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LESSONS FROM ARGENTINA

March 09, 2005

The following is an article from the Washington Post. It's a critical analysis of what Argentina went through after becoming the world's largest debt defaulter. Unemployment, social restructuring and a lot of suffering by ordinary people.

Here goes:
+++++++++++++++++++++++
Lessons From Argentina
Wednesday, March 9, 2005

ARGENTINA'S DEFAULT, the largest by any nation in history, has been a social catastrophe. It drove unemployment to nearly 25 percent, and millions have been forced into poverty. But the recent restructuring of the country's debt ought to be healthy for the international financial system.

More than three years after its default, Argentina has persuaded a majority of its creditors to accept a reduction of about two-thirds in the value of its debt, a cut roughly twice as aggressive as in past sovereign bankruptcies. Although this means that investors will take painful losses, this isn't a bad thing: It sends a signal that private lenders should consider the risks of emerging markets before pressing capital on them. If investors had treated Argentina more cautiously during the 1990s, the country would have borrowed less and its ensuing collapse would have been less painful to innocent people. If investors are capable of learning lessons, the Argentina signal could take some froth out of the current lending to emerging markets.

With luck, this salutary lesson to investors won't be counteracted by a destructive lesson to borrowers: that it's better to borrow crazily and default than to run government finances responsibly. Having forced borrowers to forgive two-thirds of their debt, and having experienced growth of nearly 9 percent for the past two years, populists in Argentina and beyond may argue that stiffing international creditors is smart policy. But if they do make such claims, the facts ought to puncture them. Argentines have paid a huge price for their default: As The Post's Paul Blustein reported last week, more than two out of five citizens live below the poverty line, and salaried workers who have held on to their jobs have had to endure a 20 percent cut in incomes. The country's recent economic growth is only a partial recuperation of its earlier contraction. If you devalue your currency, cutting the dollar value of your economy by two-thirds, your new international competitiveness is bound to spur a rebound from the depths to which you've plunged. But it's weird to call that progress.

If international investors absorb the lesson that they should lend more carefully (admittedly a big if), and if borrowing countries don't make the mistake of embracing default as a policy option, capital flows to developing countries may become less crisis-prone. The advantages that they bring (faster growth in poor countries) won't be so frequently undone by the disadvantages (the risk that investors will yank their money out, bringing a country to a standstill). But although Argentina's debt deal sends a healthy signal, it still points to a problem in the way the international system works. The deal took too long to organize, unnecessarily hurting both lenders and Argentina.

This is why the world may eventually create something like a bankruptcy court for dealing with governments. If Argentina were a company, a bankruptcy judge would have taken control of the debt workout, cutting out the need for a three-year game of chicken between the country and its creditors. Once a proposed debt write-down had won the support of a majority of creditors, the minority would have been left with no option to reject the deal, whereas now creditors representing a quarter of Argentina's debt still refuse the offer. This delay and uncertainty serves nobody. Anne O. Krueger, the No. 2 official at the International Monetary Fund, put the idea of a sovereign bankruptcy mechanism on the table in 2001. She should return to the subject
************************************

For those interested here is a link to the original Krueger IMF report:
Crisis Prevention and Resolution: Lessons from Argentina

Argentina can be a great lesson for the rest of the world. 25% unemployment, debt forgiveness at huge levels, lots of pain and suffering. Is this what America has to look forward to when it's status as the world's largest debtor results in massive defaults?

Comments are always welcome.

Rich

Posted by richardlancaster at March 9, 2005 08:05 PM
Comments


Argentine debt was "only" 82 billion dollars which is now reduced to a "miniscule" 35 billion dollars.

http://news.bbc.co.uk/2/hi/business/4317009.stm

This is chump change! If the US were to default, it would be ten times that much. In that case, creditor nations may be hurt too. Right now, the Argentine default is hardly felt by anyone except the Argentines themselves. If the US were to default, it would be much more serious.

