How Argentina’s Government Has Drawn New Energy from the Vulture Fund Crisis

By Pia Riggirozzi, Senior Lecturer in Global Politics at University of Southampton (@PRiggirozziAcademia.edu). You can find more posts by Pia here.


Sovereign debt, crises and default have been regular features of the Argentine economy for years – but the latest debt crisis, involving the government and the so-called “vulture funds”, has thrown up new questions about the state’s capacity versus the ethics of capitalism.

Vulture funds are private creditors who deliberately took up cut-price Argentine bonds after the 2002 collapse, then refused to renegotiate their terms in 2005 and 2010 when the country entered a process of debt restructuring – all with the aim of eventually litigating against default and reaping exorbitant profits.

Accordingly, these creditors had been demanding the full value of the debt on which they had originally speculated. At the end of July this year, in the latest twist in its fiscal saga, Argentina was declared to be in default for the second time in 12 years.

Defaults are always economically damaging and politically destabilising, particularly in a context of inflation and growing political and social malaise. But the irony this year is that, unlike December 2001, today’s markets seem relatively untroubled by the event – and that rather than putting the government on the ropes, the current financial crisis is apparently shoring up the dominance of the Kirchnerist project.

imagesThe bad old days

The background to all this is Argentina’s financial crisis of 2001-2002, precipitated by what was then the biggest sovereign debt default in history.

Argentina was at a critical juncture; its public debt as a percentage of GDP reached 166%, the nation was facing abrupt pauperisation, road blocks, and factory takeovers; its leaders were struggling to preserve social cohesion. Two months after Argentina defaulted, the value of the peso dropped by more than a third.

Cross-class demands for more inclusive and responsive democracy screamed “¡Que se vayan todos!” (“Out with all of them”), expressing the enormous gap that had opened up between government and society.

As the country’s whole political economic order collapsed, presidents came and went in quick succession – until a temporary parliament-led government under the Peronist former leader of Congress, Eduardo Duhalde, assumed some degree of institutional command. That administration eventually gave way to the elected government of Nestor Kirchner in May 2003.

Fixing it up

The challenges facing the new government were huge. A judicious devaluation of the peso in January 2002, however, led to a considerable expansion of exports, especially agro/industrial ones, greatly boosting state revenues. Systematic renegotiations of the terms of privatised companies and nationalisations followed suit. Negotiations also began with creditors of 152 different bonds series, issued under several jurisdictions.

In 2005 and 2010, a deal brought the country’s default to a successful close, with 93% of creditors accepting new bonds worth 30 cents on the dollar. The remaining 7% of “hold-out” creditors rejected the offer, demanding payment in full. The government also sought independence from the IMF, cancelling off the debt and creating an image of a sovereign state, with greater room for manoeuvre than was possible in the previous decades.

A more confident and better-resourced government was often accompanied by controversial forms of social and political incorporation. Like Menem in the 1990s, the administrations of Nestor Kirchner, followed by Cristina Fernandez de Kirchner, concentrated heavily on reinforcing executive authority, took timely yet bold initiatives and advanced controversial forms of government interventionism.

This strategy paid off by doing something to alleviate widespread poverty, inequality and exclusion. But whatever the social gains, the cost has been economic stress, distributional pressures and badly weakened political institutions.

Betting the farm

The political strength of the government has been tested to the extreme by two main forces: farmers and vulture funds.

In 2008, during a state decision to increase agro-export taxes to reflect fluctuating commodity prices, landowners and farm-based groups organised lock-outs, road blocks and the destruction of crops bound for market, until the export tax was settled.

To this day, conservative and reactionary rural factions play a massive and direct role in shaping policy, even while supporting the political opposition. In a flailing economy that has failed to diversify its industrial base and is highly dependent on the primary sector, this is not a minor concern.

Argentina is now stuck with recession, high inflation and, over the past year, the pressure of an unstable peso and the black market for dollars. All this, combined with the gloomy global environment, leaves the country increasingly dependent on foreign capital to maintain growth, employment and price stability.

Under pressure

Factions outside the government have increasingly joined forces in the renewed legal battle being waged on behalf of the vulture funds – and litigation from hold-out creditors, which has persisted for more than a decade, now carries the weight of the US Supreme Court, which in July upheld a decision ruling that Argentina is legally obliged to repay its American hold-out creditors in full.

