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In view of the highly political nature of the issue, Judge Ballesteros recommended that Argentina’s National Congress should investigate this matter under its constitutional jurisdiction and attributes ([10]). Congress, however, took only a small, token initial in that direction in August 2000, because the powers that be were able to put well-coordinated internal and external political and media pressure on Congress so that it quickly abandoned any action in respect of this key national issue.
In view of the highly political nature of the issue, Judge Ballesteros recommended that Argentina’s National Congress should investigate this matter under its constitutional jurisdiction and attributes ([10]). Congress, however, took only a small, token initial in that direction in August 2000, because the powers that be were able to put well-coordinated internal and external political and media pressure on Congress so that it quickly abandoned any action in respect of this key national issue.


In principle, large tranches of Argentina’s public debt dating back to that Military-Civilian Regime can be classified as “Odious Debts”, within the scope of the legal doctrine generated by Alexander Naum Sak at the beginning of the 20th Century. Legal precedent was based by cases involving The United States versus the Kingdom of Spain over Cuba’s colonial debt in 1903; and the United Kingdom versus the Republic of Costa Rica over an alleged debt claimed by the Royal Bank of Canada generated by former dictator Federico Tinaco. In the latter case, in October 1923 US Supreme Court Justice (and later president of the US) William Taft forthrightly judged in Costa Rica’s favor.


Even more recent and important, 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".
Even more recent and important, 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".
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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.
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.