Posted by: Fidel Castro at March 10, 2005 03:45 AM

"This is why the world may eventually create something like a bankruptcy court for dealing with governments. If Argentina were a company, a bankruptcy judge would have taken control of the debt workout"

Well close, actually the world (cough cough America) will deal with governments in this fashion with intent take control of their power, in other words; to aquire them. For instance, the case of the new "U.S. Iraq".

Kind of like the U.S. Virgin Islands, only in the desert.

Posted by: grond at March 10, 2005 02:51 PM

Just returned this week from Buenos Aires as I was looking at real estate there. Professionals I dealt with were very dissatisfied with the economy and their government. Prices for A buildings have not dropped as the owners have deep pockets and wouldnt sell at the bottom at fire sale prices. One savvy local company IRSA bought back its own debt from frightened creditors and is doing well. However, prices are cheap using the US dollar as a guide in residential property. No one is borrowing money because of high interest rates and the residential mortgage market is dead. Sales are for cash, which hinders prices. Building is nonexistent without loans, which is not necessarily a bad thing. Exporters are going gangbusters as the peso has dropped the local cost and they receive dollars on sales.
The most interesting commetof all was that the Argentines are well aware they took on too much debt, but they know the US will eventually have their own problems as their debt is not repayable either.

Posted by: paul at March 11, 2005 02:24 PM

Amerika must take its leaders and hang them for the rest of the world to see. They must do it soon or the world will settle into the belief that average Amerikans support the behaviour of this government.

Posted by: XcKy at March 12, 2005 05:56 AM

Hey XcKy.

I can only imagine this is your attempt at revolutionary humor!

This site is in large part about justice, justice is served through a process.

The issue is there is no real court for ordinary people (like us) to prosecute a criminal politician through.

Also, politicians are primarily puppets, its the puppeteers who are the real enemy here.

Cheers Rich

Posted by: Rich at March 12, 2005 06:00 PM

the wapo is wrong as always. Poverty and unemployment was already at record level before the default. In fact, the economy was lobotomized due to the insistance of creditors to pay 100 % of debts. All other spending, ie. education, health care had to be cut to pay for the massive external debt. The political system could not accept the level of austerity demanded by the IMF. That was cause of the problem !

Posted by: mje at March 12, 2005 08:16 PM

Actually Rich, there is little reason for humour. The world is not in a funny place. Perhaps, as Vonnegut would instruct us though, that’s the best time to laugh.

Justice contains notions of fairness and retribution. Perhaps it is fair that the world gets to visit some retribution or at least watch its visitation on the company in control of Amerika (the puppeteers) Aren't these the same cadre who control the world's finances globally? The Commons in Amerika and Cannot-eh has been raped and robbed by corporate "privatization", by corporate welfare and predatory capital and this is the history of “emerging" markets throughout the history of mercantile capitalism.

I would wish the individuals who are not responsible for this regime's madness a measure of sanity and of courage, they must act, but first of course, they must turn away from their televisions.

When it comes time for justice, the "puppeteers" will be lounging on their yachts and beaches and the little guy will go the wall, again.

Not just Argentineans, but the whole world hates Amerikans. There has been decades of white-hand strangulation to sharpen and deepen this hatred.

Dr. Ramon Pannikar's deconstruction of the concept of "development" is pertinent to any discussion of what "growth" means to "poor countries"

"Default" is a technical banking term indicating strangulation is accomplished.

By "leader" I mean those responsible, not just those in government but those driving government, the "puppeteers" as you call them. These same brigands control international capital and the policies of IMF

The issue is certainly one of justice and access is one of its defining elements. The process has been corrupted to the point where little is left but violence. The longer Amerikans wait, the more violence they will endure. They seem to have an insatiable appetite for it.


