Sunday, June 22, 2014

A pretty kettle of vultures

To judge from what is being said in financial centres abroad, few people feel much sympathy for Argentina

Humankind cannot bear very much reality, as T.S. Eliot reminded us in his poem Burnt Norton. This is especially true of populist politicians who all too often try to replace it with something they think voters will find far more pleasing. Their efforts usually prove counterproductive. Left to fester, problems that could have been solved without much difficulty had a government taken them seriously early on tend to get steadily worse until they become unmanageable. It is far better to try and deal with inflation when it is just beginning to make itself felt that to wait until it starts wreaking havoc. It would also have been better had Cristina done her best to see that reserves remained as high as they were when her husband handed her the presidential regalia and, just in case, had tried to butter up judge Thomas Griesa when he still seemed reluctant to throw Argentina to the vulture funds.

Last Monday, Cristina learned, to her evident distress, that despite her recent efforts to be good by paying the Spanish firm Repsol and the Paris Club countries what was owed them, Argentina had still not broken free from the huge foreign debt it had managed to pile up before she and her husband arrived on the scene. Along with many other people, she had assumed that, thanks to Nestor’s tough bargaining tactics, disgruntled creditors would do nothing to prevent her from borrowing more money to tide her over until the end of her term in office, and that the universally detested vulture funds that were circling overhead could be kept at bay for another year or so.

But then, by refusing to get involved in what to its members must seem a grubby business in which they would have to choose between standing up for legally-binding property rights and thinking like politicians or economists, the US Supreme Court brushed aside the advice given it by US president Barack Obama and the IMF’s Christine Lagarde and in effect backed a ruling by Griesa that ordered Argentina to give the vultures the one and a half billion dollars they are after.

As hardly a day goes by without some corporation buying for ten or twenty times as much a firm most people have never heard of, the amount at stake may not seem very important, but there are many other vultures out there who can be expected to demand more, as indeed could other creditors that had agreed to the military-style haircut Néstor Kirchner offered them. Should they all pile in, Argentina would soon be flat broke. That may still seem unlikely, but some very hard times could be in the offing.

After having spent years asking the vultures to be a bit less greedy and trying to get Argentina’s representatives to adopt a more conciliatory approach, Griesa finally decided to put an end to the quarrel. Apparently, the vulture fund lawyers were more persuasive than the ones hired by Cristina to defend her country’s interests, let alone her own occasional comments that no doubt pleased her supporters but annoyed the judge and therefore helped her foes. Presumably his decision to make Argentina cough up was based on sound legal reasons, but many think he simply got fed up with being told by Cristina that she would refuse to pay any attention to a verdict that did not meet with her approval. Many local politicians think it was her behaviour that made Griesa turn nasty. They accuse her of getting the country into a wretched mess that, had she kept her mouth shut, it could easily have sidestepped. That may be unfair, but by staging a one-woman show Cristina ensured that should anything go badly wrong she would have to shoulder all the blame.

To judge from what is being said in financial centres abroad, few people feel much sympathy for Argentina. The general view is that the country is a serial defaulter whose politicians make a habit of borrowing large sums of money without intending to pay any back. As not only Peronists but also many Radicals and leftists appear to be convinced that any investor who expects to get his money back is a heartless loan shark determined to exploit the poor, such attitudes are hardly surprising, Outsiders also assume that, as Argentina is enviably rich in natural resources and most of its inhabitants are of European origin, if it keeps going bankrupt it must be because its politicians, some of whom are rich even by US or Chinese standards, are crooks.

Many Argentine politicians and their cronies are as corrupt as they come, but so too are others in countries, such as Italy, that have managed to prosper. But in relatively wealthy countries, and others, such as China, that are on the way up, most people are well aware that, for all its faults, free-enterprise capitalism works better than any alternative its critics have endeavoured to contrive. In Argentina, the dominant view is that because the country is by definition rich, its leaders and thinkers should limit themselves to seeing all that money is shared out in a more equitable, or politically more advantageous, manner. That is certainly what Cristina and her supporters believe. They are all, fierce enemies of what they call “neoliberalism”, in their view a reactionary determination to prevent public spending from going through the roof, and so have not made the slightest effort either to balance the books or spare a thought for those pesky creditors who, led by a kettle of vultures, have for over ten years been begging for scraps from the great Kirchnerite boom Cristina was once so fond of boasting about.