Okay, so Argentina elected a neoliberal president. He went to deep austerity, removed capital controls, and sought an IMF bailout.
Argentina’s problems have a long history, but it’s worth remembering this: Before WWII, it was a first world country, with a standard of living about equal to Canada’s.
Argentina partially defaulted in 2001. We should remember that that default was caused by following the conservative policy of pegging the Peso to the dollar, which any moron should have known would eventually backfire.
It is also worth remembering that, when Argentina defaulted in 2001, it wasn’t actually allowed to. American courts wouldn’t let Argentina pay the creditors who allowed their debt to be reduced unless they also paid those debtors who didn’t take the deal.
We live in a stupid, perverse world where people don’t understand that there has to be a balance between debtors and creditors. Creditors are making a bet, and if they lend to the wrong entity, and that entity eventually can’t pay back the debt, they should have to eat their losses. Don’t lend to people who can’t pay you back. Everyone knew that Argentina was going to have debt problems, every time, but they took the chance because they wanted high returns.
But the central financial system, the NY and London courts, and the IMF act as debt collectors for people who want the upside of high payments from distressed borrowers without the downside of possibly losing the money.
Worse, they act as enforcers for bad actors, who won’t cut deals, and expect to litigate.
Debtors may lose some money, but leg-breaking countries for rich debtors kills and impoverishes poor people.
Now, none of this is to say Argentina hasn’t made mistakes. Flipping back and forth between neoliberals and socialists is stupid. Pick one, and suck it up. Electing Macri was stupid, but then being outraged when he does what a neoliberal technocrat would do (i.e., austerity and sucking up to the IMF) is equally stupid.
Pick a governing philosophy and elect governments that adhere to that philosophy until the leading parties all follow it (like when Labour became neoliberal under Blair, cementing Thatcher’s victory).
Right now, Argentina is getting the worst of both worlds.
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Tom
I think you meant, “till they paid those who did not take the deal.”
That said, Argentina should have ignored US Courts, paid those who took the deal, and banned the companies that didn’t take the deal and seized their assets and threw the executives in jail.
Ian Welsh
Woops, thanks for the catch Tom.
Problem is they couldn’t send the money to them. All those people would have had to come to Argentina physically and accept physical cash, if Argentina had it.
Perhaps that could have been done, not sure.
StewartM
Expect the PTB to double-down on Argentinian socialism, until it “fails” largely because it was welcomed with a hefty shove.
Then, if a Jair Bolsonaro follows, then there will be some gnashing of teeth among our elites, but people forget JFK’s maxim that those that make peaceful reform (and a good economy for everyone) impossible just make violent revolution (and/or a shittier world for everyone) inevitable.
Jerry Brown
Nice post and I completely agree. When our government acts to enforce private claims on foreign governments at least two things happen- it subverts the foreign government’s sovereignty (and their peoples), and it subsidizes risky investments ‘over there’. In other words it makes domestic investment relatively less attractive. It is ethically wrong and it is often economically stupid to boot. The US only gets away with this because we are world class bullies. I think it used to be called ‘gunboat diplomacy’. Maybe it still is.
Mark Pontin
Ian wrote: ‘Argentina’s problems have a long history, but it’s worth remembering this: before WWII, it was a first world country, with a standard of living about equal to Canada’s.’
And at the turn of the 20th century, when Borges was born (well, 1899), Argentina was even wealthier — one of the ten richest countries in the world and considered a competitor nation to the U.S.A in terms of attracting immigration from the Old World.
bruce wilder
Flipping back and forth between neoliberals and socialists is stupid. Pick one, and suck it up. Electing Macri was stupid, but then being outraged when he does what a neoliberal technocrat would do: austerity and sucking up to the IMF is equally stupid.
Pick a governing philosophy and elect governments in that philosophy until the leading parties all follow it
Two reactions:
1.) The agnatology of economics — conventional theory, education and popular propaganda — play a very large role in creating a politics of stupid as the default option. “Throw the bums out” dissatisfaction is an inevitable reaction, but if it can be made especially undiscerning, it becomes futile and self-defeating with regard to majority interests.
Argentina has had long experience with being Argentina, commodity-trade dependent in the global South, one might imagine that the Argentinian person-in-the-street would have some base intuition concerning what constitutes a plausible policy. At the very least, a big slice of skepticism concerning borrowing abroad in foreign currencies subject to American or British law.
The stubborn ignorance of economics plays a big part in the success of pro-plutocratic politics aimed at creating volatility and using debt to separate relatively poor people from any accumulation of wealth.
2.) Any policy ideology with a chance of success in the moment has to be adaptive in that moment, even if its success will tend to create or make acute problems the nature of which it, by design so to speak, neglects and exacerbates. Incremental adjustment within the paradigm extends the success by meliorating the effects of the negligence. But, all ideologies eventually fail. The situation changes.
Ideology itself is an admission that belief is always too rigid. Even when an ideology may be right in the circumstances, implementing the ideology as policy will change the circumstancex more than it will change the ideology itself. Losing faith is adaptive?