"If your private sector is benefiting from access to international capital markets—which is all to the good—then it is dangerous for the public sector to rely on it too much for cheap finance as well"

Why does the writer -obviously a very capable academic- blithely assert that it is all to the good? The strength of the analysis is in the numbers and it points with a billion fingers to the supreme disregard that international finance and savage capital generally, has for anything but profit margin. The analysis exists to serve the conclusion; the necessary next step is further consolidation of power in the hands of trans-national actors; it is the reduction of sovereignty in favour of global-actor control of Humanity’s common endowment; this single, finite & marginally habitable planet. Actors that are effectively beyond the yoke of constitutions, of laws, of courts, of inquiry, in short, beyond the reach of the common good, control the common-wealth. Their appetite for plunder is beyond measure and they will remorselessly lay waste to the planet if not stopped. While the move to internationalism is indicated as essential and urgent in humanity's prescription for species survival, this trust cannot be left in the hands of the super-rich; of pirates who have hijacked the Amerikan polity. They lead us not to greener pastures but to ruin.

Savage Capitalism is a sure path to the degradation of human life and the destruction of our planet.

My East German friends observe from their experiences over years of corruption and tyranny that "when the politicians cheat you, eventually you must take them out and shoot them, the next bunch will not so quickly lie and cheat you"
While this may not be the path to immediate peace and prosperity, human dignity demands justice when affronted by evil: robbery, rape, greed, profligacy, cruelty, selfishness, nepotism & etc.

I realize your site is concerned with economics but there can be no amoral economy. If Homo sapiens is to survive as a civilized animal, the distribution of Natural Capital cannot be as historically it has been: a no-holds barred competition amongst acquisitive individuals. The allocation of a sovereign land's resources must first secure the good of res publios or all is lost. The first of these things that is lost is our ability to identify, control and eradicate pathological genotypes such as the "savage capitalist" which must be a sub-group of psychotic.
With the loss of the commons we face the irrelevance of the social contract and the inevitable dissolution of the state. Hobbes may get the last word yet, especially as his promoters in the US appear more omnipotent daily.

Let us never forget that with just the trillions Amerika has spent on arms since WWII, that is, with American leadership and inspiration, humanity could've solved a great many terrestrial problems, it could’ve gained mastery of Near Earth Orbit, it could've begun the exploitation and colonization of Moon bringing the resources of this lifeless planet into the equation for the good of humanity. The petroleum economy -nearly out of gas- could've subsidized the development of alternatives but instead it has fattened and corrupted individuals beyond all proportion; so far beyond decency it is in the realm of super-criminal. There can be no justification for a few individuals controlling trillions in personal "wealth" while the rest of the world is left to stew with scraps in a blasted and privatized landscape; in the polluted, degraded, dehumanized leavings which bear witness to the ruthless and unmitigated extraction of value from natural capital. Instead we are on the threshold of oblivion because, as Lil’ Shrub and the Texas Lackeys never tire of telling us, we need to have “all options on the table” for the protection of “our interests” around the world; we would squander and scatter our scarce radioactive elements to provide “protection” for the “assets” of a very small group of “privileged” – the “owners”

Plato's tyranny of mediocrity is fully incorporated and syndicated internationally and the kings controlling this global enterprise are far from benign.

Time is short. Let us make haste with that rope and I suggest we begin at the top.

Posted by: xcKy at March 13, 2005 07:48 PM

"If I had a hundred grand to invest, it would go into Winn Dixie (4.00 USD) or Safeway (18.61 USD). Both stocks are at the low end of 52 week high/low. People gotta eat."-- Ron

http://www.depression2.tv/nwo-2/archives/000126.html

Winn-Dixie (WNDXQ) was trading at 1.02 USD on Friday.

Crow isn't too bad if you add enough salt. I would have spent 100 grand on 25 000 shares of WNDXQ and lost my shorts. I would have lost 75 grand of my 100 grand investment. Glad I was a 100 grand short that day, now I'm a 100 grand richer.

The high cost of gasoline and fuels are having a detrimental effect on the economy.

Somebody has goofed big time on this economy, the glorious war, the holy oil and you name it. It's more bad than good, I'll say that much.