Each and every accountable party and player should be identified. We consider that would include, though not be limited to, the following:
· The Argentine State – I.e., the public institutions of the Republic of Argentina which mainly through its Ministry of Economy and Central Bank accepted the terms of loan contracts and agreements entered into with public and banking institutions, the International Monetary Fund (IMF), the World Bank (WB), the Inter-American Development Bank (IDB) and others.
· Successive Argentine Governments – In many cases, former public officers have been and are being investigated and indicted by our Courts for misdemeanors, collusion, fraud and various other public crimes, which means they have potential personal liabilities which could even lead to collective interest group liability ([12]). No doubt, our Proposal would surely trigger further criminal proceedings against other former government officers in the Executive, Legislative and Judicial branches, as well as impeachment procedures against present Government Officers, based on their respective degrees of accountability.
· Private Lendor Banks – Based on their credit risk assessments, most major international private banking institutions lent funds to Argentina in the seventies and eighties. After the debt crises of the late eighties, starting in 1992 they traded the so-called “Brady Bonds” knowing full well that the origin of that debt could potentially be classified as “Odious Debt” ([13]). When trading Brady Bonds in successive debt bond swaps and “mega-swaps” from 1992 onwards, those banks systematically omitted to inform their investors key background and risk exposure information mentioned above. It is a well-known fact that all major banks - including CitiGroup, Goldman Sachs, Merrill Lynch, HSBC, JPMorgan Chase, Credit Suisse, UBS, Deutsche Bank, Fleet Boston, Lloyds and Barclays amongst others, and their previously merged and acquired institutions -, all carried various types of insurance coverage to protect their liabilities against claims arising from misinformation incidents, and that these are for very sizeable amounts. Such insurance coverage and their respective reinsurance supports were placed into major insurance markets – Lloyds of London being the oldest and best known –, and could thus be brought to bear as a major source of financial contribution, as it would spread risk amongst numerous insurers, reinsurers and retrocessionaires around the world. Basically, the main risks protected by such Financial Institutions Insurance Programmes include, amongst others, the following:
o Professional Liability Insurance – This covers a Bank’s lack of proper “Due Diligence” and professional integrity in their dealings with investors; i.e., behaviour that can be classified as Voluntary Misconduct. This is a crucial factor that is being increasingly voiced in different circles. (see for example, a detailed article published in The Washington Post on 3rd August 2003 – “Argentina Didn't Fall on Its Own: Wall Street Pushed Debt Till the Last” by Paul Blustein - Page A01)
o Errors & Omissions Insurance – This covers involuntary Errors and Omissions which may have been incurred by the banks’ traders when placing packages and tranches of Argentine Debt Bonds with retail traders, brokers, agents, banks and investors.
o Directors’ & Officers’ Liability Insurance – This covers the Personal Legal Liability of banks’ and other players’ Directors and Top Officers and Managers in respect of any lack of proper supervision, control and auditing of the Bank’s operations, business ethics and conduct. Again, cases involving flagrant breach of professional ethics by such major corporations as Enron, WorldCom, Parmalat, Tyco, Marsh & McLennan, AIG and Arthur Andersen serve as prime examples which in the US led to the Sarbanes-Oxley Act which today places stringent controls on Corporate behaviour. Although Sarbanes-Oxley cannot be brought to bear, it does, however, indicate that gross misconduct by major corporations and banks has been rampant in the US and elsewhere for many years, thus reinforcing the need for Corporations and Banks to answer financially for their wrong-doing or lack of professionalism if that is adequately ascertained.
· Risk Rating Agencies – Much of the Argentine Bond trading was based on the economic, financial and political analyses rendered by major rating agencies – particularly Standard & Poor, Fitch and Moody’s – which are also accountable for the insufficiently and/or improperly researched information they fed markets and generated to potential investors, regarding these successive debt bond issues. Additionally, the influence, leverage and accountability of specialized journals was such that they should at least pay a political price, considering that for years they promoted false expectations amongst investors regarding the alleged “wonders” of investing in “miraculous” Argentine Public Bonds when Mr Cavallo was at the helm of the economy ministry. This includes such influential publications as The Wall Street Journal (Dow Jones Group), Financial Times, Business Week, and other local and international publications.
· International Monetary Fund – This key institution was instrumental in promoting and auditing the macroeconomic policies of the Argentine Government for decades. They agreed to continue lending, thus instigating further investment in Argentine Bonds by international investors, especially after 1994 and further indebtedness by Argentina. By that time, the whole “debt trap” had been set, debt increased exponentially and there was clearly no way out for our country. A recent report by the Independent Evaluation Office concluded that IMF top management – notably during the period led first by Michel Camdessus (President) and Stanley Fischer (Executive Director) and, later, by Horst Köhler (President) and Anne Kruger (Executive Director) – committed serious professional and technical errors and omissions. Many analysts consider that, in a way, as auditors, the IMF was to Argentina what Arthur Andersen was to Enron, the difference being the Andersen was dissolved and closed down, whilst the IMF continues preaching its misconceived doctrines and exerts leverage. It goes without saying that we fully appreciate the fact that the IMF’s primary purpose is to exert political pressure on indebted governments, acting as a veritable coercing agency on behalf of major international banks. These, in turn, also wield enormous influence in the US Government through Treasury Dept.([14])
· Other Multilateral Agencies – The World Bank and the Inter-American Development Bank which also continued lending to Argentina even though they knew (and know) that there were incorrect and improper assessments regarding the investment-grade of Argentine debt bonds.


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.
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.
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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.
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.


Need major international banks be reminded that high yield investment opportunities also carry higher risks and that that is what financial risk management is all about?
Making the Argentine State – i.e., the people of Argentina – weather the full brunt of this storm is tantamount to financial genocide and terrorism. It represents a gross violation of basic legitimacy, lawfulness and an abuse of basic human rights. The people of Argentina are presently undergoing severe hardship with over 50% of the population submerged in poverty, whilst present economic and political policies do little to resolve these matters. Basic universal law gives the Argentine people the right to legitimately defend their interests against the various multinational and supranational players which, abusing the huge power that they wield, directly and/or indirectly imposed complex actions and strategies leading to the Public Debt problem.
Once all these players sit down at the negotiating table on an equitable and just basis, then and only then can a suitable model be generated whereby each party’s accountability is defined and liabilities are quantified. This must also taken into account their true payment possibilities, especially on the part of banking institutions and their respective insurers and reinsurers. Such negotiations would have the objective of generating a suitable and more comprehensive “Balanced Score Card” to address the entire problem.
This would represent a final, long-term, achievable solution whereby all players would tread a common road leading to a common goal, for the good of creditors, debtors, financial institutions and the global financial system, in a more transparent, “win-win”-inspired environment. Thus, the first question is how such a scheme can be put in place. This will also require an honest effort on the part of the media so that global public opinion may become aware of these key issues.
V. Conclusion


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.
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.

