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Beyond vulture economics

The current situation is not based on bad faith or capriciousness. The reality is simply that an economically shaky country does not have the money in its coffers to pay off the scores of private investors who took advantage of the country in a weak moment.

Jessica Sequeira
15 July 2014
Argentine President Cristina Kirchner

Argentine President Cristina Kirchner. Demotix/Zaer Belkalaï. All rights reserved.

Viewers tuning in for the World Cup matches may have noticed, during camera cuts to cheering crowds following goals by Messi or Di María, a number of people waving signs reading “Fuera Buitres!” (“Get out vultures!”). Last month the US Supreme Court ruled that Argentina must repay a tiny minority of foreign “vulture” investors who bought up slashed-price bonds after the 2001 crisis, before it can continue paying back the bulk of its debts to other bondholders.

Cue controversy. According to the Argentine government, headed by President Cristina Fernández de Kirchner, repaying these investors would push the country toward another default. On 21 June, it paid for a full page in the Wall Street Journal to explain its position. Under the inelegant but plaintive headline “Argentina wants to continue paying its debts but they won't let it”, it pointed out that “the default of the Argentine Republic in 2001 was the biggest in the world's financial history, largely exceeding 100 billion US dollars. Decades of overindebtedness and low growth left the country with a debt amounting to over 160 percent of its GDP, an unemployment rate close to 25 percent and over 50 percent of its population in poverty.” 

The legal complications are labyrinthine. But what is at stake is more than just whether Argentina should repay what it sees as unscrupulous US “vultures”, interested in squeezing as many dollars from litigation as possible. A number of conceptual problems are also in play. Does an idea of justice exist beyond the letter of a contract? How is the current administration setting a narrative about its current situation in a Peronist historical context? Is it possible for Argentina to form part of an international community, while remaining philosophically committed to its own national project? Seemingly disparate questions, they emerge from a fundamental clash. 

A recourse to history

Argentina’s essential argumentative strategy against the demands of a decontextualized, cosmopolitan financial system has been a recourse to history. The Kirchnerist line that this government should not be held responsible for international policies it doesn’t agree with, or for aberrant periods in its own past—namely, the economic policies effected during the 1970s under state terrorism, and the actions of subsequent democratic governments cementing those policies. Kirchnerism defines itself in part as a reaction against these periods, a new start which takes up an alternative strand of Peronist politics. 

The question is how much this kind of historical argument “matters” in the context of a financial market which blindly demands repayment. If it is not considered valid, should Argentina adapt to foreign demands or attempt to mark out its own path outside the system? “Vulture economics” is the term one might use to refer to a certain stereotype of “mainstream” or “neoliberal” economic thought which tends to provoke a visceral negative reaction in Argentines, at least those supporting the policies of President Cristina Kirchner. But does any alternative exist?

In recent weeks, Kirchner has taken a new tack, announcing that she is now willing to negotiate and asking US District Judge Thomas Griesa for fair terms so that Argentina can pay off creditors, while her Minister of Economy Axel Kicillof has begun direct discussions with the holdouts. It would appear that despite fiery initial rhetoric, the government is ultimately being straitjacketed into making concessions. But the conceptual questions aren’t dissolved so easily. The feeling that Argentina’s hand is being forced has only increased resentment, sharpening demands for alternative paths to those demanding allegiance to vulture logic.

The unethical past

“Just as Cuba suffers from an economic embargo, Argentina is the victim of a financial embargo,” is how journalist Damián Selci put it in the local Argentine magazine Planta. The prevalent perception, one the current administration seeks to propagate, is that the Supreme Court ruling is yet more imperialist legalism seeking to crush a developing country under its heel. The choice of the  84-year-old Judge Griesa is itself a point of contention and Twitter mockery. “I'm supposed to be on vacation,” he grumbled, after canceling his plans to attend emergency hearings.

Signs around the city reading “Patria o Buitres: No nos van a robar el futuro” (“Country or Vultures: They are not going to rob us of our future”) express this grievance clearly. It is a frustration particularly felt by the younger generation, apprehensive that holdouts will strip the flesh from their country and deprive them of opportunities only possible in the context of a public sector that is financially afloat. If Argentina does pay back everything it owes, state funding will be crippled, and future possibilities threatened.

The “anti-vulture” logic is as follows. It is not as if Argentina has not been trying to pay; it has been meeting debt restructuring deadlines for years. The current situation is not based on bad faith or capriciousness. The reality is simply that an economically shaky country does not have the money in its coffers to pay off the scores of private investors who took advantage of the country in a weak moment. The total sum owed is 15 billion US dollars, half of Argentina’s total foreign reserves.

This is not a new argument. A certain rancour exists in the region regarding top-down choices made by rich countries regarding international obligations, going back to the Bretton Woods conference in 1944 in which Allied countries established the International Monetary Fund, prioritized free trade, laid the groundwork for doing away with economic nationalism, and proposed sanctions in cases of non-compliance. Although less wealthy countries supposedly had the choice to sign the accords, the sense still persists that some element of self-righteous economic hegemony is at work.

In the Argentine case, however, there is an added sensitivity given that it was during a period of state terrorism, under economy minister Martínez de Hoz, that legal reforms were carried out permitting the renunciation of sovereign immunity. The so-called Ley 21.305, modifying the Código de Procedimientos Civil y Comercial, was passed in 1976 and ratified in 54 bilateral investment treaties signed between 1992 and 2002. Practically, it meant that to this day, all contracts regarding external Argentine debt are subject to the law and jurisdiction of New York State.

