When the financial crisis first hit, the U.S. government bailed
out major banks in part so the banks’ foreign government clients
would not suffer huge losses on their U.S. loan exposures. So where
are U.S. policymakers when a foreign government bilks Americans out
of billions of dollars? It’s been nearly a decade since Argentina
perpetrated the largest sovereign default in history, and the South
American country still owes roughly $15 billion to international
creditors, including $2 billion to New York taxpayers and to U.S.
investors ranging from university endowments to pension funds.
Rather than make good on its outstanding defaulted bonds,
the Argentine government has been sheltering some $45 billion worth
of liquid foreign reserves (86% of its total supply) in the
Basel-based Bank of International Settlements (BIS), which is
immune from most legal challenges. Earlier this month, two
bondholders reportedly lodged a formal complaint with the Swiss
government, saying that Buenos Aires has used the BIS to engage in
money laundering.
The matter should be of particular interest to Federal
Reserve chairman Ben Bernanke and New York Fed President/CEO
William Dudley, each of whom is a BIS board member. For that
matter, the United States is a member of the Paris Club, to which
Argentina owes around $9 billion. So, in effect, Bernanke and
Dudley have direct authority and a responsibility to oversee the
BIS’s immunity as it relates to Argentina. They would be wise to
re-examine Argentina’s abuse of BIS and help return Argentina’s
funds to U.S. taxpayers.
The criminal complaint has further highlighted the
duplicity of Argentine president Cristina F. Kirchner, whose
Chávez-style economic policies have alarmed private investors,
sparked capital flight, damaged her country’s global image, and
contributed to rampant inflation.
Of course the “official” Argentine inflation rate remains
in the single digits, but nobody takes that number seriously.
According to a June survey of Argentine inflation expectations
conducted by Torcuato Di Tella University, the median projection
for the next twelve months is a remarkable 25%. While inflation
rages, Cristina F. Kirchner grows more autocratic in her treatment
of critics. As the Wall Street Journal reports, the
Argentine government is “escalating its persecution of independent
economists” who dare to question its obviously bogus inflation and
poverty numbers.
Argentina enjoys an abundance of agricultural resources,
and high commodity prices have been fueling strong economic growth.
But the real inflation rate dwarfs the real growth rate, and this
has had devastating consequences for the Argentine poor. “The
poverty level is higher now than the worst moments of the 1990s,”
former Argentine economy minister Domingo Cavallo told the New
York Times this past winter. “Without a doubt, inflation is
increasing poverty.”
To appreciate just how much Kirchner and her late husband,
Néstor, who preceded her as president from 2003 to 2007 and died
last October, have diminished economic liberty, look at the
Heritage Foundation’s Index of Economic
Freedom. Between 2003 and 2011, Argentina’s
ranking fell from 68th (out of 156 economies) to 138th (out of 179
economies). It now ranks behind even Haiti and Cameroon. Meanwhile,
the World Economic Forum’s Global
Competitiveness Index ranks Argentina behind
Guatemala, Rwanda, Trinidad and Tobago, the Philippines, and
Algeria.
Argentine press freedoms have
declined, and corruption has become a
massive problem. Indeed, Peruvian Nobel laureate Mario Vargas Llosa
has said that the Kirchner government “is corroded by corruption,
and to such an extent that it is losing its natural leadership and
disappearing as a political reference for Latin America.” A
WikiLeaks cable from the U.S. embassy in Buenos Aires lamented that
Argentina’s “emasculated institutional framework” is “incapable of
providing needed checks and balances.”
In her foreign policy, Kirchner has cozied up to Hugo
Chávez (whose bond purchases helped Argentina recover from its 2001
financial crisis), poisoned bilateral relations with Washington,
and reportedly offered to suspend two investigations of
Iranian-backed terror bombings in return for economic concessions
from Tehran. Earlier this year, her foreign minister, Héctor
Timerman, accused the United States of operating torture schools. A
few weeks later, Argentine officials abruptly and bizarrely seized
the contents of a U.S. military plane that was delivering equipment
for police training.
Is it any wonder that the former “Jewel of South America”
has lost regional influence, respect, and credibility?
Nevertheless, its quasi-autocratic president is hoping
that rapid GDP growth and profligate public spending will help her
secure re-election in October. With the opposition bitterly
divided, four more years of Kirchnerism may be unavoidable. But
it’s not something that Argentines or Americans should
applaud.
