Argentina: facing the vultures

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Facing the vultures (vultures = the big black birds that eat dead animals)

by Vanessa Baird

Argentina is strong, creative and risky. It is not usually affected by international pressure and financial power – or by proponents of austerity.

‘It’s like music, says Arnaldo Bocco.

‘You can play from written music, or you can change the music as you play. If you find, while playing, that the music isn’t so good, then the person who wrote the music, if they have a closed mind, will feel bad.

‘But if they have an open mind, they are going to think it’s brilliant that by improvising you have created something that no-one would have imagined.’

Bocco is a leading economist and ex-director of the Central Bank, who now advises the government of Argentina.

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Arnaldo Bocco (Vanessa Baird)

Talking about music is really a way of talking about the country’s unusual way of dealing with economic problems. But it is punished for this by the big powers in international finance.

First, Argentina declared it was going to refuse to pay $95 billion of debt in 2001 – the biggest default in world history. Then it started to restructure its debt – without asking the IMF for help or making cuts.

Instead of this, it was strong and during the next few years made tough bargains with most of the bond-holders to exchange the bad bonds for ones worth around 65 per cent less.

At the same time, Argentina invested in the national economy and structure of society, and created more jobs. It was able to pay the debts faster than it needed to. It also benefited from high commodity prices. By 2006 it had paid all its debt to the IMF.

In 2003 Argentina’s foreign currency debt was 120 per cent of GDP. In 2012 it was only 14 per cent. They didn’t want another 1980s-style debt trap, so Argentina has not taken on new debt. It has been putting money from domestic savings, extra money from trade, and international reserves into paying the public spending deficit.

Under attack

But today Argentina is again in a very big financial and legal battle. The Financial Times said it was the biggest debt trial of the century.

For the past decade a small group of hedge-fund speculators has been trying to get large amounts of money out of the South American country. Most of the creditors – those holding 93 per cent of Argentinean bonds that crashed in 2001 – had accepted lower value bonds worth 33 cents to the dollar. The government has been reliably paying out on these since 2005. According to financial services firm Morgan Stanley, these creditors have done well out of the restructured securities.

But a few tough speculators – called ‘vulture funds’ – refused to accept the lower-value bonds they were offered.

Billionaire hedge fund manager Paul Singer, who owns NML Capital (part of Elliot Management), is leading the demand for $1.3 billion plus interest. This is 100-cent of the value of dollar bonds they bought for only 12 cents each in the early 2000s. A lot of the debt came from the military period, when finance was managed very badly. But NML is extremely greedy –last year it took control of an Argentinean naval ship, the Libertad, in Ghana.

In November 2012, a New York court decided NML et al were right and ordered Argentina to pay the $1.3 billion immediately. District Judge Thomas Griesa also said it would be illegal for Argentina to continue to exchange bondholders. This could force the country back into crisis.

In February, lawyers for Argentina at the New York Court of Appeals stayed strong; they said the government would rather not pay than meet the unfair demands of the vulture funds.

Vulture funds are what their name says. They are rich speculators keep looking at countries or companies with a lot of financial trouble. They buy the debts at very low prices and bet that it will go bankrupt.

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When food prices rise, this affects the poor most. And it makes people steal. (Vanessa Baird)

They use courts to invade some of the poorest countries. In 2007, Donegal International, from the Virgin Islands, used a London court to get $15 million out of Zambia for debt which it had bought for just $3 million – it had demanded $55 million. New York fund FG Hemisphere, led by Peter Grossman, is now trying to get $100 million from one of the poorest countries in Africa, DR Congo.

A lot of people know about the Argentinean case because of the way it threatens the entire global system of debt restructuring. If the vultures get what they want, it will be easier for many other countries to be attacked – countries like Greece, Cyprus, Ireland and Spain, for example, but also companies such as AIG in the US. More power will go to the greediest and least co-operative creditors. This threatens the agreements made now and in the future. And, as the Financial Times said: ‘It is dangerous to trap countries in debt that it is impossible to pay.’

At the end of March Argentina made a new offer to the vultures, a mix of cash and bonds that would still give them a big profit, but not as big as they want. The vultures, as people expected, said no. Now Argentina will probably take this to the US Supreme Court.

And campaigners, such as the Jubilee Debt Campaign, and other people, including the chair of the World Economic Forum, Klaus Schwab, are urgently trying to get new international rules to control vulture funds.

'We are not in crisis'

The battle against the vultures is worrying, but it has given Cristina Kirchner some PR opportunities –like the happy return of the ship Libertad, when she was able to say: ‘There are vultures. But I listen to the people.’

The newspapers of the opposition, mainly the Clarin group, are not impressed. Argentina’s economic policy – active not passive –has effects that many middle-class and wealthy Argentineans do not like at all.

