With a new debt swap in place, President Christina Fernandez de Kirchner plans to end the eight-year-long muddle that started from a massive default in 2001. Manish K. Pandey argues that most of this is balderdash in a new bottle by the incorrigible Argentina, and that Argentina should not be bailed out by the developed world! Ever!
For a woman whose combined wealth (with her husband, the former Argentine President, Néstor Kirchner’s) has increased by 700% since 2003, when Néstor became President, and for one whose family owns over 450 acres of land in the classy Santa Cruz province, it surely must be a boring job for President Christina Fernandez de Kirchner trying to peddle out guarantees after guarantees to global powerhouses in her sweet attempts to get them to rescue Argentina from the current economic doldrums.
She might be the former President’s wife (since 34 years!), but Christina is surely no spring chicken ready to ease her neck into the Orwellian rat trap. One of the smoothest operators on the Argentine political scene – the poor and rural sections of Argentina actually voted her to power (while she lost in the three biggest cities) during the 2007 Presidential campaign – Christina’s latest moves to woo the international community might well have worked brilliantly, but for the fact that dear Abraham Lincoln left behind a huge legacy and a small saying: “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.”
In her attempts to whittle down Argentina’s defaulted debt to a point where it can at last be accepted back into world capital markets, Christina has delivered a bill to Congress which, if approved, proposes to end the long-running muddle that started from a massive default eight years ago. If passed, the bill would suspend the so-called “Ley Cerrojo,” or Bolt Law, which prohibits the government from reviving talks with those investors (or so called holdouts) that didn’t participate in the 2005 debt restructuring programme! And the reason Christina is being forced to bring out such truant bills, as one of the international analysts told us, is because the nation has slowly – of its own undoing – squandered away access to financial markets and “unless the government regains access to these markets, it will have to reduce public spending that has driven economic growth over much of the past five years!”
Well, for starters, it all began one fine morning during the fall (April, to be precise!) of 1991. Like all other emerging markets in Latin America, Argentina’s then Economy Minister Domingo Cavallo too had in a knee jerk reaction chosen to pursue a dual strategy of macroeconomic stabilisation and deep market restructuring to fight the killing inflation (reached 5103% in 1989) that had grappled the country.
However, the vital twist in Argentina’s case was the ridiculous ‘Convertibility Plan’, which tied the peso to the dollar (overnight, 1 peso became equal to 1 US dollar) in the same manner in which the gold standard once tied the value of local currencies to precious metals. Surprisingly, despite some hiccups along the way, the ‘ridiculous’ plan worked! It brought a swift respite – annual inflation came down from 5000% and more figures to less than 5% in 1994. Even the annual economic growth averaged nearly 10% between 1991 and 1994.
What’s more, by the end of 1998, the boom had resumed. The economy was flourishing and so were the lenders at Wall Street who were busy financing the massive borrowings by the Argentine government. However, Argentina’s debt burden was growing and not many knew that the spring that had started for the Argentine economy during the fall of 1991 was heading towards a drastic ‘fall’ during the ‘spring’ of 2002. In fact, by January 2002, Argentina had coolly defaulted on a whopping $90 billion worth of debt, the biggest sovereign default in international history. The Argentine economy was contracting at a pathetic 11% pace and unemployment was hovering over 20%. The result: Argentina, as a nation, lost its credibility in the international market. From a poster child, many were referring to it as a basket vase!
“The good life seemed to have eluded Argentina. Unable to shake a deep recession triggered by Brazil’s currency devaluation in January 1999, a country that once enjoyed emerging-market status was looking more like the same old underachiever,” say Manuel Pastor and Carol Wiseauthor of the Global Policy Forum. And since then, Argentines have seen nothing else, but consecutive presidents being chased through the streets by rioting mobs. In fact, seven subsequent presidents have come and gone but no one could regain Argentina’s lost credibility in the international market.
She might be the former President’s wife (since 34 years!), but Christina is surely no spring chicken ready to ease her neck into the Orwellian rat trap. One of the smoothest operators on the Argentine political scene – the poor and rural sections of Argentina actually voted her to power (while she lost in the three biggest cities) during the 2007 Presidential campaign – Christina’s latest moves to woo the international community might well have worked brilliantly, but for the fact that dear Abraham Lincoln left behind a huge legacy and a small saying: “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.”
In her attempts to whittle down Argentina’s defaulted debt to a point where it can at last be accepted back into world capital markets, Christina has delivered a bill to Congress which, if approved, proposes to end the long-running muddle that started from a massive default eight years ago. If passed, the bill would suspend the so-called “Ley Cerrojo,” or Bolt Law, which prohibits the government from reviving talks with those investors (or so called holdouts) that didn’t participate in the 2005 debt restructuring programme! And the reason Christina is being forced to bring out such truant bills, as one of the international analysts told us, is because the nation has slowly – of its own undoing – squandered away access to financial markets and “unless the government regains access to these markets, it will have to reduce public spending that has driven economic growth over much of the past five years!”
Well, for starters, it all began one fine morning during the fall (April, to be precise!) of 1991. Like all other emerging markets in Latin America, Argentina’s then Economy Minister Domingo Cavallo too had in a knee jerk reaction chosen to pursue a dual strategy of macroeconomic stabilisation and deep market restructuring to fight the killing inflation (reached 5103% in 1989) that had grappled the country.
However, the vital twist in Argentina’s case was the ridiculous ‘Convertibility Plan’, which tied the peso to the dollar (overnight, 1 peso became equal to 1 US dollar) in the same manner in which the gold standard once tied the value of local currencies to precious metals. Surprisingly, despite some hiccups along the way, the ‘ridiculous’ plan worked! It brought a swift respite – annual inflation came down from 5000% and more figures to less than 5% in 1994. Even the annual economic growth averaged nearly 10% between 1991 and 1994.
What’s more, by the end of 1998, the boom had resumed. The economy was flourishing and so were the lenders at Wall Street who were busy financing the massive borrowings by the Argentine government. However, Argentina’s debt burden was growing and not many knew that the spring that had started for the Argentine economy during the fall of 1991 was heading towards a drastic ‘fall’ during the ‘spring’ of 2002. In fact, by January 2002, Argentina had coolly defaulted on a whopping $90 billion worth of debt, the biggest sovereign default in international history. The Argentine economy was contracting at a pathetic 11% pace and unemployment was hovering over 20%. The result: Argentina, as a nation, lost its credibility in the international market. From a poster child, many were referring to it as a basket vase!
“The good life seemed to have eluded Argentina. Unable to shake a deep recession triggered by Brazil’s currency devaluation in January 1999, a country that once enjoyed emerging-market status was looking more like the same old underachiever,” say Manuel Pastor and Carol Wiseauthor of the Global Policy Forum. And since then, Argentines have seen nothing else, but consecutive presidents being chased through the streets by rioting mobs. In fact, seven subsequent presidents have come and gone but no one could regain Argentina’s lost credibility in the international market.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
