The Chicago Tribune on the bonds dispute: ‘Cry for yourself, Argentina’
The Chicago Tribune, one of the leading Midwest US newspapers has been following closely the dispute in New York courts between the Argentine government and investment funds that are demanding full payment of sovereign bonds.
The following editorial motivated a strong reaction from the Argentine ambassador in Washington Jorge Argüello, despite the fact it is an objective piece based on facts and events which argues that Argentina’s populist economic policies court disaster.
What a shame to see a country of such great economic promise swerving off the road to prosperity again.
The latest in a history of unforced errors began in 2007. National elections ushered in populist President Cristina Fernandez, who has led her nation to the brink of disaster by refusing to play by the rules of global finance. She restricted international trade, violated contracts and pumped out phoney data to disguise the soaring inflation her policies brought about. All the while she scored cheap political points by blasting the rich countries of the north for their supposed economic imperialism.
Argentina took a grave step in May when it nationalized YPF, its main energy company. The takeover, condemned around the world, forced out Spain's Grupo Repsol, which owned a majority stake in YPF. Repsol was providing the engineering know-how and financial investment to develop Argentina's massive energy reserves—including the huge Vaca Muerta oil-and-gas find.
Negotiations to compensate Repsol for Argentina's asset-grab will end badly for Argentina. The European Union is likely to impose sanctions. Repsol wants 10 billion, and it has sent the message to rival energy companies that it will not permit others to profit from its confiscated assets. Argentina will have a hard time finding partners to help it develop what should be a lucrative resource.
The financial coup against Repsol won strong national support. The approval ratings of Fernandez temporarily shot up. Even opposition parties backed the move. Government officials talked about how they had restored Argentina's dignity by standing up to foreigners exploiting its natural bounty. Meantime, Cristina Fernandez kept the once-hot economy going by nationalizing private pension funds, redirecting the money into housing loans, and expanding welfare programs by decree.
Now Argentina has to pay the price.
Despite its vast potential, this Latin American giant is hurtling toward default. Its economy is slowing. It is running out of hard currency. It is running short of oil and gas too: It became a net importer of energy last year, despite having vast reserves in the ground. Standard & Poor's recently cut Argentina's long-term sovereign credit rating, and may cut it again.
None of this dismal reality compares to the trauma that Argentina experienced during its sovereign debt default in 2001-02. The currency collapsed, businesses failed and economic malaise left deep scars. Compared to those dark days, times remain good.
But the good times can't last. Among other problems, Argentina still suffers from its failure to normalize relations with the rest of the world after 2001. It has limited access to international credit markets. It lacks credibility.
A federal appeals court in New York recently affirmed a ruling that will force Argentina to recognize the claims of investors who still hold its bonds from the default. The decision is likely to boost the cost of the country's debt service, and make managing its economy all the more difficult.
The wheels are starting to come off: An Argentine province recently tried to use Pesos, the local currency, to pay off a debt denominated in U.S. dollars. That won't work. Litigants from the 2001 debt default persuaded a court in Ghana to impound an Argentine Navy training ship at port. It took weeks to evacuate the crew.
We see bad times ahead. With its well-educated populace, rich resources and diversified economy, Argentina should be poised to benefit when the world economy recovers. Instead, it seems destined for isolation and decline as it drives into the same financial trap that wreaked such havoc in 2001.