But it was not just dictatorship figures like de Hoz that set up the country for plundering, according to the anti-vultures. It was also Argentina’s own post-dictatorship democratic governments such as those of Carlos Menem and Fernando de la Rúa, which pursued policies like continued borrowing and a fixed exchange rate between the peso and the dollar, leading the country to economic crisis in 2001. Subsequent president Néstor Kirchner and his wife Cristina, who has largely taken up his mantle, dedicated themselves to repudiating such policies. In a recent speech, current Minister of Economy Kicillof asserted: “This administration did not put the government in debt. We dedicated ourselves to paying for the plates broken at the neoliberal fiesta."

The idea that the figures largely responsible for today's mess belong to unethical past governments, all too willing to sell out the country to foreigners, is an obsession with the Argentine left. The message, repeated over and over again in pro-Kirchner papers like Página/12simultaneously absolves the current government and insists that current policies seek to avoid similar attempts to open the country to untrammelled free trade or pay back impossibly high debt at any cost. For the anti-vultures, national development must be prioritized over back-breaking international concessions.

Positioning Kirchnerism                                                                

"We cannot set ourselves up for another situation in which to pay the debt, hunger becomes widespread," is how Kicillof puts it, adding elsewhere that “if a legal sentence tells us to commit suicide, we cannot accept it.” These are essentially slogans, but there is much more to Kicillof than his ambiguous speeches would suggest. Trained as an economist, he has written several histories of economic thought which are both rigorous and provide a very specific interpretation of economic history, illuminating the government’s current position.

In these books, Kicillof openly refers to himself as a “Keynesian” and makes disparaging references to the neoliberal “mainstream”, tracing an alternative tradition culminating in Kirchnerism. In Foundations of the General Theory, he writes that "the orthodoxy Keynes criticizes in the General Theory is perfectly recognizable to anyone familiar with current economics, since in the field of microeconomics the old convictions of the classical theory have been conserved practically intact up to the present." According to Kicillof, Keynes continues to be misinterpreted by current economists.

Kicillof writes: “The main objective of my work is to shed light on the Keynesian revolution and its consequences, especially those concerning the current mainstream…to persuade my colleagues to set aside for a moment their mathematical models lacking clear foundations, however “explanatory” and “applicable” they may be, in order to dedicate at least part of their forces to reflecting on the inner nature of basic economic forms. Without this necessary investigation, the models will multiply to become a polyphonic chorus of alternatives, but make little headway in the deep understanding of present society and the current historical stage.”

For Kicillof, history plays a crucial role in the project of interrogating society’s foundations. He insists over and over again that a greater emphasis on the history of ideas is needed: “The history of economic thought has come to occupy a space ever smaller and more marginal in the official teaching of economics, even disappearing completely from some undergraduate and graduate plans of study."

Kicillof clearly lays out his version of economic history in his book Seven Lessons from the History of Economic Thought. In his reading, Adam Smith was responsible for the birth of classical political economy, which David Ricardo brought to its culmination. Karl Marx took this classical political theory in one direction with Das Kapital, while the "marginalist revolution" took it in another, first through the theories of William Stanley Jevons, León Walras and Karl Menger, then through the innovations of Alfred Marshall. The vital contribution of Keynes’ General Theory emerged from and reacted against the ideas of the “marginalist" economists.

Kicillof's own project in reconstructing this history, in this book and subsequent ones, is manifest. By framing Keynesian theory as a direct predecessor to current government policies, he is able to integrate Kirchnerism—a left-wing offshoot of Peronism—into a larger economic-historical trajectory. By continuing down the path of radical Keynesian-inspired Peronism embarked on by her late husband Néstor Kirchner, current president Cristina Kirchner is extending this tradition.

“After his victory, [Néstor] Kirchner perceived himself as the constructor of a Peronist line jumping off not from 17 October 1945 and General Perón, as the canonical line did for decades, but rather from the apostates, the young radicalized Peronists," explains critic Beatriz Sarlo in her book La audacia y el cálculo: Kirchner 2003-2010. "Kirchner reopened a chapter that had been closed, except by die-hard faithfuls to that tradition of the ’70s, who for this very reason were also fairly marginal in the Justicialist Party, either converted to Menemism or directly outside its structures."

Kicillof’s demand for greater historical context is hard to take issue with; such a call is generally salutary. But his appeal to history must be understood as part of the construction of a political narrative. Debates over how history is written take on an incredible importance here precisely because they play into current debates so transparently. Kicillof's valorization of Keynesianism justifies policies on debt and government spending, and links these with a collectivist political position.

The Argentine paradox

The Keynesian-Peronist narrative envisions the state as capable of successfully organizing society according to the collective demands of the people. It reframes every event as a crisis, a moment in which in order for organization to proceed successfully, a strong leader is indispensable. And it prioritizes collective action by the people to define the goals society considers valuable, from justice through to education and minority rights. What it has not been able to do succesfully, so far at least, is provide a means of answering the question of how Argentina can begin to generate a self-sufficient economy, so that it can finally stop depending on foreigners and foreign legal norms. 

Argentina’s use of typical financial instruments to pursue a non-neoliberal project may seem paradoxical, but it is unavoidable. The nation has frequently taken isolationist stances, such as heavily taxing imports: Argentines are encouraged to consume Argentine food, books, music, and so on, reinforcing a certain nationalism. But economically, Argentina is still bound to individuals in foreign nations, on whom it depends for both economic aid and potential investment.

Will world financial institutions give Argentina the space and time to develop? If not, what will Argentina choose to do? Will it cede to international demands, or choose to close its own borders even further? The country faces many difficult questions, ones which will persist long after this year’s World Cup match.

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