The U.S. Supreme Court’s ruling that Argentina must pay hedge funds that refused to compromise on repayment of Argentinean bonds should be all the evidence Americans need that the Supreme Court is out of control. Many were jarred awake by the Roberts Court’s ruling in favor of Citizens United. However, efforts to remedy the problem have been limited to repealing the offending ruling. It’s obvious now that this approach fails to address the structural permissiveness and consequent moral threat of the Supreme Court.
Subsequently, we’ve seen the McCutcheon ruling, which is the equivalent of a smirk and a wink on the sunny, untroubled face of Justice Roberts, informing us that Citizen’s United was no fluke. This ruling struck down aggregate limits on the amount an individual may contribute during a two year period to all federal candidates, parties and political action committees combined.
The Court’s ruling against Argentina and in favor of hedge funds with no scruples about bringing down a sovereign nation should be the final straw, but it’s getting harder these days to drum up good old fashioned moral outrage. The hedge funds have even asked for and received a ruling that allows them to use U.S. courts to force Argentina to disclose the amount and location of its assets. This should be stopped before it goes any further.
In case anyone is under the impression that Argentina is a deadbeat country, as the sharks would like you to believe, here is some of the history behind Argentina’s debt. After years of dictatorship and shameless colonialist collusion by a series of supposedly democratic leaders, Argentina was left with a crushing debt. The last of these mafioso-supported ‘democrats’ was shown the door by Argentina’s voters when they elected President Néstor Kirchner in 2003. Argentina’s current president, Cristina Fernández de Kirchner was elected to the presidency in 2007, and reelected in 2011. The Kirchners belong to the Peronist persuasion, associated with Isabel Peron who was deposed by coup d’état in 1976.
Twelve years ago Argentina defaulted on $100 billion worth of bonds. Even though Argentina’s courts demonstrated the fraudulent origins of the debt, the government restructured its debt twice, in 2005 and 2010, in an effort to meet its obligations. Most of the holders of Argentinean bonds accepted repayment of 30 cents on the dollar. However there were holdouts—‘vulture capitalists’ who bought some of the defaulted debt at a steep discount and now want face value for the bonds plus interest. Shockingly, the Supreme Court has ruled in their favor. It is feared this will have serious consequences, both in the sovereign debt markets and in the future ability of sovereign governments to remain solvent through debt restructuring. The holdouts are New York hedge funds NML Capital LTD, a unit of billionaire hedge fund manager Paul Singer’s Elliot management Corp, and Aurelius Capital Management.
They would like you to believe the Argentinean public benefited from this debt. Nothing could be further from the truth. Ever since independence 200 years ago, Argentina’s foreign debt has been a source of impoverishment and corruption. Since the first loan negotiated by Rivadavia in 1824 with the British Bank Baring Brothers, the debt was used to enrich Argentinean financiers and allow them to control finances and empty the country of its wealth. The British government donated a statue of British colonialist George Canning to Argentina in 1857 in recognition of the debt.
Foreign debt has always gone hand in hand with big business. With complicity of nearly every government from Bartolomé Miter and Manuel A. Quintana, to Carlos Menem and Fernando de la Rúa. This created generations of technocrats and bureaucrats who favored banks and international corporations over their own country. Educated at Harvard, Chicago, Oxford or Buenos Aires, they include lobbyists Manual Garcia and Luis Belaustegui; and heads of the banking system, Pedro Pou, Roque Macarrone and Christian Colombo. These characters were administrators of a debt born in 1970s under the military dictatorship.
This situation became much worse after America’s defeat in Vietnam. Oil prices were rising and petrodollars flooded the world. Banks were offering credit at 3%. This was the birth of Third World debt. By 1981, interest rates had risen to 16%, leading to the bankruptcy of these Third World countries. An alliance of foreign banks and multinationals came to power in Argentina. After seven years of neoliberal policies, the dictatorship left the country with $45 billion in debt. Twenty-three billion of this was owed by multiantionals operating in the country, including Citibank, First Boston, Chase Manhattan, Bank of America, Banco de Italia, Banco de Londres, Banco Espanol, Banco Frances, Deutsche Bank, Banco Rio and Banco Ouilmes, Banco Galica, and many more. Other debtors included Ess, Fiat, IBM, Ford, Mercedes Benz, Swift Pirelli, as well as local groups owned by Perez Companc, Bulgheroni-Brida, Macri, Techint, Fortabat, Pescarmona, Gruneisen, Soldati, Cogasco, Celulosa, and others. The state was saddled with this debt by a bureaucrat of the dictatorship, Domingo Cavallo. He was a ‘super-Minister’ of Finance in the Menem and de la Rúa governments.
Even though Argentina’s courts ruled that parent companies were responsible for the debts of their subsidiaries, these swindlers made the government responsible for them.
But the foreign debt was also illegitimate. Much of it was created when the parent companies made loans to their subsidiaries. These loans were internal movements within the companies, but they were assigned to foreign debt. Dollars were bought in Argentina and deposited in the U.S. With this deposit as collateral, you got a loan to purchase more dollars and so on. This is known as ‘bicycling’ funds. Because of the difference in interest rates, participants, mainly the big conglomerates, became wealthy.
