ARGENTINA– Who is Afraid of the Wall Street “Vulture Bondholders”?

imageStandard and Poor downgraded Argentina’s rating to SD (Selective Default) as a result of the failed negotiations between the representatives of the country and the so-called “vulture funds” of the Wall Street.  The amount in dispute is a mere 400 million euros.

All the agencies of international capital, including the political and economic elite of the Western countries speak about dire consequences about Argentina’s fiscal future if it did not honour its debt in full.  The government of Argentina, however, remained firm.

imageArgentina was declared default, in technical terms, by an obscure US court which decided in support of a particular Wall Street hedge funds company which demanded full payment plus high, astronomically high, interest on bonds sold by the government following the 2001-2002 financial meltdown.  Aforementioned bonds were bought by hedge fund companies more than ten years ago when the country was in a deep debt crisis for 48 million dollar.  The hedge fund company which owns the bonds now is demanding 832 million dollars, a 1,608 percent profit.

The Elliot Management Group, which owns a small part (7%) of such bonds, led by the right-wing multi-billionaire hedge fund mogul Paul Singer, had not originally purchased any of these bonds. They bought up the debt from the original investors at a knock-down price in early 2000s and are now demanding full repayment of the whole debt and huge interest payments, by using the full weight of the US courts and powerful members of the administration.

Most sovereign debt defaults are not the result of mismanagement or wild spending by sitting governments as claimed by the main stream Western media.  There are many examples where debts were repudiated because they were accumulated as a result of a dubious arrangement between global capitalist institutions and previous neo-liberal governments. Argentinian case is an obvious example to this.

There are various powerful individuals within the Obama administration who still have a Cold War mentality towards the Left-leaning governments of Latin America.  Just like the neocons of the previous administration, this group of Obama’s “new neocons” sees all Left-leaning governments as enemies.

Argentina has now the reserves to pay its creditors, even with this high interest, but the government of the country chose not to– a defiant Kicillof, Argentinian Finance Minister, said on 31 July: “We are not going to sign an agreement that jeopardises the future of Argentinians, …”

Argentina and the BRICS

In late July, Argentina was invited to the BRICS summit which met in the northeast Brazilian city of Fortaleza just after the World Cup.  Soon after the summit, Argentina signed a multi-billion euro worth investment deal with China.  China has just become Argentina’s second largest trading partner after Brazil.  Argentina has the world’s second largest lithium and one of the biggest reserves of gold, and has just become the third largest global exporter of potassium.  Argentina is also the world’s third largest soya and corn exporter.  China is the main buyer of Argentina’s soya.

According to the main stream Western financial opinion,  default is a nuclear bomb and such a country instantly loses any investment attractivity, therefore everything has to be done to avoid default. This is what the Elliot Management, the rest of the Wall Street, and the IMF and the World Bank think.  Therefore, seen from the West, Argentina is now a risky and unreliable country for investment. However, seen from the BRICS, Argentina is a free country, free from the impositions of the IMF and the World Bank. Argentina, the third largest economy in Latin America, is now a land of opportunity — opportunity for investment and joint development in the post-American century.

Kicillof said, in his statement of 31 July: “Argentinians can remain calm because tomorrow will just be another day and the world will keep on spinning”.

This technical default is unlikely to have a serious impact on the country in short-term. In long-term, however, this point in history may be remembered as yet another symbolic incident in the process of the Global Shift, a historic transition from the US-dominated world economy of post-World War II era to the new multipolar world of the Emerging Powers.


1 August 2014, Istanbul



This entry was posted in Current Affairs, Global Shift, History, International Relations, Political Economy, Politics. Bookmark the permalink.

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