The strange story of Bush and the Argentine debt crisis

Third World Quarterly

Volumn 26, Issue 6, 2005, Pages 951-969

  Helleiner, Eric ^a  

^a TRENT UNIVERSITY   (Canada)

Author keywords

[No Author keywords available]

Indexed keywords

DEBT; ECONOMIC ANALYSIS; FOREIGN POLICY; INVESTMENT;

ARGENTINA; NORTH AMERICA; SOUTH AMERICA; UNITED STATES;

EID: 24744469130     PISSN: 01436597     EISSN: None     Source Type: Journal    
DOI: 10.1080/01436590500093002     Document Type: Article

References (103)

1. At the time, Argentina did not default on its large debt to foreign public sector entities such as the IMF, World Bank and the Inter-American Development Bank (IADB).
2. Paul Blustein, 'IMF, White House fumble for a strategy as Argentina founders', Washington Post, 18 January 2002.
3. Thomas Catán, 'Argentines cheer debt default decision', Financial Times, 23 December 2001.
4. Quoted in Blustein, 'IMF, White House fumble for a strategy'.
5. Quoted in Thomas Catán & Mark Mulligan, 'Argentina set for 30-40% devaluation', Financial Times, 5 January 2002.
6. David Ignatius, 'Doing nothing', Washington Post, 13 January 2002.
7. Repayments to the IMF had already been deferred three times in 2002 and the Argentine government even defaulted to the World Bank in November 2002 and to the IADB in mid-January 2003.
8. See, for example, Alan Beattie, 'IMF urged to go easy on Argentina's future government', Financial Times, 6 February 2003.
9. David Haskel, 'IMF extends Argentina $6.78 billion loan: Duhalde sets target of 70% debt write-off', International Business and Finance Daily, 27 January 2003.
10. Quoted in David Haskel, 'IMF tells Argentina to up debt payments past 3% of GDP; no way, says nation', International Business and Finance Daily (The Bureau of National Affairs, Washington), 17 March 2004.
11. The IMF also backed down from its initial attempts to impose a detailed schedule for raising utility rates and to require that banks in Argentina be compensated for the way in which the government had imposed an asymmetric devaluation on them (in which the dollar - peso exchange rate for deposits and liabilities had been differentiated).
12. Quotes from David Haskel, 'Poverty alleviation more important than honoring debt, new Argentine leader says', International Business and Finance Daily, 28 May 2003.
13. David Haskel & Diana Gregg, 'Argentina, IMF agree on three-year lending program', International Business and Finance Daily, 12 September 2003.
14. Quoted in Jon Jeter, 'Argentina defaults on IMF payment', Washington Post, 10 September 2003.
15. David Haskel, 'Upbeat Argentina warns bondholders to expect unappealing rescheduling offer', International Business and Finance Daily, 15 September 2003.
16. Haskel & Gregg, 'Argentina, IMF agree on three-year lending program'.
17. American Enterprise Institute, 'Argentina: Economic challenges in the wake of default', 31 March 2004, at www.aei.org/include/ event_print.asp?eventID=767, p 4.
18. Quoted in Haskel, 'Upbeat Argentina'.
19. Marcela Valente, 'Argentina: Government proposes record-setting debt write-off', IPS (SUNS News Service), 22 September 2003.
20. Quotes from Adam Thomson, 'Argentina on the edge', Financial Times, 8 March 2004
21. and David Haskel, 'Argentina offers bondholders haircut, triggering instant refusal by creditors', International Business and Finance Daily, 23 September 2003.
22. The cuts in the Ecuadorian and Russian cases were roughly 40% and 35%, respectively. Lesley Wrouton & Brian Winter, 'Argentina's request for 75% cut in debt angers creditors', Globe and Mail, 23 September 2003.
23. Quotes from David Haskel, 'Bush said to back tough Argentine stance on bondholder debt talks, praise Kirchner', International Business and Finance Daily, 25 September 2004.
24. Quotes from David Haskel, 'World Bank postpones consideration of $5 billion loan package to Argentina', International Business and Finance Daily, 9 January 2004.
25. Quote from Adam Thomson, 'Bondholders to quit talks on Argentina debt', Financial Times, 2 March 2004.
26. For these arguments, see, for example, Martin Wolf, 'The IMF should stand firm against Argentine blackmail', Financial Times, 28 January 2004