Usury has been another problem. It is estimated that with reasonable interest rates, Argentina’s debt could have been paid by 1988. But there have been no reasonable rates, interest or otherwise. At the end of Alfonsin’s presidency, the foreign debt was close to $54 billion. Then Menem let the creditors decide what they were owed with no debate in the Congress. This ignored the constitution and the ruling of the courts that the debt was fraudulent. Ten years later the debt was $130 billion.
Lately you’d never guess that the United States has a history of opposition to this type of fraud. In 1898, the Americans invented a concept called the Theory of the Odious Debt. At the end of the Spanish occupation of Cuba, Spanish banks were demanding payment from the Cuban government of loans they had made to the colonial government. The Americans said that if the Cuban people didn’t benefit from these loans, they couldn’t be called public debt. Further, in 1923, a British bank, the Royal Bank of Canada, lent Tinoco, a petty tyrant of Costa Rica, a sum that he used for personal goals. The bank proceeded to demand payment from Costa Rica. In a law suit arbitrated by former President William Howard Taft, it was decided this was a private debt and the public was not responsible.
The worst of Argentina’s betrayals came from supposed democrats. Social Democrat Raúl Alfonsin promised to defend human rights, but instead took the country into austerity. Carlos Menem claimed to adhere to the policies of the neo-Peronist party. His presidency coincided with the fall of the Berlin Wall, the theory of the ‘End of History’, globalization, and neoliberal democracies in Latin America. It took him only a few days to change his stripes. He immediately cozied up with the conservative minority directed by the former rebel officer Alvaro Alsogaray. His policies were dictated by the United States, the World Bank, and the IMF. Of course, other political leaders and labor leaders jumped ship as well.
Menem needed a biased Supreme Court to carry out his plans, as well as control of the federal courts. Parliament delegated special powers to him. In one month he had passed his Reform of the State law, which opened up privatizations. Menem controlled inventories with no accompanying balance sheets. For the privatization of Argentina’s two largest companies, YPF and Gas del Estado, large bribes were offered to members of Argentina’s congress, which they happily accepted.
Argentina’s budget had to be approved by Washington. The convertibility Plan, in which one peso equals one dollar, stopped inflation but ruined industries. Previously, the country had produced 95% of what it consumed. Afterward, it imported garments, meat, dairy, fruit, pasta, etc. After the artificial elimination of inflation, banks lent at 50% per year when rates in the U.S. and Europe were 7%.
The debt was now irredeemable. Cavallo negotiated with U.S. Secretary Nicholas Brady with the result that state enterprises were purchased with national bonds pegged at 15% of face value, but redeemable at 100%. The country lost more than $30 billion. Whole concerns were sold without debt and the government took responsibility for the layoffs of workers. The main investors were Spanish and French.
Entei was sold for a fifth of its value to Telefonica and France Telecom, who saddled it with a 6 billion dollar debt.
Aerolineas Argentinas was profitable and owned 37 planes. The Spanish line Iberia mortgaged them to purchase the business. Then they stripped it of its assets.
The state water utility was taken over by a European syndicate headed by Suez and Vivendi. The works agreed to were not completed and 800,000 people were left without drinking water. A million were without sewers.
The worst case was the railroads, which represented a fatal blow to the economy.
The state paid out subsidies to these privatized concerns and eventually owed the World Bank the $700 million it borrowed to pay for the layoffs and another $700 million in interest. Normally anyone who uses public property belonging to another country has to pay a fee. These companies never paid it, but then they financed all the campaigns, the governments, the coups d’état, and all the public works.
Then came the liquidation of Argentina’s oil and gas industry, an industry that was said to be a model for the world. In this, Argentina is a unique case. These industries were given up without losing a war.
Oil was discovered in 1907 in Patagonia. YPF was created in 1923 at the orders of General Mosconi. When YPF was created, it was the first state enterprise in the world. Oil was considered strategic and the sale of fuel, of national interest. If the international price rose, YPF kept the price low, based on its costs rather than the market price.
Hell hath no fury like Big Oil scorned.
When YPF was sold, reserves that had been allocated for the next 25 years were valued at the equivalent of 9 months. It was so irregular that Menam had to deal with it personally. An outside company was hired to underestimate the reserves. A year later they appeared in the accounts of the Spanish firm Repsol at their real value.
Gas del Estado was estimated at $25 billion by Petrobras Company. After being appraised by international consultants it was sold for $2.5 billion. Repsol took control and polluted entire groundwater systems destroying the usefulness of the land in those areas. And Carlos Menam was honored in Washington as the creator of the Argentinean miracle. ((Argentina’s Economic Collapse. Available: http://youtube/VK494Judxvg))And now the U.S. Supreme Court seems intent on finishing the job these hooligans started.
The Roberts Court has taken possession of an unholy fortress—a constitutional fortress of our own making. If we agree that the problem is the lack of constitutional restraint on justices, it will be clear that caution and wisdom are needed to correct it, but also that something must be done. If we fail to act, we may as well forget about trying to make the world a better place for ordinary people. If we allow Argentina to be brought down by vulture capitalists and our own Supreme Court, we don’t deserve a better place.