There is no oil shortage. I remember a social studies class in junior high school. The instructor emphasized the point that 'experts' had concluded that by 1980 the world would be running low on oil. There is no need to panic anymore.

"Amount of oil produced per day:

* Saudi Arabia* - 8.1 million barrels per day;
*Including share of production from the Neutral Zone
* Former Soviet Union - 6.9 million barrels per day;
* United States - 6.5 million barrels per day;
* I.R. Iran - 3.6 million barrels per day;
* China - 3.2 million barrels per day."

http://www.offshore-environment.com/facts.html

That is 28.3 million barrels of oil per day. At 55 bucks per barrel, you get: 55 x 28.3 million equals 1556.5 million dollars of oil traded each and every day. 1.5565 billion greenbacks each day.

There is no oil shortage. Too much is being used.

There are rigs still drilling for oil along the Gulf Coast all of the time. There will be more oil found and more of it for sale. It isn't just some phenomena that appears in a barrel and then gets sold as oil. It comes from the ground.

At 2 plus dollars per gallon, it's getting spendy. The price of gas in Beijing is a 1.34 per gallon.

I doubt very much that Hunter Thompson committed suicide.

So, I do believe there is some kind of savage beast out there that does the unthinkable. Paul Wellstone's plane accident is fishy, too.

"Living is a crock of shit." -- Kurt Vonnegut.

All this stuff isn't funny at all, but Kurt Vonnegut can make you laugh.

Posted by: Ron at March 14, 2005 03:10 AM

>There is no oil shortage.

>"Amount of oil produced per day:

>* Saudi Arabia* - 8.1 million barrels per day;
>*Including share of production from the Neutral Zone
>* Former Soviet Union - 6.9 million barrels per day;
>* United States - 6.5 million barrels per day;
>* I.R. Iran - 3.6 million barrels per day;
>* China - 3.2 million barrels per day."

But lets not look at how much is being contsumed.

OR the quality (high sulfur crude) and related refining costs.

Typically even the Peak Oil folks aren't saying it is vanishing (although using it makes it vanish).

The cheap oil is vanishing (sweet light). No cheap oil, no cheap gas, no cheap plastic, no cheap heat.

Its a gradual slide, not a sudden crash, when factoring oil alone.

Oh yeah it comes from the ground not through a multidimensional time portal. Its quantity is finite.

Will Rodgers would say; "Ain't more'n what the dirt'll hold."

Which its not.

Posted by: Bob at March 14, 2005 04:51 AM

There's lot of comments of the argentinian deal on this great site
www.roubiniglobal.com

The US federal government, may always monetize its debt. But private corporations will not. In case of another crash, many may go bankrupt. Especially banks.

Have a look here
http://news.ft.com/cms/s/6f68db92-8cf2-11d9-9d37-00000e2511c8.html

Back to the crazy 1999 years. This a new era. the lack of saving is not a problem.
Ah !

Posted by: Df at March 14, 2005 01:15 PM

Of course, had I bought my other suggestion to invest a hundred grand, BKH, Black Hills Corporation, I would be about 12 thousand dollars richer. Twelve percent return in about two months or so ain't bad. Plus, I would be getting a dividend check in a week or so, if not already. At a 1.32 USD per share per year, 3400 shares (29 x 3400 = 98,600 dollars). You are realizing a return on your investment of more than 4400 dollars per year. Your dividend would be paying for your investment. In twenty years, you have your investment back in your pocket. In 100 years, you are paid back four times over. Not a bad investment. At 32.00 per share, BKH is still a bargain.

Argentina's ship went out to sea during the Falkland Islands debacle.

