Savings fear as Argentina defies world

[54anickel]

http://www.thisislondon.co.uk/news/business/articles/timid75345?source=

ARGENTINA is expected to default on a £1.7bn repayment to the International Monetary Fund this week in a move that would end any hope of British banks, pension funds and individuals getting back their investments in Latin America's biggest economy.

The final break between the IMF and the government in Buenos Aires would tear a hole in every pension, Isa and savings scheme in the UK as fund managers finally admitted there was no chance of repayment and wrote the loss into their accounts.

Argentina, which defaulted on its external debts in January 2002, has offered private investors around the world just 25% of the £54bn they are owed. And because this would be paid in instalments, analysts say the real repayment is just 10%.

snip>
The 2002 default followed years of recession made worse by Argentina's doomed attempt to keep its currency linked to the US dollar.

[54anickel]

1. On a related note -

http://washingtontimes.com/op-ed/20040306-102120-2919r.htm

Argentina and the fund, a sequel

The current showdown between Argentina and the International Monetary Fund (IMF) will probably produce a pyrrhic victory. Argentina owes the IMF $3 billion, due on Tuesday. The country's president, Nestor Kirchner, has warned the IMF that it won't pay until the fund signals that it will approve Argentina's second review of its $13-billion, three-year loan.

snip>
The United States has urged Argentina to make creditors a better offer. Mr. Kirchner isn't budging. Unfortunately for him, the accommodating Horst Kohler is stepping down as IMF chief and the tougher Anne Krueger will be taking over. A report from IDEAglobal, a financial consulting group, said, "Argentina is likely to push the envelope" in its standoff with the IMF, and enter technical default for a few days. But the IMF will blink first, the report predicted. The United States, which has 17 percent of the votes on the IMF board, is expected to play a key role in securing approval of Argentina's second loan review. This would essentially be a replay of the first loan review last September.

snip>
If Argentina can reach an agreement with creditors this year, it will probably make out acceptably. But if the IMF proves it can be pressured by Mr. Kirchner again, it will set an unfortunate example.

[izzie]

2. ECO101 is not my thing but I am sure we should know more.

It seems a lot of countries that are tied into the dollar are having trouble yet we blackmail if they go to the Euro.If the world is being run on the WH say I would say we all, the world, is in big trouble. Bush put Tx in the hole and every business he ran and now look at the USA. God help the world.

[mobuto]

10. No you miss the point

Pegging a local currency to the euro is just as much a mistake in most cases as pegging it to the dollar. The solution is to let it float free. Otherwise countries have practically no control over their economies. Argentina suffered as its currency was pegged to the dollar, because the dollar was too strong. Argentine exports were therefore overpriced and the economy suffered. But the same thing would have happened had the currency been pegged to any of the precursors of the euro, which were also too strong.

[AP]

3. I remember Argentina trying to pass a law: assets used to secure

those loans couldn't be transferred to the banks, or something like that. I wonder what happened to that? Wall St was pissed.

You know, those banks could all make their money back if they forgave the loans and then let Argentina engage in a legitimate, wealth-producing, middle-class expanding economy. Let Argentinians start their own businesses. Stop trying to privatize every easy-to-monopolize utility. Invest in education, small businesses, research and development, and let Argentinians keep and recirculate the wealth of Argentina.

[reprobate]

4. Forgive the loans? That's not a capitalistic idea.

The purpose of the IMF and WTO is to funnel profits to the global corporations. This is what globalization is about. To let a country make it's own decisions on hew to spend its wealth is anti-capital.

I think that Argentina will not be the last to rebel against preditory capitalism. It is not impossible to foresee globalization failing because of individual small countries refusing to be bullied and sucked dry by the corporate sharks. If that happens look for a globalization of debt, and that would likely bring down the criminal economic system that has grown in the last few decades. Global economic collapse.

Perhaps then the world can get back to the job of insuring that economic growth helps the many, not the corporate few.

Of course peak oil can only accelerate the process.

If global climate change doesn't make it all irrellevant.

[bemildred]

5. You left out the global "overcapacity" problem.

There is far more capacity to turn out consumer crap
in the global economy than consumers with the wherewithal
to purchase it. This is one reason that the USA continues
to be propped up despite being bankrupt, we are the designated
consumers. Go to Best Buy and take a look around. One of
the reasons for out-sourcing and such now being considered
a "good thing" is they need to develop larger consumer classes,
the US is not big enough, hence India and China must develop
consumer classes. When the crap can be sold elsewhere, the
carpet will be pulled out.

You are right, however, that a number of other issues may
intervene before then.

[Johnyawl]

6. You're very right on this...

...Argentina will not be the last to rebel against preditory capitalism

From an IMF stand point, the worse possible scenario would be for Argentina to actually default, and survive. It would be an example inpossible to resist for other countries, struggling under monumentous debt.

[bemildred]

7. They will "forgive" the debt before they allow that.

But that is almost as bad from the IMF point of view.

[Johnyawl]

8. Exactly!

Argentina is backing the IMF into a corner: give us better terms, terms we can live with and grow our economy, OR we default! Either way, the IMF loses, and creates more problems for itself down the road. Because if Argentina forces this issue successfully, then why can't Ecuador? Or Indonesia? Or any of a 100 poor, impoverished debtor nations? (of which we will be a part of, given 4 more years of bush.)

The debtor nations have been kept under control so far by the IMF threatening them with expulsion from the global economy.(Economic blockade, the 21st century equivalent of the 19th century naval blockade that the British, French & Americans used to keep unruly locals in line). NOW however Argentina is saying "So what?!" The global economy is bankrupting them. They're to the point where they can't see how they'd be any worse off. Except for oil. If the IMF isolates them economically, they have no access to the worlds oil; nobody will sell it to them, especially since they won't have American dollars to buy it.

Which brings us to the real reason for the establishments hostility to Venezuela, and their determination to overthrow Chavez. Chavez has shown an eagerness to develop deals bartering oil for goods, eliminating the need for petrodollars. Essentially cutting the US and international finance out of any profit on the deal.

If an anti-IMF/globalization trading block is to be conceived, and made successful, they need an oil exporting nation to be with them. Chavez has shown every intention of joining such a block. And that's the IMF's worse nightmare.

[reprobate]

9. Johnyawl, thank you for the insite on Chavez.

Connecting chavez and oil to argentina and imf. It all falls into place now. Could this also be the impetus behind the south american trading pact being pushed?

[bemildred]

11. Nice post.

Chavez is a nationalist, none of the other "isms" really apply.
It has long been US policy to thwart nationalism in Latin America.
There are many aspects to that policy, and you have elucidated a
number of them. After a long period of success in that effort we
seem to be losing the battle, another sign of US decline.