Tag Archives: Argentina

Argentina’s Debt Crisis and the Politics of Sovereign Debt

ArgentinaThe US Supreme Court handed Argentina a stinging defeat on Monday when it declined to hear an appeal from the Argentina government in its dispute with several hedge funds. The issue arose after several hedge funds which had purchased Argentinian sovereign debt refused to enter into an agreement after the country’s 2001 debt crisis. About 93 percent of Argentina’s creditors entered an agreement to accept a lower rate of repayment. However, several leading hedge funds—dubbed Vulture Funds, because they purchase cheap government debt bonds and then hold out for higher rates of repayment—refused to enter the agreement and held out for repayment in full.

The Argentina government had hoped to repay creditors who accepted the deal and refuse to deal while withholding payment from the others. But a US court ruled that this violated the principle of pari passu, which requires equal treatment for all investors. Under this principle, Argentina would be prohibited from paying creditors who accepted the deal if it did not also pay withholding creditors as well.  And if it does not repay its creditors, the country would be in default, possibly causing considerable economic turmoil in global debt markets.

To make matters worse, the Argentine government has already stated that it does not have the funds to pay all creditors in full by the June 30 deadline. If it fails to make that payment deadline, the country would officially be in default by July 30. Interest rates for Argentinean sovereign debt have already jumped from just under 12 percent before the Supreme Court decision, to almost 18 percent today. Several NGOs, including the Jubilee Debt Campaign, are calling for debt forgiveness to avoid an economic meltdown in Argentina. They describe the debt as illegitimate, and argue that “vulture funds” should not be able to profit off of debt they knew to be bad when they purchased it.

What do you think? Should Argentina be forced to repay the “vulture fund” debt criticized by groups like Jubilee? What effect will this standoff have on the Argentine economy?

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Truth and Reconciliation: The Global Politics of Justice

Bethuel Kiplagat, Chair of Kenya's Truth Justice and Reconciliation Commission in 2010.

Bethuel Kiplagat, Chair of Kenya’s Truth Justice and Reconciliation Commission in 2010.

The BBC is reporting that a long-awaited report investigating violence and human rights abuses in Kenya will recommend some prosecutions of key officials for their roles. The Truth Reconciliation and Justice Commission was established in the aftermath of post-election violence that rocked Kenya following the 2008 presidential elections. However, its mandate was broader and included looking at past injustices from the Kenyan independence in December 1963 through the disputed February 2008 elections. According to the BBC’s coverage, Ahmed Sheikh Farah, who sat on the committee, indicated that “victims would be happy” with the recommendations but also warned that “we have been centered on reconciliation—healing, unity, that kind of focus.”

The report comes at an interesting time in Kenya’s political history. About six weeks ago, Uhuru Kenyatta won the presidency and was sworn into office. However, Kenyatta has been charged by the International Criminal Court with orchestrating some of the violence following the last presidential election. That violence resulted in more than 1,500 deaths and displaced more than 300,000 people from their homes.

Truth and reconciliation commissions are interesting instruments. They are generally charged with revealing wrongdoing rather than achieving justice per se. And they have been growing in popularity in recent

Archbishop Desmond Tutu presides over South Africa's Truth and Reconciliation Commission.

Archbishop Desmond Tutu presides over South Africa’s Truth and Reconciliation Commission.

years. One of the earliest was Argentina’s National Commission on the Disappearance of Persons (the Comisión Nacional sobre la Desaparición de Personas, or CONADEP). CONADEP was established shortly after the collapse of Argentina’s military government in 1983, and was charged with investigating the fate of the estimated 30,000 persons who were “disappeared” by the Argentine government between 1976 and 1983. Perhaps the most famous was South Africa’s Truth and Reconciliation Commission (TRC), which was established in 1995 and was charged with witnessing and recording the crimes and human rights abuses committed by both state and opposition forces during the apartheid era. Other notable examples include Brazil’s Comissão Nacional da Verdade, which is currently investigating human rights abuses by the country’s former military government, and Canada’s Indian Residential Schools Truth and Reconciliation Commission, which is currently investigating human rights abuses in the country’s residential school system for the Canada’s first nations.

Most truth and reconciliation commissions represent an effort to expand understanding rather that to achieve justice. They generally lack the power to prosecute offenders. Indeed, in many cases, like the South African TRC, individuals offering testimony before the commission were generally granted amnesty for any confessions they offered. The emphasis, in other words, is on promoting transparency and providing a historical record and testimony rather than on achieving justice in the traditional sense. But this also a source of controversy, as victims can sometimes feel as though the perpetrators of violence and human rights abuses can escape punishment.

What do you think? Do truth commissions represent an instrument of justice by witnessing and providing a historical record of human rights abuses? Or do they undermine justice by permitting human rights abusers to escape criminal prosecution? Leave a comment below and let us know what you think.