Revision as of 04:39, 5 December 2006

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.


For the time being, however, implementation of such a solution has been thwarted because in June 2005 Argentine President Néstor Kirchner and his then economy minister Roberto Lavagna, implemented what is to date the world’s largest Sovereign Debt Bond Mega-Swap operation. They were able to do this thanks to the support of key international private and public institutions, notably the IMF (International Monetary Fund) and SEC (Securities & Exchange Commission of the US).

That operation involved swapping a maze of 152 different bond issues totaling almost u$s 100 billion that had aggregated over the past three decades, for three new streamlined Sovereign Bonds with maturity periods of 30, 35 and 42 years (the so-called “Discount”, “On-Par” and “Cuasi-Par” Bonds), which, in turn, implied writing off approximately 60% of those Bonds’ nominal values. The unrealistic terms at which this Mega-Swap was done, however, deteriorated Argentina’s position and, so far, the Government has not been able to show that the performance of this new Debt Bond issue is sustainable. The main effect of this Mega-Swap was to worsen and carry forward Argentina’s Public Debt problem making future Financial Public Debt Crises inevitable with the ensuing risk of unleashing financial meltdowns even worse than the one Argentina suffered in 2001 and 2002.

  • Bring all accountable parties to the negotiating table, in a balanced and transparent manner.


Over the past thirty years, Argentina’s Public Debt was subjected to an artificial growth. Argentina’s debt situation is of a very complex nature, in that there exist key issues that show that over the past thirty years there was a high level of accountability amongst various key players, notably, international private banks, multilateral institutions such as the IMF and the World Bank, international risk rating agencies and, naturally, successive Argentine Governments. Acting in unison, they were able to generate today’s untenable public debt which, all factors considered, now adds up to over u$s 200 billion (whilst our GDP is about 75% of that). Within the myriad of issues involved we point out a couple which, if properly addressed, can serve to promote the concept of generating a “Balanced Score Card” scheme to assess and resolve Argentina’s Foreign Debt situation.

Foremost amongst these, is the legal concept involving “Odious Debts”, whereby a democratically-elected government can challenge Public Debtholders, if their credits were generated by a previous, illegitimate Government which illegally usurped power. In such cases, the onus is on the Debtor to prove that said debt was legitimately used for the benefit the Public Interest of the country, especially in those cases where the creditor was well aware of the illegitimate nature of the Regime it was lending funds to, something which was publicly known by international bankers when lending to Argentina’s Military-Civilian Government from 1976 to 1983.

In April 1982, local lawyer Alejandro Olmos filed a law-suit leading to an initial investigation into the origin of Argentina’s Public Debt during that military regime ([9]), which went through several Federal Courts until a ruling was finally given by Federal Judge Jorge Ballesteros on 14th July 2000. His ruling proved that the bulk of the debt generated by that military-civilian de facto regime was illegitimate and illegal, however adding that no former government officers could be sentenced as by then this case had become time-barred (eighteen years had elapsed and the Plaintiff himself had passed away only months before).

Clearly, the bulk of those loans eventually found its way out of the country in the form of financial and others assets transferred to individuals, banks, corporations and other operators involved in various degrees of criminal activities. The debt itself, however, was left with the Argentine State; i.e., with the Argentine people.

In view of the highly political nature of the issue, Judge Ballesteros recommended that Argentina’s National Congress should investigate this matter under its constitutional jurisdiction and attributes ([10]). Congress, however, took only a small, token initial in that direction in August 2000, because the powers that be were able to put well-coordinated internal and external political and media pressure on Congress so that it quickly abandoned any action in respect of this key national issue.


Even more recent and important, 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

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

Interim Presidents | Néstor Kirchner | Graphs

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