Last week, a UN tribunal ordered the release of an Argentine frigate docked in Ghana since October. A group of hedge funds had succeeded in getting a local court to hold the ship as collateral until the Argentine government made good on a $20 million bond. The bond is just a sliver of the debt still contested in New York as part of Argentina’s nearly $100 billion default in 2001.
Holdout creditors notwithstanding, few countries have had their debts so readily forgiven, or seen their status on the stage of nations so well polished, as Argentina after 2001. Since its implosion, Argentina has enjoyed an almost unbroken economic boom, notching growth at roughly twice the rate of its northern neighbor, Brazil. Exports of grain and other commodities soared. Malbec, an Argentine grape variety scarcely known outside oenophile circles at the turn of the twenty-first century, now vies with Shiraz as the third-most popular red-wine variety in the United States, behind Merlot and Cabernet Sauvignon.
More recently, Argentina has been mooted about as a model for “Grexit,” a plan whereby Greece would default, exit the Euro zone and regain economic competitiveness through buoyant exports. And today Argentina routinely gets bandied about as the world’s next energy superpower, because the country’s Dead Cow field might contain the world’s third-largest gas reserves.
In truth, a precarious balance impelled Argentina’s recovery. President Cristina Fernandez de Kirchner, along with her predecessor and late husband Nestor, made a point of alienating Western investors. To pull off this defiant rebound and fill the void of Western investment, the Kirchner machine counted on Chinese demand for commodities, not to mention Venezuelan financial assistance and oil subsidies. However, those fillips no longer suffice for economic planning, and other countries in a similar position are taking note.
Elsewhere, the pinch is leading to significant reform. This is especially evident in Cuba, where a series of privatized industries are opening Cuba’s economy. And quietly Evo Morales, another stalwart of the Hugo sphere, has begun to strike a path independent from Caracas. Two months ago, Bolivia floated an international bond for the first time in 90 years, raising $500 million. Previously, such funding would have come from Venezuela.
By contrast, President Fernandez has doubled down, further antagonizing the West and isolating Argentina. In 2011, Fernandez ordered foreign car dealers to try their hand at the other side of the ledger by exporting goods of the same value as the cars they imported: a Buenos Aires Porsche dealer opted to export wine (BMW dealers had to resort to selling processed rice). Then, earlier this year, Fernandez nationalized the gas company YPF from Spain’s Repsol, a desperate attempt to cordon off a natural resource.
Thus, Argentina’s scuffle with holdout creditors muddles the larger issue in legalese: South America’s most volatile economy is ambling once again toward collapse.
After a decade of growth, Argentina’s economy contracted 3.4 percent in the third quarter. Meanwhile, inflation gallops ahead at an estimated 25 percent. In the coming months, Fernandez will have to retreat from her claims that she will not pay the “vulture funds” of holdout creditors or else Argentina will go back into default. One hedge fund manager recently told the Financial Times that he expects Fernandez will “go scorched earth.” Fed up with the gimmicks, central Buenos Aires was arrested by a 500,000-strong protest against the government on November 9.