Happy hour is in full swing at Temple Bar, a lively British-style pub in Buenos Aires’ upscale Palermo Soho neighborhood. Over a pint of craft lager, a young economist, Martin Trombetta, admits it’s hard to tell from where we’re sitting that his country is in default again.
For many observers, it is difficult to be sure that this is even the case. president of argentina, Cristina Fernandez de Kirchnercontinues to insist that the country has not recently defaulted on its sovereign debt for the second time in 13 years, while its chief finance minister, Axel Kicillof, accuses anyone who thinks otherwise of doing “atomic nonsense”.
“We’re way off the mark,” says Trombetta, a labor econometrics researcher at General Sarmiento’s National University. “Leaving aside all the legal minutiae, our access to credit today is nil. The markets have backed it up.”
If the after-work crowd that fills the pub doesn’t seem particularly freaked out by this, maybe it’s because they’ve seen and heard it all before.
“I’m sure a lot of people are worried and confused,” Trombetta says. “But they already live in a country with the second highest inflation rate in the world. [after Venezuela]and I think they’re pretty used to Argentina’s business cycles now.” It’s also possible, and understandably, that they don’t fully understand all the legal minutiae.
After nearly 10 years of wrangling, the US government’s Kirchner court battle against a small but powerful group of foreign creditors has become so heartbreaking that even the presiding judge is accused of misinterpreting or ignoring certain terms of the bonds. exchanged in question.
According to Judge Thomas Griesa of the New York District Court, the release clause past bet stipulates that all holders must be treated equally. While a majority of Argentina’s creditors accepted a significantly reduced payment, or “haircut”, on their obligations when the external debt was restructured in 2005 and again in 2010, a minority of “residents” n have not entered into such an agreement.
So, according to Griesa, these investors — who own about 7% of the debt — are as entitled to a return on the total value of their bonds as the 93% who settled for less.
In June this year, Griesa ordered a block on the transfer of $539m (£324m) in interest payments from Argentina to ‘haircuts’, saying the ‘residues’ should first be satisfied.
The Argentine side (as Argentina has been referred to throughout the proceedings) in turn argued that Griesa was neglecting the “rights on future offers” (Rufo) clause, which effectively reverses past bet by prohibiting the full redemption of a bondholder without paying all the others at the same time.
If Rufo were activated, the $15 billion liability could eliminate half of the country’s already depleted foreign exchange reserves.
Argentina therefore declined, the July 30 deadline for settlement passed, and various rating agencies downgraded the country to “partial”, “technical”, “restricted” or “selective” default status, all conditions. rejected by Kirchner and Kicillof. “They’re going to have to come up with a new name,” the president said.
A name has been duly coined by those who tended to blame the judge for this mess, and the hashtag #GrieFault is trending on Twitter. On Tuesday, Kirchner used a nationally televised address to announce his intention to circumvent Griesa’s decision by making payments on his bonds through an Argentine bank — a move that stunned the bond market.
As the dispute took hold, the holdouts became better known as the Vultures. The hedge funds involved, including Paul Singer of Elliott Management, trial figurehead, are now referred to as enemies of the state in graffiti and official government-sanctioned signs throughout Buenos Aires that urge people to choose sides: “Patria o buitres” (homeland or vultures). For most residents, this is no choice at all.
As a leading member of Partido Obrero, Argentina’s Trotskyist workers’ party, Trombetta has no more sympathy for the “vultures” than anyone else. “They knew what they were doing when they bought these bonds for pennies on the dollar, hoping to score big on a struggling country. They’re like gamblers trying to sue the casino when they put a little money on the black 31 but it came red 32.”
Trombetta believes that in political terms, the concept of sovereign debt is “a mechanism of capitalist oppression”. Like many Latin American leftists, he sees the borrowing of US dollar treasuries by the military juntas of the 1970s as the “original sin” that caused the region’s economic problems.
This view is relatively common in Argentina, where the stock of national debt is tainted by still painful memories of the unelected dictatorship that first ruled it, and subsequent neoliberal governments whose failure to control led to the domestic deficit crisis of 2001 and the biggest default in history.
As an economist, however, Trombetta cannot side with the president or his late husband and predecessor, Nestor Kirchner, who effectively legitimized the debt when he restructured it in 2005 and swapped the bonds for more favorable interest rates under New York law.
“Making it an ideological fight against vultures seems totally wrong to me,” he says. “And Griesa is not the enemy either. He gave the Kirchners nine years to solve this problem with the resisters, and instead they spent all that time and money on bad economic policies that do not lead nowhere.”
Others in the capital still cannot fathom the idea of Griesa having jurisdiction over their country.
“I’m an ordinary man, the man of the street,” says Rogelio Dolavaraz, owner of the Don Pollo grocery store in the middle-class neighborhood of Nuñez. “I don’t know all the details. But I don’t agree that a judge from another country can checkmate us like that. And his judgment will have repercussions because the money has no borders. Money has no friends.” . When it comes to money, the truth is silenced.”
Dolavaraz wants to know why Barack Obama is allowing this to happen. And he’s not the only one asking.
Yet another legal clause in the US constitution could supposedly solve the whole problem.
“In accordance with the principle of “courtesy””, wrote investigative journalist Greg Palast in the Guardian in August“Obama need only inform Griesa that the Singer lawsuit interferes with the President’s sole authority to conduct foreign policy. Case dismissed.”
While Kirchner and Kicillof have seized on this, other commentators argue that there is no such mechanism in the United States for executive overruling of a court order. And three weeks after the default, the repercussions remain to be seen.
Internationally, it is not new that Argentina is called an economic disaster, and there was no stock market rout in Buenos Aires. The Buenos Aires index held steady in response to Kirchner’s hard line, and the world continues to spin as she predicted – although the bond market reacted negatively to her bet on Wednesday.
And if Kirchner prints more money to stay afloat through this crisis and maintain his government spending program, the country’s already astronomical inflation rate is likely to rise even higher and faster.
The effects, as always, will be felt hardest by the poorest. On the outskirts of the capital, in Villa 11-14 – among the largest and most notorious of the surrounding slums – Susana Arino, a volunteer drug rehabilitation worker, says she has no doubt that the defect “will eventually affect people from here”. . She adds: “You don’t hear much about them because they have bigger problems on a daily basis, but that’s not going to make their life any easier.”
Kirchner’s supporters often claim that her party’s social programs helped integrate slum dwellers, and by her opponents that she simply bought the vote of Argentina’s underclass. As a resident of neighboring Barrio Juan XXII, Arino says she hasn’t seen many signs of improvement since the disastrous year of 2001, or the subsequent debt restructurings of 2005 and 2010 that would have allowed the Kirchners to tackling poverty and unemployment.
“It looks to me like things are getting worse again,” Arino says, citing factory closures and layoffs as evidence of another ongoing recession. She believes, she says, that the country should simply pay its debts. Even if he empties the reserves? Arino shrugs. “Nobody in this neighborhood would ever see that money anyway.”