In its latest edition The Economist writes about Argentina’s debt stand-off, and states this “reflects a teenage attitude that rules are there to be broken”.
What explains this cultural trait, which is most marked in Argentina but present to a lesser degree in many Latin American countries? Some might ascribe it to the region’s “post-colonial” condition. If so, after 200 years of independence, it is time to grow up. The point is to work to change unfair rules, rather than ignore them, underlines the British weekly.
Finally as Uruguay's striker Luis Suarez has found, you break the rules at your peril. Sooner or later, reality has a way of biting back.
IT HARDLY came as a shock that Luis Suarez, a gifted but psychologically flawed Uruguayan striker, expressed his frustration at failing to score against Italy in a World Cup match on June 24th by biting an opponent. After all, he had done so twice before. More surprising was the reaction of Uruguay’s authorities, both footballing and political. First came denial and conspiracy theory: the bite marks were photoshopped, or an old wound. Then came outrage at the stiff ban imposed on Mr Suarez, who was welcomed home as a wronged hero. His action was no more than a childish prank, claimed José Mujica, Uruguay’s president.
In colluding with Mr Suarez’s violation of the laws of football, the often sensible Mr Mujica was indulging in a practice that is far more common across the River Plate in Argentina than it is in law-abiding Uruguay: the exercise of a kind of teenage narcissism in which it is fine to break rules you don’t like, in the belief that you will get away with it. And if you don’t, well, it’s unfair because the world is against you. There is an Argentine term that captures at least part of this mindset: viveza criolla, or “native cunning”.
Viveza criolla has been a hallmark of Argentine economic policy under both President Cristina Fernández de Kirchner and her late husband and predecessor, Néstor Kirchner. The notion that Argentina could play by its own rules, rather than by those of economics or the rest of the world, was symbolized in the government’s denial of the inflationary impact of its expansionary policies by fiddling the consumer-price index. Meanwhile, the Kirchners heaped blame on the IMF for all the country’s problems.
A certain solipsism applies, too, to the government’s handling of its row with its “holdout” bondholders, which has now brought the country to the brink of default for the second time in a dozen years. Certainly, Argentina had little choice but to restructure its debts to bondholders—many of whom had been handsomely rewarded for the risk of default—after the economy collapsed in 2001-02.
Yet nine years after a first restructuring deal, which inflicted a big write-down on bondholders, Argentina finds itself in a tight spot. The refusal last month of the United States Supreme Court to hear its appeal against a lower-court ruling in New York that it must pay in full the 8% of bondholders who refused both the 2005 bond swap and a second one in 2010 means that it has no practical alternative but to negotiate with these holdouts. The lower court on June 27th ruled that in the absence of a settlement with the holdouts, Argentina’s deposit of $539m in a trustee’s account in order to make a scheduled payment on its restructured bonds was “illegal”.
Many neutrals might agree with Ms Fernandez that “vulture” funds—as specialists in distressed debt are known—are not socially useful. They might also conclude that Judge Thomas Griesa’s interpretation of the pari passu rule—legalese for equal treatment—in the original bond documentation undermines not just common sense but also the global financial system and New York’s place in it by making sovereign-bond restructurings harder.
That happens to be Bello’s view. But this ignores Argentina’s unique insistence on living by its own rules. Several other countries—including Uruguay in 2003—have managed to restructure their debts without running foul of courts and creditors in the same way. By taking so long to restructure, and by twice passing a law explicitly banning any reopening of the debt swap or making any sort of deal with the holdouts, Argentina has done its best to make Judge Griesa’s definition of pari passu seem intellectually coherent.
What explains this cultural trait, which is most marked in Argentina but present to a lesser degree in many Latin American countries? Some might ascribe it to the region’s “post-colonial” condition. If so, after 200 years of independence, it is time to grow up. The point is to work to change unfair rules, rather than ignore them. Others might say it is simply part and parcel of the weakness of the rule of law in Latin America.
Argentina now has less than a month in which to reach a deal with the holdouts or default on its restructured bonds. There is one cause for hope. In 2001 the initial default was greeted in Argentina’s Congress with cheering, as if it was a World Cup goal. This time nobody is cheering. Even Ms Fernández seems to want the country to rejoin the world. Argentina’s foreign reserves are close to a seven-year low. And she is intent on getting to the end of her term next year without meltdown. As Mr Suarez has found, you break the rules at your peril. Sooner or later, reality has a way of biting back.