Negotiating out of Argentina's financial crisis: Segmenting the international creditors

New Political Economy

Volumn 10, Issue 3, 2005, Pages 305-320

  Cooper, Andrew F ^a,b   Momani, Bessma ^a,b  

^a CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATION   (Canada)

^b UNIVERSITY OF WATERLOO   (Canada)

Author keywords

[No Author keywords available]

Indexed keywords

CREDIT PROVISION; DEBT; FINANCIAL CRISIS; STATE ROLE;

EID: 24744462660     PISSN: 13563467     EISSN: None     Source Type: Journal    
DOI: 10.1080/13563460500203433     Document Type: Article

References (79)

1. Stephen Gill, Power and Resistance in the New World Order (Palgrave, 2003).
2. Randall Germain, 'Global financial governance and the problem of accountability: the role of the public sphere', unpublished paper delivered to the annual conference of the International Studies Association, Portland, Oregon, 2003.
3. See also Susanne Soederberg, 'The Emperor's New Suit: The New International Financial Architecture as a Reinvention of the Washington Consensus', Global Governance, Vol. 7, No. 4 (2001), pp. 453-67.
4. Susan Strange, 'The Defective State', Daedalus, Vol. 124, No. 2 (1995), pp. 55-74.
5. The most complete study of this case is Eugenio Andrea Bruno, El default y la Reestructuración de la deuda (Nueva Mayoría, 2004).
6. Randall Germain, 'Reforming the international financial architecture: the new political agenda', in: Rorden Wilkinson and Stephen Hughes (eds), Global Governance: Critical Perspectives (Routledge, 2002), p. 22.
7. Charles Lipson, Standing Guard: Protecting Foreign Capital in the Nineteenth and Twentieth Centuries (University of California Press, 1985);
8. and Benjamin Cohen, 'Balance of payments financing', in: Stephen Krasner (ed.), International Regimes (Cornell University Press, 1981), p. 175. Lipson adds that foreign direct inventors tend to be more competitive with each other and act unilaterally, but that financial institutions and bondholder groups have more shared investments and interests.
9. Cohen, 'Balance of payments financing', p. 327.
10. See Erica Gould, 'Money Talks: Supplementary Financiers and International Monetary Fund Conditionality', International Organization, Vol. 57, No. 3 (2003), pp. 551-86.
11. Lipson, Standing Guard, pp. 170-75;
12. and Cohen, 'Balance of payments financing', p. 332.
13. Arguments to give the Fund added control over sovereign debt restructuring akin to the US bankruptcy rules of Chapter 11 have been debated and then rejected principally by major creditor states. IMF Deputy Manager Director Anne Krueger supported the establishment of a Sovereign Debt Restructuring Mechanism to help the rescheduling of bond debt. See Anne Krueger, A New Approach to Sovereign Debt Rescheduling (International Monetary Fund, 2002). Critics of the proposal, however, argued that the IMF would be in a conflict of interest as a principal lender and an arbiter of debt restructuring.
14. See Yilmaz Akyuz, Reforming the Global Financial Architecture (UNCTAD, 2002).
15. Lipson, Standing Guard, pp. 170-71.
16. Miles Kahler, 'Bargaining with the IMF: Two level strategies and developing countries' in: Peter Evans et al. (eds), Double-Edged Diplomacy International Bargaining and Domestic Politics (University of California Press, 1993), p. 363.
17. Lipson, Standing Guard, pp. 170-71.
18. Ibid., p. 176.
19. Also see Pierre Dhonte, 'Conditionality as an Instrument of Borrower Credibility', IMF Paper on Policy Analysis and Assessment (International Monetary Fund, 1997).
20. Fund critics further charge that this induces moral hazards in the financial system. See Ralph Bryant, Turbulent Waters: Cross-border Finance and International Governance (Brookings Institution, 2003), pp. 325-9. Moreover, others have negated the catalytic effect of Fund loans.
21. See Graham Bird & Dane Rowlands, 'Catalytic Effect of Lending by the International Financial Institutions', World Economy, Vol. 20, No. 7 (1997), pp. 967-91.
22. Akyuz, Reforming the Global Financial Architecture, p. 129.
23. See IMF, Fund Policy on Lending to Arrears to Private Creditors - Further Consideration of the Good Faith Criterion (IMF, 2002).
24. Pamela Starr, 'Argentina: Anatomy of a Crisis Foretold', Current History, February 2003, p. 67. Cavallo adds that this is when Argentina should have switched to pegging its currency to a basket of foreign currencies.
25. See Domingo Cavallo, 'Argentina and the IMF during the Two Bush Administrations', International Finance, Vol. 7, No. 1 (2004), p. 143.
