Final Analysis

Conclusion

Reduce spending and taxes

To spur economic growth, Argentina needs to bolster productive behavior by lowering taxes to increase the incentive to work, save and invest. To lower taxes without creating an economic disaster, it also needs to decrease government expenditures.

Strengthen the rule of law

The vulnerability of the justice system to bribery and political influence has undermined public confidence to the extent that ordinary Argentines do not use the legal system and businesses are deterred from investing. The Argentine government must punish corruption and free the justice system from political pressure.

Legal concept

The democratic government could challenge the debtholders concerning the credits generated by a previous illegitimate dictatorship. The debtor should be able to prove that that debt was legitimately used for the benefit the Public Interest of the country, especially taking into account that the creditor was well aware of the illegitimate nature of the Regime, those funds were supporting torture and genocide. These loans found its way out of the country in criminal and illegal activities. The debt, however, was left to Argentine citizens.

====Iraq example====

After the invasion of Iraq in March 2003 and the toppling of the Saddam Hussein Baathist Regime, the United States, the United Kingdom, Germany, France and Russia together considered Iraq’s foreign debt generated since 1979 by Saddam Hussein as “Odious Debt”, condoning around 85% of it. They were all very careful not to use the phrase “Odious Debt”, knowing full well that other countries such as Argentina could use exactly the same arguments, precisely because the bulk of its own Public Debt can be traced back – through various astutely engineering recycling processes - to the debt originally generated by the illegitimate Military-Civilian Regime which suppressed the Constitution and perpetrated crimes against our population. So, we too can, in principle, declare that our Debt should be rightly re-classified as "Odious Debt".

When this paper was first released in September 2004, we sought to alert international political and investor circles as well as public opinion at large, of the grave risks posed by the fact that Argentina’s Ministry of Economy was about to implement yet another re-cycling of that illegitimate and potentially odious debt through a new bond swap to the tune of over 100 billion dollars. In June 2004, Argentina filed with the SEC of the United States committing the Argentine State to pay new bond issues at highly detrimental conditions for our country and based on false and unsustainable economic and financial assumptions.

We tried to warn the SEC that the Argentine State would not have the economic and financial capacity to honor the new Bonds' future yields and capital payments at their maturity dates and that this would inevitably lead to new and even greater debt defaults. Regrettably, the SEC officially replied that they declined to even look into this matter and ended up giving Mr. Lavagna and Mr. Kirchner the green light for this new potential fraud transacted in the US Bond markets. We consider that this was tantamount to permitting and promoting massive liability exposures on future Argentine Debt Bond defaults, the scale of which will dwarf such high profile scandals as Enron, WorldCom, Arthur Andersen, Tyco and Marsh & McLennan. Macroeconomic figures and projections submitted by Argentina’s Ministry of Economy are inconsistent and unsustainable ([11]) and the Mega-Swap finally pushed through in June 2005 will generate massive future defaults, even greater than the one in December 2001 when the Government defaulted on over 90 billion dollars worth of Public Debt Bonds with private investors.

Adding insult to injury, the Kirchner-Lavagna Mega-Swap incorporated around u$s 54 billion of revamped interest and capital artificially generated during the last months of the catastrophic Fernando de la Rúa Administration in June 2001, when then economy minister Domingo Cavallo, Foreign Debt Negotiator Daniel Marx and key international bankers implemented an earlier Mega-Swap. Both former government officers have been indicted for fraud, negligence and conflict of interest because of their actions on this matter.

IV. Towards a “Balanced Score Card” Argentina’s structural public debt crisis is a very complex matter, both in its present structure as well as its history and evolution. Key issues need to be urgently addressed. All players must stop playing “make believe” pretending that Argentina will be able to honor payment of massive amounts of capital and interest in a timely manner. That will not be possible and the ensuing future grave Public Debt Bond Crises will no doubt lead to more “new” Mega-Swaps for much higher amounts and at far worse conditions for Argentina. We envision that those future Mega-Swap Bonds will include innovative clauses whereby the Argentine Government will guarantee payment with Public Land Rights or Long-term Territorial Concessions which will, in practice, be tantamount to “Debt for Territory” swaps. This will mean breaking up the territorial integrity of Argentina, with the ensuing far-reaching political, social, economic and legal implications and consequences that this will have.

Accordingly, properly addressing this matter is a first step towards achieving a comprehensive solution for all parties, which involves designing and negotiating some sort of “Balanced Score Card” scheme identifying all parties having some level of responsibility for the present morass, in order to then be able to determine, quantify and agree their respective accountabilities. Such a process should be supervised by a credible and neutral public supranational body – the International Court of Justice, for example – so as to ensure an equitable and fair approach regarding all the parties’ interests and not just some of them. Such a body should also act as Arbitrator.

In short, the Argentine State, successive Argentine governments, major lending banks and risk rating agencies, the IMF, and other multilateral financial institutions are and have been the major players involved in the case of Argentina’s foreign debt.

It is therefore grossly unfair to place the full weight of this complex problem solely on the Argentine State (and circumstantially on the Kirchner Administration), which does not seem to be able to envision any options other than last year’s Mega-Swap deal indicated above, which will crush Argentina’s future for generations to come.

No doubt, Argentina must pay… but only its true share in all of this. All key players in this drama must be brought to the negotiating table, their accountabilities assessed, their liabilities quantified and together they must contribute their respective shares to resolving a common problem that was created by all of them, considering that they were all aware of the potential risks their respective actions entailed.

A key first step would be for one or several prestigious, world-recognized bodies to promote such a scheme. The European Parliament, would no doubt be a key player; also perhaps, the International Court of Justice. To a lesser extent, the United Nations and the Organization of American States (OAS). Urgency is clearly a key issue as financial crises originating in Argentina will soon again loom on the horizon as the Kirchner government lapses into increasing political problems and social crises.

Over recent years, Argentina’s Foreign Debt situation has worsened with each successive debt cycle. The latest 2005 Mega-Swap represents yet another “turn of the screw” that will with time lead to further suffering for millions of our people, future defaults for international investors and future bankruptcy for small long-term investors, pensioners and enterprises. As has repeatedly occurred in the past, the sole beneficiaries of such crises who reap quick profits, will be international bankers and traders quickly pocketing their commissions, fees and interests.

Conventional Wisdom and Common Sense clearly dictate that if a country has a catastrophic debt situation, it cannot resolve it by incurring even more and greater debt.

Sources

Center for Research on Globalization

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Introduction | Dictatorship | Raúl Alfonsín | Carlos Menem | Fernando de la Rúa

Interim Presidents | Néstor Kirchner | Graphs