Argentina must audit the debt taken between 1976 and 2014

20 October 2014 by Eric Toussaint , Fermin Koop


Eric Toussaint interviewed by Fermín Koop, from Buenos Aires Herald [1].

Eric Toussaint supports Argentina’s position against the ‘vulture funds’ that are waging a legal battle against the country in US courts. But he’s also highly critical of President Cristina Fernández de Kirchner’s government for paying the country’s debt, which he claims should be audited instead. In a break between interviews and rallies, Toussaint welcomed the Herald at the lobby of a small, understated hotel in downtown Buenos Aires. Speaking with a Spanish accent that had hints of French thrown in, Toussaint explained his strong positions against the global financial system.

How do you define illegitimate debt that countries should not pay back?

There are several criteria. It’s illegitimate if it was taken without respecting the general interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. of the population and it’s odious when it was taken by a dictatorship, which is what happened in Argentina. There’s also illegal debt which is when the law isn’t respected and unsustainable debt, when a creditor cannot force a country to pay a debt that would leave it unable to pay for basic services. (Former president) Adolfo Rodríguez Saá could have used such argument when he defaulted in December 2001.

How would you qualify the debt Argentina has taken on in its recent history?

Argentina has to audit the debt that was taken between 1976 and 2013 because there are significant portions that could be considered illegitimate, odious or illegal. The debt taken by the dictatorship is odious and invalid. The government later took on more debt to pay the previous debt and that is also considered invalid under international law. The fraudulent privatizations carried out by (former president Carlos) Menem in the years1990 and the mega-swap by (Domingo) Cavallo in 2001 should also be questioned.

The federal government recently passed a sovereign debt Sovereign debt Government debts or debts guaranteed by the government. law that, among other things, creates a committee to audit the country’s debt. Is that a step in the right direction?

It’s a positive measure but a month has already passed since the bill became law and the committee hasn’t even been formed. Sometimes governments create committees only to calm things down but they never do any work. The law says the legitimacy of the debt between 1976 and 2014.

You were part of Ecuador’s committee to audit the country’s debt, a unique experience in the region. What can the region learn from that example?

Ecuador’s case was silenced because creditors, banks and international agencies didn’t want it to be repeated in other countries. The country created a committee to audit its debt from 1976 to 2006 and then decided to suspend debt payments, saving about US$7 billion. There were no legal repercussions because the bonds had collective action clauses.

Why didn’t other countries follow Ecuador’s path?

They think it’s necessary to have the best possible relationship with financial markets in order to fund development. But that’s not true. There are many other possibilities like looking for alternative sources of funding and carrying out a tax reform.

How do you evaluate the role played by multilateral agencies like the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
and the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

in the growth of Latin America’s debt?

The IMF played a disastrous role in Argentina. Their support of the dictatorship meant an active complicity. If they hadn’t backed General Videla’s dictatorship [2], the country wouldn’t have obtained funding. The IMF director back then (Jacques de Larosière) should be sent to trial for his actions. Years later, it continued playing a disastrous role by pressuring Menem to do terrible deals and by deciding not to lend the country any more money in 2001.

Why do you call on countries to leave the World Bank’s International Centre for Settlement of Investment Disputes (ICSID ICSID The International Centre for the Settlement of Investment Disputes (ICSID) is a World Bank arbitration mechanism for resolving disputes that may arise between States and foreign investors. It was established in 1965 when the Washington Convention of that year entered into force.

Contrary to some opinions defending the fact that ICSID mechanism has been widely accepted in the American hemisphere, many States in the region continue to keep their distance: Canada, Cuba, Mexico and Dominican Republic are not party to the Convention. In the case of Mexico, this attitude is rated by specialists as “wise and rebellious”. We must also recall that the following Caribbean States remain outside the ICSID jurisdiction: Antigua and Barbuda, Belize, Dominica (Commonwealth of) and Suriname. In South America, Brazil has not ratified (or even signed) the ICSID convention and the 6th most powerful world economy seems to show no special interest in doing so.

In the case of Costa Rica, access to ICSID system is extremely interesting: Costa Rica signed the ICSID Convention in September, 1981 but didn’t ratify it until 12 years later, in 1993. We read in a memorandum of GCAB (Global Committee of Argentina Bondholders) that Costa Rica`s decision resulted from direct United States pressure due to the Santa Elena expropriation case, which was decided in 2000 :
"In the 1990s, following the expropriation of property owned allegedly by an American investor, Costa Rica refused to submit the dispute to ICSID arbitration. The American investor invoked the Helms Amendment and delayed a $ 175 million loan from the Inter-American Development Bank to Costa Rica. Costa Rica consented to the ICSID proceedings, and the American investor ultimately recovered U.S. $ 16 million”.

https://icsid.worldbank.org/apps/ICSIDWEB/Pages/default.aspx
)?

If you see its rulings, it’s clear that it is biased in favour of private firms. Bolivia was sentenced to pay US$69 million to a company that was in charge of the country’s water service, whose contract had been terminated due to rising prices and a lack of investment.

But wouldn’t that lead to a drop in foreign investment?

Many people say that not paying a country’s debt could lead to a lack of funding, while leaving the ICSID would mean fewer foreign investments. But Ecuador did both things and has neither of those problems. Bolivia also left the ICSID and has plenty of foreign investors interested in the country.

Do you agree with the government’s strategy to fight the holdout creditors in US court?

I back the Argentine people against (US District Judge Thomas) Griesa and the “vulture” funds but the government has taken counterproductive decisions throughout the years. The president says the country is a serial payer and they are paying a debt that shouldn’t be paid. The authorities had plenty of time to audit the debt before the 2005 debt swap but failed to do so.

The United Nations General Assembly recently approved a motion to create a legal framework for sovereign debt restructuring. What are your expectations from this vote?

It was the right place to hold this discussion because each country has one vote but I don’t think a framework can be created quickly since the debate about it has been going on since 1930. In the meantime countries should take unilateral decisions and not rely on multilateral agencies.

Source: Buenos Aires Herald, Sunday, October 19, 2014

Eric Toussaint’s CV

Born: July 24, 1954, Belgium
Studies: PhD in Political Science from the University of Liège (Belgium) and Paris VIII (France)
Current position: Senior lecturer at the University of Liège and member of the International Council of the World Social Forum.
Published books: Globalization: Reality, Resistance and Alternative (2004), Your Money or Your Life: the Tyranny of Global Finance (2005), The World Bank, a Never Ending Coup d’État (2007), among others.
Last book read: The New Old World by Perry Anderson
Newspapers: The online version of the Financial Times.


Footnotes

[1Buenos Aires Herald is a daily paper published in English in Argentina since 1876

[2Argentina was under dictatorship from March 1976 until December 1983.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. Since the 4th April 2015 he is the scientific coordinator of the Greek Truth Commission on Public Debt.

CADTM

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