This was followed by a poorly executed and suicidal war against Britain over the Falklands/Malvinas islands. Between 1983 and 2001, a number of democratic governments managed Argentina following the now discredited neoliberal economic policies based on the Washington Consensus. These policies had catastrophic consequences, amassing billions of dollars in debt.
By 2001, Argentina’s debt stood at over $100 billion which at the time amounted to 1.5 times Argentina’s GDP. The debt was so large that Argentina was not even able to pay its interest dues, so it had no choice but to make the largest default in the world’s financial history. After its default, most of Argentina’s creditors accepted debt restructuring. In 2005 and 2010, as part of the debt restructuring plan, the great majority of bondholders agreed to exchange defaulted debt at very low prices. However, others holders of debt did not, so they sued. “US District Judge Thomas Griesa … ordered Argentina to pay the holdouts, led by Elliott Management Corp’s NML Capital Ltd and Aurelius Capital Management, who rejected the swaps and are fighting for full repayment in the courts”.
The order shocked investors and outraged the Argentine government. Argentina’s President, Cristina Kirchner, stated that her government would not pay a single dollar to the vulture funds comprised of Elliott Management Corp, an affiliate of NML Capital Ltd and Aurelius Capital Management, which own $1.3 billion of the debt. For its part, Argentina’s Economics Minister referred to Griesa’s order as “judicial colonialism”. “The judgement breaches Argentine sovereignty and threatens the whole of the world’s financial system and we … are seeing a clear case of judicial colonialism. All we need is the arrival of the fifth fleet.”
Argentina’s restructured debt currently stands at nearly $25 billion. The result of this is that Argentina could default on its restructured debt payment of $3 billion to its exchange bondholders by not paying on December 15. The worst-case scenario is that the possible Argentine default could spread to countries in Europe, particularly Greece, which is facing massive financial pressures and distress as a result of colossal debt accumulated over many years of excessive borrowing. Indeed, the thought of default may not be too far away, thus threatening the financial stability of the whole of the Eurozone and the world.
This clearly is a worst-case scenario and one that is highly unlikely to occur, but the possibility remains. In the meantime, Argentina has received some breathing space. The three judges which upheld Griesa’s decision have postponed any decisions to February 27, 2013, when arguments by lawyers representing Argentina and the “vulture funds” argue over payment details. In the words of Felix Salmon: “My hope is that somewhere up the chain, principles of national sovereignty and smoothly-functioning markets will prevail, and Griesa will be overruled.”
The certainty is that in these times of global financial dysfunction, the biggest winners will be extremely wealthy New York lawyers who will be celebrating all the way to the bank with their exorbitant fees, while millions of Argentines will continue to struggle on a daily basis.
Alexis Sergio Esposto is a senior lecturer, economics, at Swinburne University of Technology.
This article first appeared at The Conversation.