This took a Kafkaesque turn when the Argentine government deposited the bondholders’ payment into US-based financial intermediaries, only to be blocked by US district judge, Thomas Griesa, alleging that payments could not be processed at all unless settled directly with the vulture funds. As a result, Argentina defaulted.

Legally, Judge Griesa’s sentence is widely believed to be impracticable: agreement with vultures means last-to-come-in creditors get the best deal, which would send Argentina into an economic tailspin based on an contorted interpretation of the legal principle of pari passu.pdf) (equal treatment of creditors).

So, full payment: politically unlikely and economically impossible. The government will need to weigh Argentine laws and citizens versus US laws and investors – a fiendish balancing act for a government that has invested all its political capital in opposing the vultures at all costs.

Paradox

The case against the vulture funds has had a huge impact on the economic agenda not just in Argentina, but also internationally: in early September, the United Nations General Assembly began work to establish a new international convention regulating the restructuring of sovereign debt.

Meanwhile, the political fallout of the crisis at home has paradoxically been largely to the benefit of term-limited president Cristina Kirchner, reasserting her centrality in politics just as she was losing her clout in the run-up to the 2015 elections.

The struggle against the hold-out creditors is being played out electorally through social mobilisation. This is just what happened in the 2008 conflict with the farmers; Cristina Kirchner’s strategy was to appeal to the urban working class. She pointed out farmers’ relative prosperity and stoked fears that popular social programmes would have to be eliminated if they got their way – even publicly calling them “greedy” and “coup-plotters”.

The Kirchner administration is now once again back on its old mettle, appealing to citizens with the slogan “Patria o Buitres” (“homeland or vultures”), a binary definition that suits her barnstorming rhetoric and mocks casino capitalism and those who support it. Her political opposition is back on the defensive – and her government perhaps reinvigorated – even as she grapples with the thorniest crisis of her tenure.

Enhancing Rights and Equity in Health: What Difference Can South American Regional Diplomacy Make?

By Pia Riggirozzi, Senior Lecturer in Global Politics at University of Southampton (@PRiggirozziAcademia.edu). You can find more posts by Pia here.


The United Nations Day for South-South Cooperation last Friday must be taken as an opportunity to reflect about the place and opportunities for regional organisations in the South to provide leadership and direction in support of the right to health, equity and alternative practices of global (health) governance.

Back in 2005, during the Fourth Summit of the Americas in Mar del Plata, Buenos Aires, left-leaning Heads of State and anti-globalisation movements expressed their rejection to the US-led Free Trade Agreement of the Americas and brought to a close its negotiations. At the same time, South American leaders sealed a new deal towards alternatives modalities of regional governance. The birth of the Union of South American Nations (UNASUR) should be seen in this light. UNASUR crystallised as an ambitious integration project with renewed commitments on democratic principles, inclusion and human rights. Health in this context became a ‘locus for integration’ and a new framework to advance the right to health and legal paradigms linking citizenship and health.[1] To varying extents, UNASUR institutionalised regional theme-specific networks and country-based working groups to implement health projects, enabled spaces for knowledge exchange and regional strategies for medicine production and commercialisation, and helped coordinating common positions acting as a global player in the advocacy of health equity.

Nearly a decade after that meeting in Mar del Plata, has UNASUR diplomacy enhanced the right to health? Last June, at a speech for the 35th biannual conference for the Economic Commission for Latin America and the Caribbean (ECLAC), General Secretary, Alicia Bárcena stated, “cooperation in Latin America and the Caribbean is at a turning point, as the region still needs aid, but is also able to provide aid.”[2] Indeed, better-resourced and more confident Latin American governments are not only recipients and providers of aid but also carving out new spaces in global health diplomacy. 

Regional health diplomacy: UNASUR as norm-entrepreneur?