26. Those blaming the exchange rate regime include Martin Feldstein in 'Argentina's Fall: Lessons from the Latest Financial Crisis', Foreign Affairs, Vol. 81, No. 2 (2002), pp. 8-14.
27. Starr, 'Argentina'.
28. See also Michael Mussa, Argentina and the Fund: From Triumph to Tragedy, Policy Analysis in International Economics, No. 67, Institute for International Economics, Washington DC, 2002.
29. Many have blamed the federal structure of Argentinean politics as a prime reason for excessive borrowing and eventual financial collapse. See Cavallo, 'Argentina and the IMF during the Two Bush Administrations'.
30. According to the Fund's own Independent Evaluation Office, IMF staff failure to stop funding Argentina despite predicting policy failures was a pre-crisis mistake. See Independent Evaluation Office (IEO), The IMF and Argentina. 1991-2001 (IMF, 2004), p. 3.
31. According to Calvo et al., the combination of adverse external shocks and the reversal of capital flows in Latin America best explains the Argentinean crisis. See Guillermo Calvo et al., 'Sudden Stops, the Real Exchange Rate and Fiscal Sustainability: Argentina's Lessons', Inter-American Development Bank, Washington DC, 2002.
32. IEO, The IMF and Argentina, 1991-2001, p. 5.
33. Ibid., p. 5.
34. Ibid., p. 13.
35. Ibid., p. 5.
36. Ibid., p. 13;
37. moreover, Cavallo added that Krueger's call for an SDRM at the time of Argentina's planned debt swap made investors more fidgety, compromising the process further. See Cavallo, 'Argentina and the IMF during the Two Bush Administrations', p. 147.
38. The deadlock was finally broken by a 30-minute telephone conversation between Kirchner and Krueger.
39. Quoted in Paul Blustein, 'Argentina agrees to pay IMF', Washington Post, 10 March 2004. Similarly, a number of points can be made in support of Senator Kirchner's view. In comparative terms, the 3 per cent figure compared favourably with the 4.5 per cent to which Brazil - after its own debt crisis - had been held. In terms of a quid pro quo the debt payment made to the IMF by the Kirchner government was contingent on an equal sum being released to Argentina in the form of the loan. There was also the consideration that the debt payment constituted only about 20 per cent of Argentina's US$15 billion of foreign reserves.
40. At the head of this group of objectors were the representatives of three G7 states - Italy, Japan, where many individuals holding Argentine bonds live, and Britain. The finance ministers of the influential G7 countries who met in Miami in February 2004 urged that the Kirchner government 'be more flexible' in its dealings with private bondholders.
41. Hans Humes, portfolio manager of US mutual fund Van Eck Global, quoted in Paivi Munter & Jenny Wiggins, 'Bond prices fall as rules are rewritten', Financial Times, 23 September 2003. Interestingly, however, Humes sounded a far more positive note about the introduction of the set of restrictions imposed in June 2003, requiring investors to keep their money in the country for at least 180 days.
42. See Brady Net Forum, 26 June 2003.
43. Quoted in Jon Jeter, 'Most Argentines back their president, not debt', Washington Post, 28 February 2004.
44. This was a classic case of what Susan Strange captured in her memorable phrases 'Casino Capitalism' and 'Mad Money'. See Susan Strange, Mad Money (Manchester University Press, 1998).
45. Although these actors were certainly on the scene in Argentina, their presence was still overshadowed by other forms of investors. Within the secondary market the institutional bondholders included asset managers and institutional investors such as mutual fund and insurance companies.
46. Observer, 'Cry for him', Financial Times, 8 December 2003.
47. Some divisions within the state apparatus appeared as the process dragged on, most notably when Cabinet chief Alberto Fernandez in comments to a local radio programme in May 2004 floated the idea of investors being able to recover some of the accrued interest which the bondholders argued was owed to them. See 'Lavagna, Fernandez disagree', Buenos Aires Herald, 28 May 2004.
48. Quoted in Adam Thompson, 'Argentina sees growth outstrip even optimists' best estimates', Financial Times, 23 January 2004.
49. Quoted in Bryan Brynes, 'Argentina plays chicken with foreign investors', The Christian Science Monitor, 9 February 2005.
50. Eric Helleiner, 'The Strange Story of Bush and the Argentine Debt Crisis', Third World Quarterly, Vol. 26, No. 5 (2005), pp. 25-6.