Five Stories You Might Have Missed

It was a busy week for the U.S. Federal Reserve. Addressing a meeting of bankers on Friday, the Chair of the U.S. Federal Reserve, Ben Bernanke, called on legislators to address the need for regulatory reform of global financial markets. On Wednesday, the Federal Reserve undertook announced new plans intended to improve the position of the U.S. credit markets. With the federal funds rate remaining near zero percent, the Federal Reserve has been forced to turn to a program of qualitative easing, under which it purchases mortgage-related securities, removing them from the market and expanding the amount of cash in circulation. It is coordinating policy with the central banks of England, Japan, and Switzerland. But the dramatic move carries a number of risks, including the introduction of high rates of inflation and a decline in the value of the dollar

In news from outside the United States last week:

1.  A two-day meeting of the European Union last week produced a number of important outcomes, including a commitment to increase the E.U.’s contribution to the International Monetary Fund by €75bn. The European Union also staked out its position on reforming global financial market regulation, the focus of an upcoming G20 meeting in April. Current speculation is that the meeting of the G20 will likely pit Germany and France, which favor stricter regulation, against the United States and China, with the United Kingdom falling somewhere in the middle. However, all sides are currently playing up the likelihood of compromise.

2. On Saturday, the Abhisit Vejjajiva’s government in Thailand survived a no confidence motion in the national legislature. Vejjajiva has been in office for only three months, but has been under fire nearly the entire time, as Thailand has been plagued by political and economic instability compounded by declining exports, part of the impact of the global economic crisis. 

3. On Thursday, the government of China announced it would step up naval operations in the South China Sea, specifically targeting the disputed Spratly Islands. The Spratly Islands are claimed (in whole or in part) by at least six countries, including Brunei, China, Malaysia, the Philippines, Taiwan, and Vietnam. The announcement comes after a standoff between U.S. and Chinese naval vessels earlier this month, when the U.S. accused China of harassing a U.S. naval vessel operating in the South China Sea. China maintains the vessel was operating illegally in Chinese waters.

4. Israeli President Shimon Peres last week granted Likud party leader Benjamin Netanyahu two more weeks to form a coalition government. Netanyahu’s right-wing Likud party was named by Peres as formateur party after extremely close restuls in national elections earlier this month.  Netanyahu has the option of forming a coalition with a group of far-right and religious parties, but has been seeking to form a more centrist coalition with either Ehud Barak’s Labour party or Tzipi Livni’s Kadima party. A more centrist coalition, Netanyahu believes, would be better positioned to avoid potential clashes with the United States. But both Labour and Kadima remain hesitant to join a coalition government with Likud.

5. Andry Rajoelina was sworn in as the new president of Madagascar on Saturday. Brought to power under the auspices of a military rebellion, Rajoelina committed the new government to routing out the corruption of the previous regime and to re-establishing democracy within two years. But may observers remain skeptical. On Friday, the African Union suspended Madagascar from the organization, many donors have announced they will freeze aid, and the United States

And a bonus story this week:

6. A standoff between farmers and the government in Argentina last week threatens global food markets. Farmers are angry about the imposition of a 35 percent duty on soya exports and bans on export of some other food commodities. A similar standoff last year resulted in nationwide strikes and export bans. The standoff in Argentina has the potential to influence global food prices, as Argentina is one of the word’s largest food exporters—second only to the United States. China is the largest consumer of Argentinean soya exports.

Five Stories You Might Have Missed

Recent data about the U.S. economy indicates that the current crisis is worse than economists had believed. On Wednesday, the government announced that initial jobless claims spiked unexpectedly, reaching the highest levels since 1982. About 667,000 people made initial claims fro the week ending February 21, sending the total number of unemployed people in the United States over the 5 million mark for the first time in the country’s history. The official unemployment rate stood at 7.6 percent, the highest level since 1992. Consumer sentiment also fell to record lows in February, as housing prices fell precipitously. Housing prices declined 18.5 percent over 2008, and have declined 26.7 percent from the peaks of July, 2006.  Although the Federal Reserve is forecasting an economic contraction of 0.5-1.3 percent this year with an unemployment rate of between 8.5 and 8.8 percent, many economists are offering more dire predictions, calling this the worst downturn in U.S. post-World War II historyThe U.S. economy shrank by an annualized 6.2 percent in the fourth quarter of 2008 (its worst performance since the recession of 1982).

And now for five important stories outside the ongoing economic crisis:

1. On Friday, President Barack Obama announced a plan that would see the majority of U.S. forces withdrawn from Iraq by August 2010.  Obama’s plan was greatly coolly by anti-war Democrats, who were disappointed that the plan did not accelerate the drawdown in forces. Congressional Republicans appeared more supportive of the president’s plan.

2. The Bangladeshi army has reaffirmed its support for the government of Prime Minister Sheikh Hasina after an attempted mutiny by paramilitary forces was put down earlier this week. On Wednesday, a paramilitary force of border guards—the Bangladeshi Rifles—mutinied over a pay dispute, but violence quickly spread throughout the Bangladeshi capital, Dhaka. The government was able to reassert control over the region as members of the Bangladeshi Rifles surrendered. At least fifty people are believed dead in the fighting, and the whereabouts of 168 officers who were in the building where the mutiny began are still unaccounted for. The discovery of a mass grave in the building has led to speculation that the number of dead will rise. 

