Roger’s Rules

A Lesson in Economics for Argentina

Ok, you economists, this is a quick exercise in free association:  When I say “South America”  what do you think?  If you said “default,” go to the head of the class. Really, it’s the whole bloody continent (think “Mexico,” amigo), but let’s just look at Argentina, an economic basket case if there ever was one. The only question I have is why, given its recent history of fiscal incontinence (not to mention political barbarousness), anyone would lend them a nickel. 

The latest episode, which has been much in the news lately, involves more than $1 billion that Argentina owes to Elliott Management, a New York-based hedge fund. Things came to a head yesterday (well, I am writing from New Zealand, and somehow lost Thursday: it happened on Wednesday in New York) when Argentina failed to make  a $500 million bond payment and slid, officially, into default.  As the New York Times reported, Argentina had the money on to make the bond payment, but a right-thinking New York federal court judge had ruled that the spendthrift country had to pay its other creditors first. Clever work!

Of course, the New York Times is all pursed-lips about this.  It describes the head of Elliott Management, Paul Singer, as “a billionaire,” i.e. a bad guy, and goes on to note with distaste that the hedge fund’s pursuit of Argentina “is motivated by a desire to make money.” You don’t say? Is that a bad thing?

The Times enlists left-wing economist Joseph “Inequality” Stiglitz to castigate Elliott. “We’ve had a lot of bombs being thrown around the world,” Mr. Stiglitz warns, “and this is America throwing a bomb into the global economic system.”  Really?  Why isn’t it more accurately described as an American firm attempting to collect a legitimate debt?

If you look up the story on the web, you’ll find lots of stories about South American countries rallying around Argentina. Of course they are.  They might be next and they want to prepare the way for escaping their debts.

The real takeaway from this sorry story of financial irresponsibility was Mr. Singer’s observation from 2005 that treating Argentina like an adult rather than a helpless child was actually doing it a favor.“Imagine how much capital a country like Argentina might attract if instead of defaulting seriatim and affecting a pose of anger toward creditors, it borrowed responsibly and honored its obligations.”

The Times sandwiched in that little bit of fiscal clarity between loads of anti-capitalist moral opprobrium. But Mr. Singer is right: to let off Argentina once again from paying its debts would be to confirm its status as a helpless dependent. Isn’t it time it grew up and acted responsibly?