Interview with director of research at Levy Economics InstituteSunday, September 27, 2015
Kregel: ‘do nothing about vulture funds; let the case sit there’
Jan Kregel, one of the world’s most eminent Post-Keynesian economists specialized in financial crises and structural problems of developing economies, has written several papers on Argentina’s economy after the 2001-2002 economic meltdown.
The director of research at the Levy Economics Institute at Bard College in upstate New York, Kregel served as rapporteur of the president of the UN General Assembly’s Commission on Reform of the International Financial System.
In Buenos Aires for a conference, Kregel met with the Herald and discussed the country’s economy, highlighting that the currency is in desperate need of a devaluation. At the same time, he said the country shouldn’t take action regarding the “vulture” funds, which he linked to late special AMIA prosecutor Alberto Nisman.
The UN General Assembly recently passed a new framework for sovereign debt restructuring, which you had been demanding for a long time. Are you satisfied with the results?
The approval of the proposal is a very good result and now every UN member will have to take it to their legislature and turn it into national law. It doesn’t change anything in Argentina’s case against the “vulture” funds—Singer will keep trying to get his money back. It’s incomprehensible that Argentina didn’t carry out its last debt restructuring under local law. That was a big mistake but the government thought it was necessary to get a larger participation in the restructuring.
Why did it take so long to move forward with a new framework?
We’ve been working on this for a long time. The proposal first came from the United Nations Conference on Trade Development, where I worked for a while. It was then taken over by the Group of 20 but it didn’t move forward. After the vulture funds took over the Argentine debt the idea appeared again. Argentina went to the UN, which is the place to hold this debate. The country was willing to stand up to the “vultures” and tell them it wasn’t willing to pay.
Can the legal conflict with the holdouts be solved?
The most reasonable thing is to do nothing and let it sit there. The current US administration doesn’t support the claims of US investors and if the issue would go to any other court it is unlikely that it would be resolved. If you want to change something you just have to wait for the people who did it to die. Griesa is not very young and eventually has to retire.
Do you agree with the government criticism of Griesa?
The initial ruling was correct but the way he interpreted the pari passu clause (ruling that all bondholders must be treated equally) is subject to contention. It’s difficult for the plaintiffs in the case to get satisfaction. The amount Singer hopes to recover probably wouldn’t be enough to cover his legal fees. For him it’s a question of principles.
Coming from the US, are you aware of what kind of lobbying the holdouts carry out against the Argentine state?
They spend a lot of money in the US on lobbying against Argentina, especially regarding Nisman as he was funded by them. I know in Argentina it was a rumour but it’s more than that. Singer funded pro-Israeli agencies in the United States, which had ties to Nisman. I don’t know if Nisman received money directly from them or not but he was definitively connected to them.
How would you describe Argentina’s economy?
Argentine exports are dead, mainly because of Brazil. Everybody in the world is trying to depreciate their currency and Argentina has an exchange rate that is the equivalent to the one that prevailed at the beginning of the 2001 crisis. It seems impossible for Argentina to resist.
So there are no alternatives to devaluation?
Argentina has one net advantage. As a result of the vulture funds it’s relatively insulated from the global crisis. Now it has a decision to make on how it is going to respond. China and Brazil didn’t have a choice but Argentina does. There has to be an exchange rate adjustment and it will be difficult because everybody else is doing the same thing. You can do it on a gradual basis but you would be doing it in a non-gradual context, taking the real as an example.
The government claims that a devaluation isn’t necessary and can be replaced by a larger consumption thanks to counter cyclical measures. Do you agree?
If you continue to go counter-current, that means the exchange rate will remain low. The country has a big opportunity to do import substitution due to the global context. Now is the moment to support domestic industry. The question is if you do that by increasing consumption or by more direct policies to stimulate manufacturing industries. You should first do the second, that will then boost consumption.
Argentina saw huge economic growth in the first years of Kirchnerism but now the economy has slowed down. What are the reasons for that?
When I was working at the UN, I used to come to Argentina and present reports at the Economy Ministry. The first question I asked officials is how long they thought Argentina could grow at eight percent. Usually the response was, why I thought that was a problem. Everybody actually believed that eight percent was something that could go on forever—that’s the reason behind Argentina’s current situation. Still, Argentina survived the world economic crisis much better than any other developing country.
Does Mercosur need to be changed?
It’s pretty clear that it’s not working and that the Brazilians don’t want it. Argentina and Brazil are discriminating against each other but neither will admit they are doing anything wrong as it fits their national interest to do what they are doing.
What do you think about the country’s statistics?
There was a big mistake that was made at one point when politics triumphed over economics. I call it Argentina’s Richard Nixon moment. There was no way Nixon could lose his reelection and the same could be said about Kirchner. Despite that, they decided to change the statistics. The problem is not the efficiency of the statistics agency, but rather whether you report what you actually collect. Changing the way you collect statistics doesn’t change anything.