Dictator Watch

Argentina: Where a Default Is Not a Default

Blame the ‘vulture funds.’

By 8.6.14

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In Plato’s famous model, the three elements of the well-ordered state correspond to the three aspects of the soul, with the rational aspect governing the will and the appetites.

But nobody ever called Argentina a well-ordered state, and the souls of its people are scarcely healthier: Buenos Aires has eight times as many psychologists per capita as New York City. So substitute Freud’s psyche for Plato’s psuche. Argentina, then, should be understood as a nation driven by the passions of its id, without the constraints of superego that govern other societies. Where our politics conform to a history of constitutional democracy, Argentina has the fraudulent altruism of Juan Domingo Peron. Peronism isn’t simply demagoguery; it’s a form of nihilism. It is the Seinfeld of government, a politics of nothing. Where we have checks and balances, they have nothing to oppose the dark whims of elected dictators.

Federal Judge Thomas Griesa, whose efforts to force Argentina to settle with its creditors ended up pushing the country into default last week, represents the outside world in our scenario. That’s not symbolism. Griesa has been the insistent voice reminding Argentina of the $95 billion in financial obligations that it’s been trying to shrug off since its famous default of 2001. Around 93 percent those creditors accepted haircuts of roughly 70 percent in exchanges that took place in 2005 and 2010, but a few bought up defaulted bonds for pennies on the dollar, and pursued a longshot: repayment in full through the U.S. courts. In June, Griesa ordered Argentina to reach a settlement with a group of those holdouts who are owed $1.3 billion plus interest. Since that didn’t happen, he’s now blocking payment to most of the remaining bondholders until Argentina does settle. That’s triggered default, and the possibility that the rest of the bondholders will demand accelerated repayment.

Any psychoanalyst could tell you that when the outside world becomes that threatening, the ego will deploy defense mechanisms. Argentina’s defense mechanism is named Axel Kicillof. He’s the forty-two-year-old minister of the economy, and, appropriately enough, the son of a psychologist and a psychiatrist.

After Argentina failed to reach an agreement with the holdouts last week, Kicillof ran his mouth for a solid hour at a press conference, insisting that the default wasn’t really a default.

“It’s atomic gibberish to say we went into default today,” Kicillof said. Here is denial on an impressive scale: a fact is so massive it takes a full hour to circumnavigate. Most of us would give up and admit the obvious. Then there were the conspiracy theories involving the judge and a mediator. If you wanted, you could add to the list projection, distortion, delusion, rationalization, and intellectualization.

Argentina is far from the only Latin American country to default on its sovereign debt, but it is the only one to struggle so mightily to accept reality. Ecuador, under the socialist Rafael Correa, defaulted in 2008 and 2009, but it’s bought up most of that debt and returned to the capital markets this year. Yet Argentina is still struggling to reach a deal after 13 years, which ought to be some sort of record but isn’t; the country took twenty-eight years to settle the first of its eight defaults. Argentina is more estranged today from international capital than it was thirteen years ago. That wouldn’t be such a problem if the government balanced its budget; instead, it keeps printing pesos, driving inflation up to around 56 percent. Yet again.

Populists throughout the region find moneyed foreign interests to be a useful political foil. They inveigh against the International Monetary Fund for a few years, then switch it up to denounce the local multinational oil company for a while, claiming it’s evading taxes or royalty payments. In Argentina, Fernandez has singled out the hedge funds who scooped up the bad debt from 2001. She’s calling them "vulture funds," and the predatory image has caught on. Graffiti around the capital captures the Manichean essence of Peronism: “vultures or fatherland.” When there are only two kinds of people, loyal patriots and traitors, even suicidally bad decisions like default can enhance the president’s image.