Tackling germs, negotiating norms, and securing access to medicines are persistent challenges that disproportionally affect developing countries’ participation in global health governance. Furthermore, over the last two decades, the excessive focus on global pandemics and security in global health diplomacy, rendered peripheral diseases that usually strike the poor and vulnerable, creating situations of marginalisation and inequality across societies. In other words, what is ‘visible’ and ‘urgent’ – what defines risks and ‘high politics’ in health to use the language of International Relations – leads over what is ‘marginal’. Furthermore, who frames what and why depends on how actors, including government officials, non-governmental organisations (e.g. Medicins Sans Frontieres, Oxfam, the Gates Foundations), institutions (e.g. World Health Organisation, World Bank, UNICEF, UNAIDS), public-private partnerships (e.g. GAVI), position and negotiate interests in global health governance.

Since 2010, UNASUR took up this glove acting as a corrective to the side-lining of rights on account of risk/security concerns in international health politics. One of the first positions taken by UNASUR at the WHO was concerning the impact intellectual property rights on access to medicines and the monopolist position of pharmaceutical companies on price setting and generics. Led by Ecuador and Argentina, UNASUR successfully advanced discussions on the role of the WHO in combating counterfeit medical products in partnership with the International Medical Products Anti-Counterfeiting Taskforce (IMPACT), an agency led by Big Pharma and the International Criminal Police Organisation (Interpol) and funded by developed countries engaged in intellectual property rights enforcement. Controversies focused on the legitimacy of IMPACT and its actions seen as led by technical rather than sanitary interests, unfairly restricting the marketing of generic products in the developing world. At the 63rd World Health Assembly in 2010, UNASUR successfully proposed that an intergovernmental group replaced IMPACT to act on, and prevent, counterfeiting of medical products. This resolution was approved at the 65th World Health Assembly in May 2012. In the course of this meeting, UNASUR also lobbied for opening negotiations for a binding agreement on financial support and research enhancing to meet the needs of developing countries.

More recently, led by the Ecuadorian delegation, UNASUR presented to discussion at the WHO an action plan which aims to improve the health and wellbeing of people with disabilities. This action plan was successfully taken up at the 67th session of the World Health Assembly in Geneva, in May 2014, when the WHO’s 2014-2021 Disability Action Plan was approved.[3] This plan focuses on assisting regional WHO member countries with less-advanced disability and rehabilitation programs and will be carried out by the WHO in conjunction with regional organisations such as: Caribbean Community (CARICOM), Central American Integration System (SICA), Southern Common Market (MERCOSUR) and UNASUR. This is not a minor issue as in countries that bear a ‘double burden’ of epidemic communicable diseases and chronic non-transmissible diseases. Supporting these developments, the South American Institute of Health Governance, UNASUR’s health think-tank, provides policy-oriented research, fostering debate and capacity building for policy-makers and negotiators in light of the post-2015 Development Agenda.

The limits of a broker

The presence of UNASUR in this type of health diplomacy, and its coordinated efforts to redefine rules of participation and representation in the governing of global health, are indicative of a new rationale in regional integration and regional policy-making in Latin America. These actions create new spaces for policy coordination and collective action where regional institutions become an opportunity for practitioners, academics and policy makers to collaborate and network in support of better access to healthcare, services and policy-making. For negotiators, UNASUR structures practices to enhance leverage in international negotiations for better access to medicines and research and development funding, as well as better representation of developing countries in international health governance. For advocacy actors, UNASUR represents a new normative platform for claiming and advancing the right to health within the region while at the same time attempting to establish itself as a broker between national needs and global norms, a political pathway that differs from the position held by Latin America in the past.

The experience of UNASUR opens an unprecedented opportunity to evaluate the ways regional organisations address rights-based concerns affecting ordinary people. It also teaches some important lessons while it highlights a troubling paradox. First, region should be seen as a space where politics and policy happens within a geographical space as much as trans-border actor with a unique capacity to rework and contest norms. Second, scholars interested in agenda setting in global politics, who often place attention to the dominance of powerful Northern-based actors, should address new corridors of diffusion and the agency of Southern regional arrangements as norm entrepreneurs advancing (human) rights. Researchers and practitioners interested in rights-based governance and development can’t afford to ignore Southern regional formation ambitions and their attempts rework global norms. Finally, innovative diplomatic intervention and South-South cooperation promoting rights, and the normative agency of regional organisation while must not be romanticised should neither be trivialised.