Posted by: Ron at March 14, 2005 03:23 PM

interesting take on Argentina here:

http://www.davidsax.ca/journals/journal_argentina.htm

Posted by: Ron at March 14, 2005 04:29 PM

xzKy, You are clearly a "union guy" - never an owner of a company out there on a limb being called a savage capitalist, but always the one there asking when are you sick days, paid vacations, and family leave days! It is not business that takes down a country but too many people with a hand out asking what more can be given to them. When the social structure assumes responsibilty for the "nonproducers" then the unproducers never work and the system cannot handle the strain. Germany has more people on the "dole" then working. Same with France. No capitalist is trying to stick it to you, business owners are just trying to pay the taxes that cover the welfare for those nonproducers and provider the jobs to those unwilling or unable to carry their own freight. I start work at 4 a.m. and end at 5 p.m. every day and provide work for 55 people who all feel the way you do while they show up every two weeks hoping as a "capitalist" I have done my duty and can continue to write them checks that never stop increasing as their debt load grows with new cars, credit cards, and double lattes. While workers are needed to perform day to day job duties, capitalists are needed to provide workers with a job! End all big business and what will everyone do? How many welfare checks can the US write per month? How many did Argentina write before they went broke? The argument you have never holds water in the end because if you take your theory to the bitter end and give you everything you want, you will be taking it in food stamps!

Posted by: Paranoid's Daughter at March 16, 2005 04:09 AM

I also did buy Singer Corporation when it hit a low. Soon afterwards, they 'decided' to go bankrupt. Somehow, the capitalist walked away with my invested money and I had nothing to show for it. Sometimes you can get stung hard by a capitalist who is willing to take your hard-earned income from hard work and have nothing in return. I lost the dollars I invested. A 144 year old company goes bankrupt and then is still in business? However, I no longer have any Singer stock. Just the schlock is what is leftover. That's the way it goes, first your money and then your clothes. I can't help it if some capitalists don't look after the stockholders' interests.

It's a funny old ride. You win some, you lose some and you're not going to win them all. I've had about three weeks of 'paid' vacation in my entire life. Vacations are fun, but I always have to pay for them anymore because nobody else will.

People must live. They need to eat, they have to wear clothes, and also need a place to live. Therein lies the market. Life isn't always fun and games, but it is preferred to the alternative.

Posted by: Ron at March 16, 2005 05:11 PM

ok, i hear we buy low and look forward to gains so we can make a profit on our hard earned cash.
But IF you play the stock market, there are UPs and DOWNs and Bankruptcys.
If you're in business, there are UPs and DOWNs and they take their chances. And they depend on the Sales Rep to sell their product/service. The office people to handle the sales/order perfectly and then price it right and "hopefully" make some money. While paying the Sales/Rep office/shipping a good wage + Social Security + Vacations + Insurance etc at a steady rate with maybe annual increases and costs.

Ok....We CAN NOT have it both ways. you won't make a killing on the stockmarket if companies don't make a profit. And if they don't make that profit they won't be able to pay decent salaries. You want a profit.... They want a profit... it really is the right American Way

There's a joke I've seen going around about the Grasshopper and the Ant which pretty well sums it up.

CLASSIC VERSION:
The ant works hard in the withering heat all summer
long, building his house and laying up supplies for the
winter.
The grasshopper thinks he's a fool and laughs and dances
and plays the summer away.

Come winter, the ant is warm and well fed. Grasshopper has no food or shelter so he dies out in the cold.

MODERN VERSION:
The ant works hard in the withering heat all summer long,
building his house and laying up supplies for the winter.
The grasshopper thinks he's a fool and laughs and dances
and plays the summer away.