Argentina’s problem, writes the journalist Joaquin Morales Solá, is that the country’s fate “depends exclusively on the opinion or the will of just one person. No mechanism in the political system (not the parliamentary blocs, not the presidential candidates, not even the Cabinet itself) did anything to stop another collapse…”

Argentine politics has been that way since Peron impeached three justices of the Supreme Court and chased off a fourth. He set the pattern of the democratically elected dictator, the unaccountable popular fascist, the demagogue whose class warfare triumphed so thoroughly over big money that there’s hardly any left in this country; just a century ago, Argentina was one of the six wealthiest nations in the world. Freud would have traced that sort of enduring national characteristic back to “the superego of an epoch… the impression left behind by the personalities of great leaders—men of overwhelming force of mind or men in whom one of the human impulsions has found its strongest and purest, and therefore often its most one-sided, expression.”

Peron was that great man for Argentina. His strong and pure impulsion was an ultra-patriotism that bordered on fascism. But, as George Orwell famously wrote, “the word ‘Fascism’ is almost entirely meaningless.” Instead of restriction or philosophical guidance—a cultural superego, so to speak—Peronism offers dictators a blank slate, license, and a claim on the loyalties of their countrymen.

The fact that Peronism doesn’t mean much of anything is one of the world’s longest running jokes. The closest you get to a program are the gestures of solidarity with the working class and the intense identification with the patria, or fatherland. Under Carlos Menem, the party stood for tight money. Under Fernandez, it’s crank-the-presses. Peron nationalized industries, Menem privatized them, and now Fernandez nationalizes them again. Kicillof himself gained entrée to Fernandez’s inner circle by leading the expropriation of national oil giant YPF from the Spanish company Repsol. His explanation, incidentally, suggests just how uncomplicated that was. “Look, when the approach of a company like Repsol gets too far from the interests of the country, then the first thing you do is ask them nicely to change direction, then not so nicely, then finally, you’ve got to take action.”

This is why it’s so hard for Argentina to abide the authority of an American court. Its leaders are unaccustomed to abiding by law or taking orders from anyone, and they’re already chauvinistic in the extreme. The main objection to Griesa’s ruling lodged by Raul Zaffaroni, a Kirchnerite justice of the Supreme Court, seems to be that it wasn’t from a distinguished enough source.

“Griesa seems like this all-powerful figure, when in reality, he’s basically a small-time municipal judge. He’s not even a federal judge,” Zaffaroni said, quite wrongly, “he’s more at the level of a local Buenos Aires judge, and here he is in the worldwide spotlight playing the tough guy.”

The problem, according to Zaffaroni, is that the “Supreme Court of the United States took the legally absurd position that it could just punt on a question that puts an entire country in check. It didn’t even have the guts to rule in Griesa’s favor. It just did what we call ‘a 280;’ it just said, ‘I’m not even interested in dealing with this.’”

You’ll hear the same complaint from a clinical narcissist, who will accept treatment only from a senior physician at a prestigious institution, and denigrates all others. Griesa, in point of fact, is a senior federal judge, and his ruling was upheld by the Second Circuit Court of Appeals, which is apparently also beneath Zaffaroni’s notice. The grievance in Zaffaroni’s remarks may just be an undertone, but in the official remarks from the Casa Rosada, it turns unmistakable and vulgar.

“The judge is clearly an agent of the vulture funds,” according to cabinet chief Jorge Capitanich. 

That sort of talk makes it easy to diagnose our patient: Argentina plainly suffers from narcissistic delusions. (If I may offer just one anecdote in support of my charge of generalized arrogance, it is this: Buenos Aires is covered in dog crap, because porteños are all too good to pick up after themselves.)

Fortunately, psychology can offer some guidance on dealing with narcissists.

Do not encourage this behavior, by saying, as the Washington Post did, that the holdout bondholders are “trying to profit from the financial struggles of developing countries.” Do not argue, as the Guardian did, that the solution is to make it even easier for Argentina to shirk its obligations.

Argentina must face reality.

You can help by setting limits, as Griesa did. You can compliment them, if you like, on their incredibly rich culture. Don’t put them down, even when they’re acting like total boludos. Reinforce positive behavior (Way to pay back Repsol, guys!”). Explain the negative consequences of certain behavior (“You’ve got all that oil in the Vaca Muerta play, che, you don’t want to chase off investors”). Finally, don’t feel like you have to listen too long. This tale has gone on long enough.

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About the Author

Jon Cassidy is the Texas bureau chief for Watchdog.org.