Argentina
More default and scandal in Argentina? Aldo Vacs explains the Wall Street connections of one and the political ramifications of the other: In 2001 Argentina defaulted on its debt, its economy shrank by 15%, and unemployment hit 25%. By 2004 the economy began to grow, unemployment declined to around 7%, and debt payments resumed. The current situation is more of a technical default, with some interesting Ameri- can angles. In 2005 President Nestor Kirchner negotiated with most of Argentina’s creditors to repay them at very reduced amounts and rates, and by 2010 Cristina Kirchner, his wife and successor, got more debt renegotiated on even easier terms.
But 7% of the creditors, mostly hedge funds that had bought the “distressed debt” at a discount on the secondary market, insisted on payment in full, to make a profit on their investment. Because the original debt contracts involved Wall Street, they specified payment in US dollars and dispute settlements in a New York court. That court ruled for the creditors last autumn: Argentina’s argument that its “sover- eign debt” is immune in America was rejected in favor of enforcing the contract. Argentina appealed, but the US Supreme Court declined to hear the case. To try to ensure payments to these creditors first, the court decision froze the funds that Argentina had deposited in New York for use in paying off the other debt holders. So if it doesn’t pay the 7% of creditors in full, its payments for the 93% that renegotiated are frozen—putting it technically back in default. Among the 93% are some influential Argentines, not just foreign lenders, so it’s a politically sensitive situation for the Kirchner government. One possibility is to try trans-
ferring some funds to Europe and renegotiating with the 93% to pay them in euros instead of dollars, but it’s hard to see how this can be resolved in the short term. Now we have a different crisis: the mysterious death of a special prosecutor investigating the Islamist bombings of the Israeli embassy and the central Jewish community center in Buenos Aires in 1992 and 1994. Efforts to find and extradite the bombers failed, and some victims’ families insisted on a special commission. The state’s attorney in charge, Alberto Nisman, reportedly found evidence that some Argentine intelligence-service officers helped the terrorists and that afterward the government tried to negotiate with Iran to call off Interpol’s search for the suspects. The day before Nisman was to present his evidence to the Congress, he was found shot dead in his high-rise apartment that was locked from the inside. Was it really suicide? One thing seems clear: Presi- dent Kirchner knows more than she’s been admitting. This will certainly influence this autumn’s elections. While
Kirchner cannot run again after her two terms, she could help nominate a successor in her Peronista party—unless she is tainted by this investigation scandal, in which case the opposition might regain office. The Kirchners increased jobs and raised wages and pensions, improved health care, and subsidized transportation, so Cristina retains support among the poor and working class. She also cracked down on tax evasion and foreign-currency transfers, generating opposi- tion among the middle and upper classes. Who knows what will happen at the polls, but certainly the Kirchner adminis- tration has been weakened. • Government professor Aldo Vacs, a native Argentine, recently contributed a chapter on international relations for the Hand- book of Latin American Studies.
20 SCOPE SPRING 2015
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