27. Alan Beattie, 'IMF in revolt on releasing loan to Argentina', Financial Times, 29 January 2004
28. and Adam Thomson, 'Argentina on the edge'.
29. Allan Beattie, 'Argentine-IMF rancour starts to turn personal', Financial Times, 30 January 2004.
30. Quotes from Diana Gregg, 'Argentine review frees up $358 million, IMF chief calls debt restructuring "critical"', International Business and Finance Daily, 30 January 2004.
31. Joshua Goodman, 'Scepticism over Argentine debt management move', Financial Times, 12 February 2004.
32. Allan Beattie, 'Argentine - IMF rancour starts to turn personal';
33. and David Haskel, 'Koehler tells Argentina's Kirchner loan review now has IMF management backing', International Business and Finance Daily, 12 January 2004.
34. David Haskel, 'Following key talks with Bush, Koehler, Argentine leader affirms debt-cut decision', International Business and Finance Daily, 15 January 2004.
35. Quoted in 'Argentine and US presidents' talks "frank"', BBC Monitoring Americas, 15 January 2004.
36. Quote from David Haskel, 'Argentina says will talk to bondholders but not budge from 25% debt cut demand', International Business and Finance Daily, 12 March 2004.
37. See also Haskel, 'Argentina makes last minute IMF payment', International Business and Finance Daily, 10 March 2004.
38. Adam Thomson, 'Argentina defies creditors by refusing to modify offer on debt restructuring', Financial Times, 4 March 2004.
39. Quote from Andrew Balls, 'United front on Argentina pays off', Financial Times, 10 March 2004.
40. Marcela Valente, 'Argentina: Last-minute IMF agreement averts default', IPS (SUNS News Service), 9 March 2004.
41. They were Merrill Lynch, UBS Investment Bank and Barclays Capital. Their advisory role had been announced in mid-February after a meeting between Lavagna and Koehler.
42. Quotes from Adam Thomson & Andrew Balls, 'Argentina pledges to make progress on debt', Financial Times, 24 March 2004. Argentina also made some other commitments that were unrelated to the bond holders' concerns but which had been contentious issues for some time, such as allowing large increases in electricity and natural gas prices.
43. Ignacio Sosa, of OneWorld Investments, in the letters section of the Financial Times, 9 March 2004.
44. Quoted in Thomson & Balls, 'Argentina pledges to make progress on debt'.
45. See also Haskel, 'Argentina makes last minute IMF payment'.
46. Quote from David Haskel, 'Argentina says will talk to bondholders'.
47. American Enterprise Institute, 'Argentina', p 5.
48. Quoted in Diana Gregg, 'Taylor says IMF's third review will show if Argentina sticking to plan', International Business and Finance Daily, 10 June 2004.
49. Joshua Goodman, 'Argentine investors reject debt offer', Financial Times, 2 June 2004
50. and Goodman, 'Argentina creditors unveil generous debt workout plan', World Bank Press Review, 16 July 2004.
51. Quoted in Marcela Valente, 'Argentina: Paying the IMF - and ignoring its advice', IPS (SUNS News Service) 9 August 2004.
52. Quote from 'Financial group seeks action on emerging markets', World Bank Press Review, 15 September 2004.
53. David Haskel, 'Argentina to issue $41.8 billion in bonds, make extra cash payment under debt plan', International Business and Finance Daily, 2 November 2004
54. and David Haskel, 'Argentina's debt restructuring plan unanimously rejected by creditors', International Business and Finance Daily, 3 November 2004.
55. Dianna Gregg & David Haskell, 'IMF not telling Argentina acceptance level for debt swap', International Business and Finance Daily, 14 January 2005.
56. See, for example, Samuel Flagg Bemis, The Latin American Policy of the United States, New York: Harcourt, Brace and World, 1943, ch 19
57. and David Green, The Containment of Latin America: A History of the Myths and Realities of the Good Neighbor Policy, Chicago, IL: Quadrangle Books, 1971, p 21. Even the Roosevelt administration helped to organise US bond holders into a Foreign Bondholders Committee in late 1933 to facilitate negotiations with the debtor countries, a form of assistance that the Bush administration has not offered. Moreover, in practice, the State Department during the 1930s did in fact increasingly intervene on behalf of US bond holders in negotiations with Latin American governments.