3. Tobias Billström, who is slated to become president of the European Union when Sweden takes over the position from the Czech Republic in July, has indicated that immigration reform will be on the agenda. Immigration and asylum have long been controversial issues in European politics, as countries have vastly different policies. But E.U. member states have been hesitant to transfer responsibility for coordinating policy to Brussels. Billström has suggested that the European Court of Justice in Luxembourg would have final discretion over asylum cases.

4. The new power-sharing government in Zimbabwe appears to be making good progress in addressing the economic meltdown in the country. According to the African Development Bank, Zimbabwe has made an impressive start on addressing the problems it faces. The ADB has called on Zimbabwe to make progress on repaying its external debt as a precondition for securing more outside assistance. The new Prime Minister, Morgan Tsvangarai, has said that Zimbabwe urgently needs $5 billion in foreign assistance to repair the economy. Meanwhile, the power sharing agreement itself appears to be at risk, as President Robert Mugabe’s party has been accused of creating its own parallel government, effectively attempting to bypass the power-sharing agreement. Further, members of the opposition party remained jailed, and the push for land reform has intensified.

5. In an attempt to address growing concerns of farmers over poor forecasts, the government of Argentina has agreed to increase protectionist measures, including waiving some export tariffs and granting subsidies to small producers. Longstanding drought conditions in the country have led to declining yields, and farmers are forecasting the worst harvest in forty years. The crisis has exposed deep political divides in Argentina, resulting in a weakening in the ruling alliance and the resignation of four senators and two deputies over policy differences.

Five Stories You Might Have Missed

The global economic crisis continues to expand.  Despite the announcement of a tentative agreement on a $827 billion stimulus package in the U.S. Senate and announcement of a $200 billion lending facility by the U.S. Federal Reserve intended to encourage more lending by banks and credit card companies, the economic numbers continue to decline.  Despite being relatively insulated from global markets, Brazil announced a large slump in output and a decline in jobs last week.  Following an announcement that the national economy contracted by 4.6 percent in December—the largest contraction since reunification in 1990s—and more than 2 percent last year, the German Economic Minister, Michael Glos, offered to tender his resignation.  Many observers are also concerned that some of the stimulus packages proposed by national governments may rekindle protectionist measures.  (Indeed, the Financial Times now carries a special section, updated regularly, on “The New Protectionism.”)   

In news from outside the financial crisis last week:

1.  In the first major foreign policy speech of the Obama administration, Vice President Joe Biden proposed to “press the reset button” on relations with Russia, noting that despite policy differences in many areas, the U.S. and Russia could still work together on areas of mutual interest and concern.  The conciliatory tone did not include a review of the U.S. missile defense system, which has angered Russia.  In recent weeks, the Russian government has announced a series of initiatives, including plans to establish naval and air bases in Abkhazia, an air defense treaty with Belarus, and a collective security organization which includes many of the former Soviet republics.

2. A Pakistani court last week released Abdyl Qadeer Khan from house arrest.   Khan is the nuclear scientist responsible for the development of Pakistan’s nuclear capabilities.  He is also believed to have played a key role in the proliferation of nuclear equipment and know-how to North Korea, Iran, and Libya.  Khan’s role in the Pakistani nuclear program made him a national hero, and many Pakistanis believe the evidence against him was fabricated.  But under threat of sanctions, the Pakistani government placed Khan under house arrest five years ago.  His release was greeted by disappointment from the United States and France.  Despite the move, Pakistan is still hoping to woo more aid from—and potentially a closer relationship with—the United States.

3.  With elections for the Israeli Knesset scheduled for Tuesday, polling over the weekend suggested the race would be much closer than anticipated.  Early polling had suggested that the center-right Likud party would cruise to an easy victory, as most Israelis were identifying security as their primary concern and Likud was seen as strong on security.  But recent polling data suggests that neither Likud nor the center-left opposition Kadima party will win a majority, forcing either to enter into negotiations with minority parties to form a government.  Meanwhile, polls from Gaza show a sharp spike in support for Hamas following Israel’s three-week military offensive in the Palestinian territory,  suggesting that Hamas may actually have been strengthened by the campaign.

4.  The longstanding drought in Argentina continues.  The drought, the worst in nearly fifty years, threatens the collapse of Argentina’s agricultural exports.  As one of the world’s second largest exporter of agricultural commodities and livestock, the projected collapse of exports from Argentina threaten global food supplies.  World food prices had declined form their record highs set in 2007-08 in part on projections of increased production from Argentina.  Global market prices for rice, wheat, and soy have already increased 20 percent in the last two months, and with declines now projected for Argentina’s wheat, corn, and soy output, world prices are projected to continue to increase.  In an unrelated development, the Chinese government declared an emergency in response to drought conditions in central and northern China.  The Chinese drought undermined wheat production.

5.  Relations between British Prime Minister Gordon Brown and French President Nicolas Sarkozy stumbled late last week after Sarkozy declared that Brown’s proposal to temporarily cut the value-added tax in an attempt to stimulate the economy would have “absolutely no impact,” arguing that Britain “doesn’t have any industry left” and its banks were “close to ruin.”  Brown is already facing strong domestic opposition from the opposition Conservative Party, whose leader, David Cameron, sized on the French president’s comments.