Come winter, the shivering grasshopper calls a press
conference and demands to know why the ant should be
allowed to be warm and well fed while others are
cold and starving.
CBS, NBC and ABC show up to provide pictures of the
shivering grasshopper next to a video of the ant in his
comfortable home with a table filled with food.
America is stunned by the sharp contrast.
How can this be, that in a country of such wealth, this
poor grasshopper is allowed to suffer so?
Kermit the Frog appears on Oprah with the grasshopper,
and everybody cries when they sing "It's Not Easy
Being Green."
Jesse Jackson stages a demonstration in front of the
ant's house where the news stations film the group
singing, "We shall overcome." Jesse then has the group
kneel down to pray to God for the grasshopper's sake.
Al Gore exclaims in an interview with Peter Jennings that
the ant has gotten rich off the back of the grasshopper,
and calls for an immediate tax hike on the ant to make
him pay his "fair share."
Finally, the EOC drafts the "Economic Equity and
Anti-Grasshopper Act," retroactive to the beginning of
the summer.
The ant is fined for failing to hire a proportionate
number of green bugs and, having nothing left to pay his
retroactive taxes, his home is confiscated by the
government.
Hillary gets her old law firm to represent the
grasshopper in a defamation suit against the ant, and the
case is tried, before a panel of federal judges that Bill
appointed from a list of single-parent welfare
recipients.
The ant loses the case.

The story ends as we see the grasshopper finishing up the
last bits of the ant's food while the government house he
is in, which just happens to be the ant's old house,
crumbles around him because he doesn't maintain
it.
The ant has disappeared in the snow.
The grasshopper is found dead in a drug related
incident.
And the house, now abandoned, is taken over by a gang of
spiders who terrorize the once peaceful neighborhood.

********* And that's how it really works today *********
Hopefully, we can take responsibility of our monies by buying gold/silver, land, storing foods etc and help those who are TRULY in need while we still can....be an Ant.
Chemical Gal

Posted by: ChemicalGal at March 17, 2005 05:49 PM

Read F. Tauper Saussy's book: Miracle On Mainstreet.

http://hiddenmysteries.com/xcart/product.php?productid=16277

Posted by: Ron at March 19, 2005 02:55 PM

Paranoid's daughter, your reaction is fairly predictable of your class, you were probably born into it.....in fact I have never had a job....I have always made my own way. There are subtle distinctions to be made when comparing the international oil companies, for instance, and your dad's candy store.

Good on ya PD, Heinlein would be proud of y'all

Posted by: xcky at March 19, 2005 11:10 PM

The one lesson learned from Argentina is that they will press on and will move forward.

Everybody makes mistakes.

The one lesson that the US government will learn is that you don't start war and invade foreign lands without paying a heavy price, regardless of the manufactured circumstances.

Posted by: Ron at March 24, 2005 02:07 PM

Every investor needs to see this video as it shows how you are being
fleeced out of your investments.

http://www.tinyurl.com/5vq8y

To get the SEC and other regulators to act, please pass it on to other
sites and other investors you may know.

The main concept is that when you buy a share, you may only be
receiving an IOU. Even if you receive a confirmation statement and
the share shows up on your statement, you may still not "own" it.
Instead, the system owes you a share and you have no voting or
dividend rights until the seller pays up.

Offshore hedge funds use their ability to sell IOU's to drive your
investment down in price by flooding the market with what is
effectively counterfeit stock.

You may think it hasn't happened to you, but if you are a regular
investor, I am confident it has and it has cost you real $$$.

More information is available at:

http://www.faulkingtruth.com/Articles/Investing101/1020.html
http://www.investigatethesec.com
http://www.rgm.com/shortselling.html
http://www.ncans.net/index.htm and
http://www.ahandup.us/nss_links.htm

Posted by: dan at March 28, 2005 10:36 PM

The "unsettled trading" fiasco in my last post could be the tip of the iceberg.

There is a contingent liability on the books of most brokerages that puts the entire US financial system at risk of collapse.

They owe shares to investors that in many cases exceed the floats of the public companies they've shorted. It is impossible to honor the IOU without causing massive short squeezes which will push the value of repayment to astronomical levels.

The counterfeit shorts are on the books at the current market prices of the shares they've shorted.

This naked short selling is one of the reasons the dot com bubble popped so quickly at such huge cost to regular buy and hold investors.

Watch for something similar to happen with the real estate bubble.

Posted by: dan at March 28, 2005 10:42 PM






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