Sometime this month, Cristina Kirchner will announce whether or not she is seeking another term as president of Argentina. While Kirchner has publicly said that she is still undecided, everyone expects her to pursue reelection. The vote is scheduled for October, and the opposition parties remain hopelessly divided. Meanwhile, Argentina’s export-driven economy has received a boost from high global soy and grain prices. If the incumbent president stands for another term, she will most likely win.
That is a pity. A Kirchner victory would mean a continuation of the authoritarian leftism that has fueled massive inflation, weakened democracy, reduced press freedom, and sullied Argentina’s international image. It would be bad news for Argentina’s former bondholders, bad news for its private businessmen, bad news for foreign investors, and bad news for the United States.
To understand the South American country’s recent decline, we must go back to its 2001 financial collapse, which has distorted its politics ever since. Ten years ago, Argentina experienced the largest recorded sovereign default in world history ($81 billion). The government’s subsequent treatment of its former creditors has been heavy-handed and inequitable. Sadly, this behavior has reflected a broader trend in Buenos Aires: the adoption of irresponsible, Chávez-style economic policies.
In 2005, then Argentine president Néstor Kirchner (the late husband of Cristina) offered his country’s erstwhile bondholders 27 cents per dollar of defaulted debt. The government then repudiated all debts owed to bondholders who chose not to accept the deal. It reopened debt swaps twice in 2010, but the proposed terms were no better than those offered five years earlier. Argentina still owes approximately $16 billion to private creditors worldwide, including $3.5 billion to creditors in the United States. It owes an additional $9 billion to Paris Club member nations. A decade after defaulting, Buenos Aires continues to resist a fair negotiation with its bondholders.
Not surprisingly, the Kirchner government is under significant legal pressure both inside and outside the United States. It faces more than 100 court judgments in the U.S. Southern District Court of New York, along with arbitral judgments in the World Bank’s International Center for Settlement of Investment Disputes (ICSID). Argentina accounts for a remarkable 84 percent of all ICSID cases pending against G-20 countries.
When global investors look at Buenos Aires today, they see a government that has persistently refused to accept a fair settlement with its past bondholders. A government that has nationalized railways, telecommunications, airlines, and private-pension accounts. A government that recently used a presidential decree to acquire much greater influence over private companies. A government that has precipitated runaway inflation and then doctored official statistics to conceal the damage. (As the New York Times reported in February, there is now “substantial evidence” that “the government’s national statistics agency has been grossly underreporting inflation and poverty for four years.”) A government that has introduced economically damaging taxes. A government that has spurred capital flight. A government that has attacked opposition journalists and shown utter contempt for press freedom. A government beset by corruption. A government that has demonstrated increasing hostility toward the United States. (Its foreign minister has accused Washington of operating torture schools.)