58. Quote from Senator Evan Bayh in Argentina's Economic Crisis, Hearing before the Subcommittee on International Trade and Finance of the Committee on Banking, Housing and Urban Affairs, US Senate, 107th Congress, 2nd session, 28 February 2002, Washington, DC: Government Printing Office, 2002, p 3.
59. Ignatius, 'Doing nothing'.
60. Quoted in Tony Smith, 'Power shift between Argentina and the IMF', New York Times, 29 July 2003.
61. See also Adam Thomson, 'Kirchner invited to Washington', Financial Times, 19 July 2003.
62. Alan Cibils, 'Argentina's IMF agreement: The dawn of a new era?', Foreign Policy in Focus, 10 October 2003, p 3.
63. For the meeting, see Nancy San Martin, 'Argentine president meets with president Bush', Knight Ridder Tribune News Service, 23 July 2003.
64. Tony Smith, 'Argentina and Brazil align to fight US trade policy', New York Times, 21 October 2003. On 16 March 2004 Argentina and Brazil also agreed that they would adopt some common positions in negotiating with the IMF on issues such as primary budget surplus targets and the definition of government spending.
65. Raymond Colitt, 'Argentina and Brazil urge IMF to relax rules', Financial Times, 17 March 2004.
66. Allan Beattie, 'Argentine-IMF rancour'.
67. See, for example, Paul Blustein, The Chastening: Inside the Crisis that Rocked the Global Financial System and Humbled the IMF, New York: Public Affairs, 2001, chs 7, 9, p 386.
68. Ron Suskind, The Price of Loyalty: George W Bush, the White House, and the Education of Paul O'Neill, New York: Simon and Schuster, 2004, pp 173, 175, 243-244
69. and 'Tricky moves for the Bank and the Fund', The Economist, 17 February 2001. O'Neill resigned in December 2002 and was replaced by John Snow. When he was an economist at Stanford, Taylor had called for the abolition of the IMF on moral hazard grounds during a 15 December 1998 debate on the television show Uncommon Knowledge: 'It should be abolished, I agree. And I'd like to do it slowly in a way that takes some of the talents there and uses it in a more effective way'. 'Adios IMF?', at www.uncommonknowledge.org/99winter/320.html.
70. 'Tricky moves for the Bank and the Fund'; Michael Sesit, 'Who'll blink first: Bush administration or bold debtholders?, Wall Street Journal (European edition), 16 February 2001
71. and The State of the International Financial System and IMF Reform, Hearing before the Committee on Financial Services, US House of Representatives, 107th Congress, 1st session, 22 May 2001, Washington, DC: US Government Printing Office, pp 8, 13-16.
72. 'Kohler's new crew', The Economist, 16 June 2001.
73. Anne Krueger, 'International financial architecture for 2002: A new approach to sovereign debt restructuring', address given at the National Economists' Club Annual Members' Dinner, American Enterprise Institute, Washington, DC, 26 November 2001, available at http://www.imf.org/ external/np/speeches/2001/112601.htm.
74. See, for example, Blustein, 'IMF, White House fumble for a strategy'. They had in fact passed up an earlier opportunity in Turkey, which experienced a financial crisis in early 2001 and had received a large IMF loan.
75. Although Krueger's SDRM was proposed in November, this was a longer-term initiative that was clearly not available to help Argentina with its immediate crisis.
76. Domingo Cavallo, 'Argentina and the IMF during the two Bush administrations', International Finance, 7(1), 2004, p 148. Cavallo argues that the crisis would have been much less severe if the USA and/ or IMF had provided political support for a debt rescheduling process by mid-2001.
77. See, for example, Argentina's Economic Crisis, p 33.
78. See, for example, Argentina's Economic Meltdown: Causes and Remedies, Hearings before the Subcommittee on International Monetary Policy and Trade of the Committee on Financial Services, US House of Representatives, 107th Congress, 2nd session, 6 February, 5 March 2002, Washington, DC: US Government Printing Office, pp 19-20, 27
79. and The State of the International Financial System, pp 28, 47.
