Argentina and the Vulture Capitalists: An Introduction

It is impossible to understate how important this case is, how far-reaching the implications could be, yet almost nobody is aware of the case or the story behind it.  Currently, in a New York courtroom, vulture capitalists are engaged in a massive court case against the entire nation of Argentina, a country which had the misfortune of capturing the attention of the United States and being “liberated” into poverty.

Here’s a primer to get you up to speed.

A Country Focuses on Itself

Argentina had spent the first half of the twentieth century in economic turmoil.  Foreign interests freely exploited resources and people in the nation, the wealth gap grew, and poverty was the norm in much of the country.  However, a plan was set in place by Juan Perón, returning from years of political exile to become president, to kick out the foreign interests, nationalize banks, improve wages and living conditions, and rebuild the country’s economy by focusing on those who struggled.

The results spoke for themselves.  Inflation slowed to 12%, real wages grew 20%, the GDP doubled, and the country had a plan to pay back all of its $8 billion in debt obligations to the United States, thus ending the business arrangement, within four years.  What happened next is a lesson right out of Naomi Klein’s Shock Doctrine.

Reasserting Dominance Through Shock Therapy

The 1973 Oil Crisis, in which Arab oil exporters within OPEC placed an embargo on certain oil exports, threw Perón’s plan into chaos.  The immediate instability resulted in an uptick in inflation, violence, and right-wing extremism.  Within two years, a military junta placed the country in the hands of Jorge Videla and his Minister of the Economy, José Alfredo Martínez de Hoz.  A member of the aristocracy before Perón, Martínez de Hoz was itching to get back to the way things used to be.  

Several U.S. backed neoliberals, trained in the Chicago School way of thinking, were appointed throughout the government.  The government’s first economic acts were to ban all employee striking and to make all employment at-will.  As would be expected, deregulation, privatization, and an infusion of oppressive loans from American capitalists soon followed.  The country even went so far as to take out ads in an American business publication seeking private investment and renouncing “statism,” to bring in more multinational corporations.

Turning back to neoliberalism resulted as history would suggest.  Wages lost 40% of their value, unemployment skyrocketed, poor villages became riddled with disease from lack of health care or safe water.  The old social order was back in power and they held a grudge.  People were “disappeared” by the military government, sometimes covertly, but just as often killed in plain sight for disagreeing with the new standard.  While thousands died at the hands of the dictatorship, Henry Kissinger praised the new ally, promising to meet with him and get some funding in his hands.  The money came in, of course, but not without some strings attached.

Buried Under Debt, A Country Cannot Rise Up

Since the cash infusion from investors in the mid 1970s, Argentina has been held back by neoliberal policies, massive debts owed to the same investors, and other internal conflicts over the years.  The junta has long since been eliminated, but the debt did not disappear with it.  The country went into default over a decade ago to the tune of $100 billion, the largest sovereign default in history.  Debts were restructured and venture capitalists bought up these debts at much-reduced prices, not to work with Argentina, but to invest in their struggle and reclaim the value of the funds at a later date.  Such acts are popularly referred to as “vulture capitalism,” feasting on the struggles of another, picking at the carcass.

The capitalists, who purchased the funds at “distressed” rates, have been suing Argentina since soon after the investment to claim their funds.  They have attempted to take ownership of satellites and military vehicles belonging to Argentina but stationed in other countries.  Their goal is not to recoup the distressed investments, but rather to recoup the full, pre-forgiveness value of the debts plus eleven+ years of interest.  

The Virtue of Paying Your Debts

Some argue that Argentina should pay their debts, but “they” did not incur the debts.  The U.S. backed junta created the debt and, once the junta was out of power, the debt transfered to the democratic leadership in the country.  This wasn’t just an example of electing a new president — the country literally dissolved the old government and recreated a democratically-elected leadership that should have inherited none of the wastefulness and corruption of the previous dictatorship.

Some argue that Argentina can now afford to pay its debts due to a relatively high standard of living.  Notwithstanding the above point, this is exactly how the vulture capitalists work:  They bail out a country in desperation, wait for the rebound, then take a payout once the country is stabilized.  The collection of that debt is often enough to spark another disaster, and the cycle continues.  Allowing the capitalists to collect legitimizes this neverending cycle of poverty and unethical exploitation.

Now you have your background.  For more information, you can read The Shock Doctrine by Naomi Klein (PDF), which begins telling the in-depth story of Argentina’s shock therapy and the resulting exploitation on page 87.  To follow the case, I recommendRussia Today or al Jazeera, two outlets that are very likely to continue full coverage of this important case.