From Argentina to Greece: A Global Roller-Coaster

By Diana Tussie, founding director of the Latin American Trade Network. Cross posted from Triple Crisis

In October 2012, a Cayman Islands-based fund, NML Capital Limited, controlled by Elliot Management (EM) won a court order in Ghana to seize the Argentine teaching ship Libertad. The fund claimed that Argentina owed it $350 million, and offered to let the ship leave if Argentina’s government put up a $20 million bond to be forfeited. EM´s CEO is Paul Elliot Singer, who specializes in piling up insolvent country debt. Singer is a major donor to the Republican Party.

If the court order goes into effect, Argentina would be prevented from discriminating between restructured bondholders and holdouts, thus potentially preventing the next payment due in December and leading to a technical default. Everyone who had accepted restructuring would be entitled to better terms if the funds’ demands are met. If the EM demands are accepted, the ruling will be a tipping point in the financial order.

Greece`s creditors are very much of the same kind. That means that their motivations and preferences are to a surprising level similar as well. If anything, the time elapsed and the geographical distance between these cases make even clearer how creditors are similarly contributing to the unfolding of these crises. In the Argentine case, those creditors were foreign banks, the IMF, and thousands of debt bond holders. In the Greek case, they are against foreign banks, the IMF, the European Central Bank and institutional investors such as mutual and hedge funds.

In 2001 Argentina was left to fend for itself when the administration of G.W. Bush, anxious to leave its mark on global finance, let markets (and creditors) take care of themselves. In 2012, by contrast, Greece cannot be cordoned off so easily. European governments and the IMF have high and growing stakes in the country. Naming Ms. Lagarde as new director has if anything confirmed the bet to keep the IMF relevant by remaking it into the assistant of Europe’s regional financial gendarme (ECB and Germany, mostly) while lobbying non-Europeans for funds to enlarge its lending capacity. We have indeed come a long way in just a decade, as the IMF moved on from promoter of financial deregulation in the developing world to protector of creditors inside the industrialized one.

In both cases, foreign banks and other bondholders have been the true central actors-refusing to admit the true value of their holdings, no longer inflated via currency overvaluation or overpriced assets. This acknowledgement would mean cuts to their holdings, simply to bring them back in line with reality.

Looking back at the Argentine case, the behavior of the private creditors indeed accurately predicts the Greek case: banks are appealing to their national governments, hedge funds priming their litigation lawyers, and other bond holders praying for the second coming of an the Argentine (or Greek now) Task Force to save them. And the outcome is largely just as predictable: creditor banks’ governments, funds’ lawyers and assorted Task Forces find friendly jurisdictions to fight against cuts in debt prices until they just about give up. In the aftermath, only the vulture funds remain, enlisting lawyers to pick through the debts’ corpses.

It’s worth considering, however, that when creditors and their agents pushed crisis-stricken Argentina in 2001 to fully dollarize its economy in order to totally ensure it would pay it back, the result was the exact opposite: Buenos Aires first defaulted on its debt, and then devalued its currency. That unforeseen sequence of moves was the origin for the dramatic stand-off between foreign creditors, the IMF and Argentina regarding its default and its confrontation with the suddenly de-dollarized foreign investors.

Today, Greece’s creditors are in fact pushing their debtor along very similar lines: demanding more and more assurances it will service a debt load piling out of all proportion. The unexpected may occur once again, with Athens deciding first to leave the Eurozone and then default on all its debts with such vengeance that the creditors’ losses will be so much worse than if governments had been wise enough to treat Greece more reasonably .

It was thanks to the greediness of creditors during the 2000s that the Argentine government successfully forced its own renegotiation terms on foreign creditors and public-utility investors, making both take unprecedented cuts in the value of their holdings and incomes. Such harsh push- back guaranteed for Argentina a bête noire reputation in global financial markets but also gave it impressive policy space to reignite growth, drastically reducing poverty and unemployment from the abysmal records of the 1990s .

The clearest lesson to draw from these cases: international creditors will always push as far they can. The debtors may be afraid of the costs of default only until the cost of fear becomes intolerable.

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  1. Maju

    While the situation in Argentina is not exempt of socio-political risks, they enjoy much more freedom of maneuver than Greece because they do not just control their own currency but are also not hardtied like Greece is by the confederacy treaties of the EU, that forbid socialist policies.

    Instead the socio-political environment in Latin America is more favorable to socially comprehensive (~socialist) solutions.

    Also Argentina has gone into partial default several times in the last decades and it has generally been beneficial for the country, so “caveat emptor”, I guess. It does however underline a deep lack of sustainability of the economic model but in the context of the current global megacrisis, what is sustainable anymore, anywhere?

