November 28, 2012 3:31 am
Debt – Argentina’s long-festering wound
Argentina has struggled to manage its money throughout its two centuries as an independent nation – and was once so hard-up it tried to swap the Falkland Islands for its debt.
It received its first loan, from Britain, in 1824 but had defaulted by 1890. In 1949 it declared itself debt-free and was even a creditor to Italy, Finland, Belgium and Romania, which had been devastated by war. But by 2001 it had racked up the world’s biggest sovereign default by halting payment on nearly $100bn of foreign debt.
Today, the major soya and cereals producer points to its journey from bust to a boom last year of 8.9 per cent growth, and expansion of above 8 per cent in seven of the past nine years, to argue that austerity is no recipe for recovery. It wants to turn its fight with “loan sharks”, led by the hedge fund Elliott Associates, into a crusade and has appealed to its G20 partners to rally to the cause.
Argentina has also slammed “terrorist” credit rating agencies and considers itself besieged by speculators – something it says has been a hallmark of its history. The republic’s 1824 loan was “the first link in a chain of debt that was corrupt, fraudulent and harmful to our national interests”, preaches a museum of foreign debt in the University of Buenos Aires.
When it comes to debt, Argentina believes it takes two to tango: irresponsible lenders as well as reckless borrowers. But Argentina elicits little sympathy given take-it-or-leave-it restructuring offers in 2005 and 2010; disregard for contracts, such as its expropriation of 51 per cent of energy group YPF from Repsol of Spain this year; and lingering debts of some $10bn to the Paris Club of creditors.
For Argentina, these are “sovereign” issues for it to settle as it sees fit, not according to the dictates of a “colonialist” financial system. Argentina has paid off its debts to the International Monetary Fund, which it blames for the policies that led it to the 2001 catastrophe, and refuses annual inspection of its accounts – the only G20 country to do so.
As the stakes rise in the New York court saga, it may be worth remembering Argentina’s first loan: £1m borrowed from Barings Brothers in London in 1824. The country took out the loan for infrastructure works; only ever saw about half the money it had borrowed; and finally ended up paying back £5m – 81 years later.
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Copyright The Financial Times Limited 2012.
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