Last week, a U.N. tribunal ordered the release of an Argentine frigate docked in Ghana since October, when a group of hedge funds succeeded in getting a local court to hold the ship as collateral until the Argentine government made good on a $20 million bond. The bond, in turn, is just a sliver of the debt still contested in New York as part of Argentina’s nearly $100 billion default in 2001.
But Argentina’s scuffle with holdout creditors muddles the larger issue in legalese: South America’s most volatile economy is ambling once again toward collapse.
At its core, Argentina’s economic recovery post-2001 has relied on Chinese demand for commodities and Venezuelan financial assistance. However, those fillips no longer suffice for economic planning, and countries in a similar pinch are undertaking significant reforms. This is especially evident in Cuba, where a series of privatized industries are opening Cuba’s economy. And quietly Evo Morales, another stalwart of the Hugo sphere, has begun to strike a path independent from Caracas. Two months ago, Bolivia floated an international bond for the first time in 90 years, raising $500 million. Previously, such funding would have come from Venezuela.
By contrast, Cristina Fernandez has doubled down, further antagonizing the West and isolating Argentina. In 2011, Cristina Fernandez ordered foreign car dealers to try their hand at the other side of the ledger by exporting goods of the same value as the cars they imported: a Buenos Aires Porsche dealer opted to export wine. Then, earlier this year, President Fernandez nationalized the gas company YPF from Spain’s Repsol, a desperate attempt to cordon off a natural resource.
After almost a decade of unbroken growth, Argentina’s economy contracted 3.4 percent in the third quarter. Meanwhile, inflation gallops ahead at an estimated 25 percent. In the coming months, Cristina Fernandez will have to retreat from her claims that she will not pay the “vulture funds” of holdout creditors or else Argentina will go back into default. One hedge fund manager recently told the Financial Times that he expects Fernandez will “go scorched earth.” Fed up with the gimmicks, central Buenos Aires was arrested by a 500,000-strong protest against the government on November 9.
Somehow, Argentina manages a full-fledged economic implosion about every twelve years. In 1989, hyperinflation was the culprit; in 2001 massive debt was the problem. In 2013, it looks like Cristina Fernandez will be to blame.
Note: This post draws from an article on thenationalinterest.com. Photo from latimes.com
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