To try to stop money leaving the country, they have limited the amount of money Argentineans can take or spend outside the country. The exchange rate for the Argentinean peso is being kept, some people say, at an artificially high level. This keeps the illegal parallel market in dollars going.

The economy is not growing as fast as it was – eight per cent in 2011 to only two per cent in 2012. They say this is a sign of bad economic management. The government says this is because of external reasons eg. an economic slowdown and poor harvest in Brazil, Argentina’s main trading partner.

‘We are not in crisis,’ Bocco says. ‘If you are on a motorway and you suddenly go from 80 to 20 the passengers will probably ask “why are we going so slowly?”.’

But the country is basically healthy, he says, and economic growth in Argentina will rise again in 2013.

Inflation is a bigger problem. And this affects the poorest people more. Argentina has often had high inflation. But there is a very big difference between the 11-per-cent official rate (produced by INDEC, the government’s statistics agency), and the 25-per-cent rate calculated by private consultants and used by unions when trying to agree wages. The government is developing a new national index with the help of the IMF. And the IMF has said publicly it does not trust the official rate. The government has made an agreement with the main supermarkets for no price rises, to try to reduce inflation.

One of the most interesting things about the Argentinean approach, especially for Europe and North America and their austerity, has been the focus on jobs.

Ten years ago, Argentina had 24 per cent unemployment– by 2012 it was about 7.2 per cent.

After the 2008 global financial crisis, Argentina invested a lot in production. State banks lent money to foreign companies like Fiat and Chrysler to grow in Argentina. The motor industry is today the largest part of the economy – even though they increased in agri-industrial production too, especially soya.

They are determined to defend jobs, so they have also protected trade and controlled currency. This has made trading partners like Uruguay and Brazil unhappy. But, according to Bocco, it’s US companies that are most angry.

Not so green...

Argentina’s development model is still, in some ways, traditional and industrial. There’s not much space for environmental sustainability, green economics or ‘zero growth’ ideas.

‘We have come out of a long crisis. We are creating greater quality of life and health, and many people think the environmental fight is mainly for the elite,’ says Bocco. ‘Work and employment, is more important than environment, which people do not talk about much’. He corrects himself: ‘Well… the government talks about it, says it will protect glaciers, says it is protecting forests. But at the moment of decision, the first thought is for investment and employment. It’s an economy of the 1960s, with the Keynesianism of the Sixties, and I say this with respect.’

And, even though the oil company YPF was controversially nationalized (before, it was mainly owned by Spanish oil giant Repsol), the government is not planning to fight against big corporations.

Argentina said it would freeze the assets of US oil company Chevron, because they did not pay its fine for pollution in Ecuador. But it is now having discussions with Chevron about exploration for shale gas at Vaca Muerta (possibly the world’s third largest reserve of shale gas).

The media has criticised Argentina’s economic policies –in the international press too – but this does not worry Bocco too much. ‘I think economic policy is going to be our strongest idea to fight next election (October 2013),’ he says. There may be a few enemies – including vultures.

‘Our government will do nothing to fight soya or mining interests’

‘There is a real problem with the increase of soya,’ says Natalia Salvatico of Friends of the Earth Argentina. ‘Nineteen million hectares have been planted – that’s 65 per cent of the area where plants can grow. Monsanto is the most powerful company, with its transgenic (GM) varieties.

‘Soya is bad for food sovereignty and public health. GM crops need agro-toxins. We have found agro-chemical toxins in mothers’ milk in the Buenos Aires area. Children are getting ill. In Corrientes, a child died because they were spraying toxins too close to rural schools.

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Natalia Salvatico of Friends of the Earth Argentina (Vanessa Baird)

‘But our government will do nothing to challenge either soya or mining interests. In 2010, the government passed a law to protect glaciers (there are 600 in the country, but they are threatened by mining). We are still fighting to get them to enforce this law. Some local governments refuse to follow the law, because they have economic links with mining companies, eg. the Canadian mining company Barrick Gold. We have started a campaign against Barrick because it stops the law working. It does open mining and uses poisons eg. cyanide that North American mines have not used for 20 years. The government does not stop them - they do not enforce the laws. The excuse is, “we need this investment”. Some people say that mining helps the local people get out of poverty – but Catamarca, where most of the mines are, still has the most poverty. Where does the money go? ‘The government talks a lot about sovereignty (local power of independence) but it allows transnational corporations to take resources out of the territory. People say that in the Andes, between Argentina and Chile, there is a third country – Barrick Gold land. You can’t go there because it belongs to Barrick Gold. It’s a country that does not follow the laws of Argentina or Chile. We’re not fighting for the country, but the local people of the area, and what they are losing.’

As this article has been simplified, the words, text structure and quotes may have been changed. For the original, please see: http://newint.org/features/2013/06/01/argentina-vulture-funds/