51. Martin Wolf, 'The IMF should stand firm against Argentine blackmail', Financial Times, 8 March 2004.
52. Geoffrey Underhill, 'Private markets and public responsibility: conflict and co-operation in transnational banking and securities regulation', in: Geoffrey Underhill (ed.), The New World Order in International Finance (St. Martin's Press, 1997), p. 43.
53. For a similar argument, see Howard P. Lehman & Jennifer L. McCoy, 'The Dynamics of Two-Level Bargaining Games', World Politics, Vol. 44, No. 4 (1991), pp. 600-44.
54. For the origins of the two-level games argument in International Relations theory, see Robert D. Putnam, 'Diplomacy and Domestic Politics: The Logic of Two-Level Games', International Organization, Vol. 42, No. 3 (1988), pp. 427-60.
55. For a neoliberal criticism of this bias, see Desmond Lachman, The Argentine Debt Charade, American Enterprise Institute for Public Policy Research, 23 April 2004.
56. Quoted in Adam Thompson, 'Argentina on the edge: what are the consequences of another default?' Financial Times, 8 March 2004.
57. Cavallo goes as far as to blame the United States' lack of leadership, under President George W. Bush, in international finance as being one of the main factors that led to Argentina's economic problems. See Cavallo, 'Argentina and the IMF during the Two Bush Administrations', p. 148.
58. On US Treasury Secretary Paul O'Neil's experience with Argentina, see Ron Suskind, The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neil (Simon Schuster, 2004).
59. For different assessments, see Steve H. Hanke, 'Argentine "bank robbery": US looks the other way', A Cato Commentary, Wall Street Journal, 21 March 2003;
60. 'Kirchner seeks Bush's backing in talks with IMF, Washington Times, 22 July 2003;
61. and Miguel Diaz, 'Argentina Alert; Welcome to Washington President Kirchner', CSIS Hemisphere Alert, Vol. XI, Issue 26, 21 July 2003.
62. Helleiner, 'The Strange Story of Bush and the Argentine Debt Crisis'.
63. See Cavallo, 'Argentina and the IMF during the Two Bush Administrations', p. 148.
64. The US was far from practising 'dollar diplomacy' - a history of defending US private and multilateral economic interests in the developing world to uphold the capitalist system.
65. See Susan Strange, The Retreat of the State (Cambridge University Press, 1996).
66. For a strong version of the structuralist-realist argument about US supremacy in relation to international institutions, such as the IMF, see John Mearsheimer, 'The False Promise of International Institutions', International Security, Vol. 19, No. 3 (1994), pp. 5-49.
67. See for example, 'Argentina and the IMF: which is the victim?', The Economist, 4 March 2004;
68. and Economist Intelligence Unit, 'Argentina: finance, government sidesteps new default', EIU views wire, 10 March 2004.
69. For the most complete treatment of the IMF-Argentina relationship, see Michael Mussa, Argentina and the Fund: From Triumph to Tragedy, Policy Analyses in International Economics, Institute for International Economics, Washington DC, July 2002.
70. IEO, The IMF and Argentina, 1991-2001, p. 3. Emphasis added. Specifically, the IEO claimed that staff failed to raise concerns regarding the exchange rate policy, enforce fiscal conditionality and prescribe sufficient structural reforms.
71. Merrill Lynch, 'An update on Argentina by Guillermo Nielsen, Secretary of Finance, Argentina', presentation to Latin American Investor Conference, 27 March 2004, p. 2.
72. Quoted in Lex Rieffel, Restructuring Sovereign Debt: The Case for Ad Hoc Machinery (Brookings Institution Press, 2003).
73. I b i d..
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75. Merrill Lynch, 'An update on Argentina'. A debate persisted whether Merrill Lynch was drawn into this process because of a desire for corporate profile or the prospect of selling more Argentine bonds.
76. Adam Thompson, 'Argentina rejects talks with hold-out creditors', Financial Times, 12 April 2005.
77. Marcus Miller & Javier Garcia Fronti, Argentina in Default: The Renegotiation Game, Centre for the Study of Globalisation and Regionalisation Working Paper, University of Warwick, 19 December 2003.
78. On this point, see Philip Cerny, 'Politicizing the global', in: James Busumtwi-Sam & Laurent Dobuzinskis (eds), Turbulence and New Directions in Global Political Economy (Palgrave, 2003), pp. 24-6;
79. and Geoffrey Garrett, 'Shrinking states? Globalization and national autonomy', in: Ngaire Woods (ed.), The Political Economy of Globalization (Macmillan, 2000), pp. 107-22.