80. Many left-wing members of the US Congress, such as Vermont's Bernie Sanders, also found themselves agreeing with attacks on the IMF bail-outs on the grounds that this lending simply bailed out large financial institutions. See, for example, Blustein, The Chastening, pp 293-296
81. and The State of the International Financial System, pp 15-16.
82. Quoted in Beattie, 'IMF urged to go easy on Argentina's future government'.
83. Quoted in Adam Thomson, 'Argentina on the edge'. He was explicitly making reference to statements O'Neill had earlier made that it was 'ridiculous for America's plumbers and carpenters to pay for someone else's bad decisions'.
84. Quoted in Hector Schamis, 'Argentina: Crisis and democratic consolidation', Journal of Democracy, 13(2), 2002, pp 81-94.
85. Allan Meltzer, 'Why it is time to close down the IMF' Financial Times, 16 June 1995.
86. Quotes from Adam Lerrick & Allan Meltzer, Beyond IMF Bailouts: Default Without Disruption, Quarterly International Economics Report, Gailliot Center for Public Policy, Carnegie Mellon University, May 2001, pp 1, 2.
87. See also Pamela Druckerman, 'US academics vex Argentina', Globe and Mail, 27 August 2001.
88. See also the proposal at this time from another economist involved with the Meltzer Commission, Charles Calomiris, for a 25%-30% write-down of Argentine sovereign debt. Calomiris, How to Resolve the Argentine Debt Crisis, Washington, DC: American Enterprise Institute, 16 April 2001.
89. Calomiris's proposal apparently had the support of some Wall Street bankers. See Michele Wucker, 'Searching for Argentina's silver lining', World Policy Journal, Winter 2003-04, pp 49-58.
90. Cavallo, 'Argentine and the IMF', p 147.
91. Quoted in 'Scepticism on IMF lending to Argentina gains Congressional support', US Congress Joint Economic Committee Press Release 107-57, 14 December 2001.
92. For Meltzer's support for the IMF strategy in late 2001, see, for example, Argentina's Economic Meltdown, p 41.
93. It is less clear, however, why the Bush administration did not back the idea of an orderly debt rescheduling in mid-2001, a move that would have been in keeping with the proposals of Meltzer and would probably have met with Congressional support (as well as the support of the Argentine government, as I note above in footnote 62).
94. Congressional Republicans welcomed the decision of the IMF Executive Board in early 2003 not to pursue a new quota increase. 'IMF to forgo quota increase', US Congress Joint Economic Committee Press Release 108-3, 15 January 2003.
95. Martin Wolf, 'If the debt is unpaid', Financial Times, 8 March 2004.
96. Martin Wolf, 'The Fund is not equal to the job it was meant to do', Financial Times, 10 March 2004.
97. Ignatius, 'Doing nothing'.
98. The largest group of private creditors by nationality were Argentines, with 38% of private debt. After the US holdings, the next largest groups were German (5%) and Japanese (3%) investors. Haskel, 'Argentina offers bondholders haircut'.
99. See, for example, 'American investors in Argentina mostly taking losses in stride', New York Times, 25 December 2001
100. Paul Blustein, 'Argentina didn't fall on its own: Wall Street pushed debt till the last', Washington Post, 3 August 2003.
101. Adam Thomson, 'Creditors cry foul over debt as Argentina changes rules', Financial Times, 12 January 2005.
102. Joyce Chang, quoted in Diana Gregg, 'Latin America gets praise for progress on inflation, but high debt levels troubling', International Business and Finance Daily, 6 February 2004. Some investors have tried to use legal routes to recover their investments, but they have found rulings either unfavourable or difficult to enforce. Argentine officials also note that they have no non-diplomatic assets overseas to be seized (and diplomatic assets are protected by international law).
103. At the same time, the Argentine experience also reinforced private sector opposition to another reform proposal: Krueger's idea of an international bankruptcy court. The initial proposal assigned the IMF a role in the bankruptcy process. But private investors note that the Argentine crisis has revealed how this institution would not always be a disinterested observer in these disputes because of its own exposure to sovereign debtors.