November 20, 2014
Default by any other name
There is still enough money to pay the greedy ‘vultures’ so they can fly away and disembowel another country
Many centuries ago, haughty speakers of Greek blamed the Great Schism that split Christianity on the inability of those who used Latin, in their view an uncouth and barbarous tongue, to understand the fine distinctions their own theologians delighted in. Cristina must know how those Byzantines felt. She thinks that all the fuss currently being made about Argentina’s latest dip into default would have been avoided had economists not used the same word to describe what happened on Wednesday evening as they had when the country gleefully refused to pay any of its creditors back in December 2001.
Cristina has a point. Her default is certainly nothing like the one that was declared by Adolfo Rodríguez Saá, the man who briefly occupied the presidency when the country’s bewildered politicians were playing a game of musical chairs and watching the economy fall into pieces while distraught people tried to batter their way into banks holding what, until a few days before, had been their life savings. Back then, Argentina was flat broke. Today, money may be in short supply but there is still enough available to pay off most debts and, if required, give the greedy “vultures” what they want so they can fly away and go about disembowelling some other vulnerable country.
Unfortunately, paying them off, as many recommend, would not put an end to the matter. Were the government to fork out the cool one and a half billion or so dollars they are demanding, other creditors could, in theory, insist on being given the same treatment. According to Axel Kicillof, that could mean shouldering Argentina with a foreign debt amounting to 500 billion greenbacks.
Others disagree: as anyone who has been hit with a hefty fine will understand, coughing up a large sum of money when a judge orders you to do so can hardly be considered making a “voluntary” payment. Ah, say the Kirchnerites, just suppose a judge like Thomas Griesa, a man whose motto seems to be “Fiat justitia, et pereat mundus” (Let there be justice, though the world perish), handled the case. Would he not rule in favour of the creditors? They may be right.
Rather more important than the risk, which according to lawyers would be mercifully remote but nonetheless exists, of falling into the deadly RUFO (Rights Upon Future Offers) trap and see tame creditors who had their hair cut in 2005 and 2010 turn into ravenous vultures, is Cristina’s determination to stick to her guns come what may. For a president who is unaccustomed to making concessions and has insisted time and time again that the wretched holdouts would not get a penny, caving in just because an elderly US judge has ruled against her would be impossibly humiliating. It could also be politically costly; as she is nervously aware, Argentines, especially Peronist ones, tend to be unkind toward leaders who show signs of weakness.
Telling the world to come up with a new word to describe the current situation may go down well among the Kirchnerite faithful, but it does not make things any easier. Neither do the government’s attempts to blame everything on sinister foreign conspirators determined to deprive mankind of an alternative to capitalist savagery.
Sadly, Cristina’s beloved “model” was already on the way to the scrap heap long before the “vultures” edged nearer to see what they could get from the wreckage. It failed for much the same reasons as did all the many perpetual motion machines eccentrics swore they had contrived to put together: to keep going it would have needed energy, in the shape of huge investments, that could only come from outside, hence her willingness to give the Paris Club countries and Repsol whatever they demanded.
By and large, the government’s approach to the technical, selective or partial default it refuses to recognize is defensible. The country would benefit if it succeeded in persuading the all-important “markets” not to take that New York district court ruling and its repercussions all that seriously. It is also being helped by the widespread belief that before too long a relatively painless solution will be found. One probably would if Christine Lagarde stepped in to save the world’s financial system from another meltdown, but it so happens that Cristina hates the IMF almost as much as she hates the hedge funds.
However, making out that Argentina is a victim of US legal imperialism, or that Griesa and “special master” Daniel Pollack are in cahoots with the hedge fund “vultures”, will not convince many that her government deserves much of a hearing. On the contrary, the rhetorical firework display Cristina, Kicillof and other official spokespersons gave hours after the end of the latest episode in the long-running debt melodrama could have been designed to persuade outsiders that Argentina is in the hands of a bunch of far-out activists who are more interested in giving vent to their own feelings than in the fate of the forty million or so people who depend on the country’s economy.
That is unfortunate. In the current circumstances, Argentina’s international image matters greatly. Instead of going on about the “atomic nonsense” he says is being spouted by the local press, plus US and, though he did not mention it, Chinese credit rating agencies, Kicillof ought to be doing his best to show the rest of the world that, even though he has been typecast as “Marxist professor” who is notorious for his aversion to wearing a tie, he is really a down-to-earth fellow who would never dream of doing anything nutty.