Welcome to China South America @ World Press

Welcome to the CSA of WorldPress.  I apologize if you are a first time reader and you happen to stumble upon some posts which have yet to be scanned for mistakes which may have occured when transferring the content of this blog.

Categories are still be updated / organized so that they reflect the tags, previously found on the previous host of CSA.

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The return of China South America

你好 朋友 (hello friends),

China South America will be returning to cyber space tomorrow, Aug 11, 2009.

I apologize for the recent absence of updates, I have been traveling in China where access to sites such as this is limited.

We’ll return to China South America’s usual mix of current events relating to China & South America, commodity markets, micro finance and of course my own analysis and writing on the world.

~ Benito

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Argentina’s debt; finding a middle ground

[Argentina Analysis] — Perspective from a recent college graduate with a econ degree

Argentina’s beloved Maradona

When I entered American University in 2004, one of the most popular topics of conversation among the students studying International Relations or Economics, was the Argentine economic crisis of 1999-2002.

As a young Peruvian-American, studying economics, I frequently found myself debating the event with people from all over the world, including Latinos. It seemed that students, teachers and the authors of our textbooks had all gotten together and decided to use Argentina as a prime example of how

a) The Washington Consensus had failed

b) The IMF and other regional lenders had doomed Argentina by lending money with unfair “strings attached”

Let me make one thing clear… American University is a VERY liberal school.

I quickly came to feel a consensus had been reached within the classrooms of American University (AU). Argentina emerged as the symbolic victim of IMF abuses and the misguided Washington Consensus of the 90’s.

Pegging the peso to the U.S Dollar, initially a wise decision to help stem inflation, was doomed to fail from the start because there would be no way Argentina’s industrial and labor sectors would be able to adjust to a appreciating dollar.

Economists and foreign policy buffs at AU did not argue the value of having a lending system, the global economy after all needs one. However, it became very easy “for the average Joe” to accept Argentina’s default during this era of backlash against the Washington Consensus and also of course in the midst of a liberal University environment.

I will be posting this article on the American University Alumni LinkedIn and Facebook group, hoping to get some feedback from students currently attending. Which I will then share on ChinaSouthAmerica.com

If you have not yet heard or read, there are a few “liberal democrats” in the House of Representatives trying to get Argentina to pay up. I have included a few paragraphs from this MercoPress article which outlines their efforts.

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The bill, H.R. 2493, called the Judgment Evading Foreign States Accountability Act of 2009, would bar from US capital markets any nation that has been in default of US court judgments totaling more than 100 million US dollars for more than two years. The legislation would also require the US government to consider the default status of these countries before granting them aid.

“Argentina is ignoring billions of dollars in US court judgments, which has hurt not just US citizens, but also Argentine citizens,” said ATFA Executive Director Robert Raben. “US taxpayers are still waiting to be repaid money they lent to Argentina in good faith.”

The effort is being led by Representative Eric Massa, a Democrat from New York State who was raised in Argentina while his father served as US Naval Attaché in Buenos Aires. Also introducing the legislation were Representatives Paul Tonko (D-NY), Robert Wexler (D-FL), Timothy Bishop (D-NY), Carolyn Maloney (D-NY), Dan Maffei (D-NY), Mike McMahon (D-NY), Ed Towns (D-NY), and Brian Higgins (D-NY).

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Generally speaking, Latin America was happy with the election of Barack Obama. Many experts believe, and I happen to agree, a new era in U.S-Latin American relations has been initiated. After eight long years of being ignored by President Bush who would argue?

In Argentina, Obama’s election was welcomed by Cristina Fernandez. However, as this MercoPress article explains, Argentina’s President is finding herself increasingly isolated. The most frequent visitor to Argentina has become Hugo Chavez. Fernandez has not been invited to the White House like her Brazilian and Chilean counterparts. Obama also neglected to make a pit-stop in Argentina, as he did in Mexico, on the way to the Summit of the Americas. For the third largest country in Latin America after Brazil and Mexico, this should be insulting, and… indicative of the way the international community and the United States currently view Argentina.

“Che! We got no money!”

Additionally, within the region, Argentina has ongoing political disputes with: neighboring Chile over energy exports, with Uruguay over a bridge that links the two countries, various trade disputes with Brazil within the Mercosur community, and has banned the crossing of Bolivian and Paraguayan soybeans through Argentine territory–which much infuriate two land lock countries trying to export their produce.

Joaquin Morales Solá, a leading political analyst, writing a column in La Nacion recalls, “that there have been no major foreign visitors to Argentina for over two years, precisely since then President Nestor Kirchner left the Queen of Holland waiting at an official ceremony; he never turned up and never apologized. The only and sporadic “business” visits have been from Chavez, Lula da Silva and Bolivia’s Evo Morales.”

Furthermore Obama is not Bush, he’s one of the most popular world leaders and Chavez short of oil revenue can’t attack the US president. Nevertheless says Morales Solá, the only leader visiting Argentina is heading for the perfect dictatorship: a ban on the import of books and only official Chavez, Bolivar and Marx texts at school. The leader of the Venezuelan opposition and elected mayor of the country’s second largest city was forced to take refuge in Peru; the nationalization of industries, confiscation of companies and land advances since “private property” can’t be an impediment for the revolution. Chavez is determined to end with the independent media and has virtually broken relations with Israel and the local Venezuelan Jewish community.

So with all this drama… let me now ask. “Should Argentina be forced to pay back its debt to foreign creditors?

When I was a first year university student I would have answered NO. Five years later, my answer has changed, albeit slightly.

Yes, the polcies put in place by the IMF in Argentina in the late 90’s were extremly unfair. I am not debating this. However, I do not think it is wise for Argentina to continue refusing to pay their debt. Ecuador recently followed in Argentina’s footsteps, defaulting on their own foreign debt as bonds came due. Both countries have offered their debt holders reduced payback (ie: $.50 to the $1.00), but as of now no deal has yet to be reached with Argentina and their creditors.

According to this MercoPress article, a team of Argentine economists concluded in 2006 that Argentina’s default status causes the nation to lose more than 6 billion US dollars in foreign direct investment every year, reports MercoPress in this article.

Furthermore, by the estimates of the President of the American Task Force Argentina (ATFA), Robert Raben “President Kirchner has said several times she’s prepared to negotiate with bondholders, but we’ve seen no action whatsoever,” Raben said. “Argentina has 45 billion in reserves and can afford to pay its 3.5 billion in debts to US bondholders many times over. It’s time to resolve this issue for the benefit of both nations.”

Of course this doesn’t mean they can afford to use their $45 billion to pay off international investors… they need it for many other things like making sure the Argentine Peso doesn’t slip off the fact of the earth. Nonetheless it does not help when you consider the creditors are aware of this, and that Argentina’s leadership has been incredibly unwilling to compromise.

I know one thing, Latin America will continue to need to borrow money. The Bank of the South and other regional lending institutions can not replace the United States or the IMF any time soon.

Argentina can cry about how unfair the loans they must repay are, but reaching some type of deal would at least allow Argentina to gain access to international capital markets once again. For a country with so much potential, the current government really knows how to hold a grudge.

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