors that made it difficult for Argentina to resolve the economic problems of the past few years. We will see how this new, less sovereign government fares going forward, now that it has settled with the vultures.

This article originally appeared in The Hill.

More articles by:

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. and president of Just Foreign Policy. He is also the author of  Failed: What the “Experts” Got Wrong About the Global Economy (Oxford University Press, 2015).

October 16, 2017
Vijay Prashad
A Tale of Two Islands
Ben Dangl
Profiting from America’s Longest War: Trump Seeks to Exploit Mineral Wealth of Afghanistan
Jan Oberg
Trump is Moving Toward War With Iran
Thomas S. Harrington
The Baseless Myth of the Poor, Propagandized Catalans
Steve Brown
When a Radio Host Interviews a War Criminal, Is It Churlish to Ask About His War Crimes?
Howard Lisnoff
Capturing the Flag
Patrick Cockburn
ISIS is Facing Near Total Defeat, But It Has Been Beaten and Come Back Before
Julian Vigo
The Fall of Harvey Weinstein and the Sexual Blindspot of Misogyny
James Munson
The Rich Can’t Achieve Plurality, But the Poor Can
Amitai Ben-Abba
The NIMPE Critique of Antifa
Robert Fisk
We Will Soon See What the Word “Unity” Means for the Palestinian People
Alice Donovan
Civil War in Venezuela: a US Joint Operation with Colombia?
Jimmy Centeno
The De-Mexicanization of Duranguito Barrio, El Paso, Texas
Martin Billheimer
The Phantom of Justice in Indian Country
Uri Avnery
The Terrible Problem
Binoy Kampmark
Dirty Ties: the University of New Haven and Saudi Arabia
Ted Rall
Imagine a Brand-New USA
Weekend Edition
October 13, 2017
Friday - Sunday
Richard D. Wolff
The Political Economy of Obama/Trump
Jeffrey St. Clair
The Man in the Soundproof Booth
Becky Grant
My History With Alexander Cockburn and the Financial Future of CounterPunch
Paul Street
Orange Thing: Should It Stay or Should It Go?
Ellen Brown
How to Wipe Out Puerto Rico’s Debt Without Hurting Bondholders
Andrew Levine
Loyalty to the Don
Patrick Cockburn
Underground in Raqqa
Linda Pentz Gunter
Could Trump be About to Kill U.S. Solar Industry Jobs?
Conn Hallinan
Of Leprechauns, Nazis, and Truncheons
Mike Whitney
Cowboy’s Boss Draws a Line in Sand: “Stand for Anthem or Else”
Geoff Dutton
Harvard, the CIA, and All That
Walter Clemens
Kakistocracy?
Judith Deutsch
Normality and Pathology in a Time of Extreme Crisis
Robert Hunziker
Trillion-Ton Icebergs and Record Stock Prices
George Wuerthner
Why California is Burning
John Grant
Mandalay Bay: Top O’ the World, Ma!
Brian Cloughley
The India-China Face Off
Pete Dolack
Pharmaceuticals Can be a License to Print Money
Oren Ben-Dor
A Second Brexit Referendum? The Argument of Autonomy
Gary Leupp
Is the President a Head Case?
Edwin Krales
Honoring Repulsive Behavior: Abominable Medical Experimenters    
Ron Jacobs
Riding the Dog
Jose Martinez
Unmasking Jerry’s Kids (er, Cowboys)
Jonathan Schmitt
Guns, Hate, and Freedom of Speech
Ramzy Baroud
What Is Behind the Hamas-Fatah Reconciliation?
Jonathan Latham
Have Monsanto and the Biotech Industry Turned Natural Bt Pesticides Into GMO “Super Toxins”?
Angelica Ortiz
My Fight for Land and Life in Colombia
Mark Weisbrot
The IMF’s World Economic Outlook in Theory and Practice
FacebookTwitterGoogle+RedditEmail