    I was reading before on the ongoing protests and they have a very different tendency than in Greece: not just the numbers are much smaller but the core of the protesters are petit bourgeois worried for their savings, which they’d like to evade from the country in form of dollars (now forbidden). Instead in Greece we are witnessing a true working class revolution with huge numbers (only in Heraklion there were more people protesting, and occupying state administrative facilities, on Wednedsday than in all Buenos Aires yesterday, even if Buenos Aires metropolitan area is almost 100 times the size of Heraklion).

    1. charles sereno

      Argentina had energy sufficiency, grain exports, and a potentially unencumbered currency in a relatively safe corner of the world (to a degree, Iceland too). Greece has the Euro, imports oil of the non-olive sort, exports extraordinary numbers of kleptocrats with their loot while importing Dutch hydroponic tomatoes (Cripes! You can’t grow enough tomatoes in Greece???). My heart goes out to the Greek People.

  2. The Dork of Cork.

    Not many people talk of the privatisation of that countries very large Hydro resourses in the early 90s

    The North wanted the south to pay interest on the debt and yet not give the countries any yield bearing assets…..Greed on a very extreme level.

    this speech is striking.

    She wants ” to make sure the machine will never be stopped again”

    There is certainly a rejection of rent seeking of the plantation owners house (US and Europe).
    Maybe the selling of these massive yield machines to the North was a bridge too far for the cotton pickers who must now engage in more manual work to survive ,even the house servants must pick cotton now and thats when you really get political turmoil.
    The taste is now very bitter I think. (Duke energy)

    And the really really big 1,200 MWón_Dam
    Its not nice to pay rent on your own assets
    Now that the gas is diving these assets will become more and more valuable to both the rent givers and receivers.

  3. The Dork of Cork.

    Stuff can be done with surprisingly little resourses when one has the will.
    The capital has just had a blackout but this could be because of 1970s style inflationary pressure rather then the deflationary pressure currently underway in the North.

    Blackout hits Buenos Aires after a heat wave (its only late spring /early summer !!)

    They are in a bit of trouble it seems.

    Of course electric public transport breaks down when you get a larger breakdown crisis

    I hope the city of Mendoza is ok.
    They have made valiant efforts to improve their public transport system despite limited resourses with the recent import of 80 second hand Vancouver trolleybuses and the bringing back to life a old rail line with second hand but reliable German trams.ía_de_Mendoza

    Perhaps a example of elec. public transport on the cheap – the key it seems is the ancient railway cuttings that remain intact – they are the low lying fruit.

    Cristina doing her thing last year………….

  4. Tom

    The Belo Monte dam will be the world’s third-largest
    hydroelectric dam (after China’s Three Gorges dam, itself
    with numerous problems, and the Brazilian-Paraguayan
    Itaipu dam). It will flood 400,000 hectares of the world’s
    largest rainforest, displacing 20,000 to 40,000 people –
    including the Kayapó. The ecological impact of the project
    is massive: the Xingu River basin has four times more
    biodiversity than all of Europe. Flooding of the rainforest
    will liberate massive amounts of methane, a greenhouse
    gas far more damaging than carbon dioxide. But the
    impact on Chief Raoni’s people, on an entire society, is

    Developing countries could abandon attempts to protect
    their forests if Western nations do not provide promised
    conservation funding, Guyana’s president told a summit on
    tropical forests recently. “We say we’re going to lock away
    large tracts of forest and preserve them, but these are
    forests that could be used for other purposes,” President
    Bharrat Jagdeo told leaders and delegates from 35
    countries straddling the Amazon and the Congo and
    Borneo-Mekong basins, the world’s three largest stretches
    of forest.

    I don’t know – seems that all this international finance and leveraging gives me an image– an image of a big mugger (thug) twisting the arm of sovereign nations and picking the pocket containing all the wealth – then running off with it – leaving behind the nation in a back alley, crippled and destitute.
    This whole thing has the effect of robbing the people who, live on the land, of the very wealth that is under their feet. Robbing a nation of it’s sovereignty – it’s ability to create it’s own future. A true crime that affects all of the inhabitants of the earth, a crime against this planet – the dispossessing of the very planet from its people and inhabitants.

  5. EricT

    Whatever happened to the warning that these investment banks would give to their future clients? That all investment constitutes a risk of loss of principle. There are no guarantees for the little people, but for the big players there is a 100% guarantee. That’s ridiculous and unfair.

    1. Tom

      The big investment banks are/were their own clients. The big investment banks did not need to inform themselves of risk because they had none – you know – the government backstop…our tax dollars and our treasures. They knew they had the backstop before they screwed-up. Little people, what a bother to worry about them.

  6. Tom

    Well, when the criminality (blood poisoning) gets beyond a certain point….well….

    He isn’t really a big time crook unless you must let him alone to prevent the loss of public confidence.

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