There however is a paradox at the heart of regional defense of equity. Normative claims about the morality of rights as an overarching approach to governance must not down-play politics. While UNASUR advocates health rights globally, regional frameworks pushing for reforms towards universal health systems are significantly filtered by quite conservative practices at the national level of politics. Translating normative principles into state action in support of better access to health care and medicines across Latin America remains uneven, affecting the bearers of (human) rights in different ways. This is reinforced by the absence of binding institutional mechanisms supporting fluent corridors of regional-national policy making.

Just as in Mar del Plata when the people (pueblos) buried the US-led FTAA ambitions, it is time to rethink not only whether a regional organisation such as UNASUR can itself become an entrepreneur advancing rights to health globally, but also how it can broker the right to, and universalisation of, health addressing the needs of economically and socially vulnerable populations through state action and reforms within the boundaries of member states.

[1] UNASUR Constitutional Treaty, at http://www.comunidadandina.org/unasur/tratado_constitutivo.htm, (3/3/2014)

[2] See http://periododesesiones.cepal.org/en/news/alicia-barcena-cooperation-region-turning-point (11/9/14)

[3] See http://upsidedownworld.org/main/ecuador-archives-49/4875-ecuador-pushes-for-greater-south-south-cooperation-and-stronger-public-disability-assistance-policies (8/9/2014)

What recent episodes of protest and violence in Venezuela tells the region

Pía Riggirozzi, Senior Lecturer in Global Politics

For more than a decade Venezuela has been a focal point in the continental geopolitics. It was in Venezuela where, at the end of the 1990s, the fault lines of the neoliberal model spread opening new possibilities, in theory and practice, for post-neoliberal and socialist experiments across the region. And for more than a decade these experiments seemed to work. According to the World Bank (2014), despite falling growth rates, Latin America continues to successfully reduce poverty and promote shared prosperity. The proportion of the region’s 600 million people living in extreme poverty, defined as a daily income of less than US$2.50, was cut in half between 2003 and 2012 to 12.3 percent. Poverty reduction was accompanied by strong income growth of the bottom 40 percent of the population. In the case of Venezuela, a total transformation of the country’s social, political and economic system meant policies leading to a 50 per cent reduction of poverty and a 65 per cent drop in extreme poverty, from the end of 1998 to the end of 2012.

While socially this is undisputable, Venezuela entered a dangerous path of protest/repression that for the last two weeks put its troubles in the spotlight. The way that politics settles in Venezuela will affect the future of the region. This is not an exaggeration. In many ways, the Bolivarian Revolution represented a structure of opportunity for many of the new regional processes such as the Union of South American Nations (UNASUR) or that of Latin America and the Caribbean (CELAC). Not to mention the Venezuelan–led Bolivarian Alliance for the Americas (ALBA), the project that also gathers Cuba, Dominica Republic, Antigua, Ecuador, Nicaragua, Saint Lucia, Saint Vincent and the Grenadines; or blocs such as Petrocaribe, of significant relevance for many Caribbean nations. Politically these blocs still have to take the lead and, at a minimum, pronounce themselves in relation to the crisis in democratic politics in Venezuela.

Meanwhile, just as we have seen in Brazil, Chile and Argentina in recent months, the practice of democratic citizenship in a ‘post-neoliberal’ era is far from consolidated. New episodes of social mobilisation are now effectively expressing unsettled citizenship in Venezuela. This case, perhaps where political contradictions have become more exposed and strained, acts as a reminder of the political malady of the Left: social polarisation and (class) contradictions affecting ‘post-neoliberal’ political experiences in the region. In Venezuela, the attitudes between hardcore opponents and hardcore supporters of the (Chavista) government are well entrenched, with structural and ideological roots that predate the Chávez era. High poverty and inequality due to the misdistribution of oil wealth in the decades prior to Chávez created conditions for a deep class divide.

Current protests in Venezuela reflect discontent with inflation, consumer product shortages and a high crime rate. The international media has reported this at large (see here, here and here), and perhaps more fundamentally, the political tension between president Maduro and opposition leaders. These are immediate motives. Yet, don’t be misled. Violent events in recent weeks speak of subjacent causes held by a deeply polarised society, split in half not because of partisan claims – although certainly elections have strengthened polarisation by institutionalising a zero-sum, winner-take-all political culture– but because of a social fracture amongst Venezuelans who identify only weakly with each (class-anchored) side.

With no elections scheduled for two years, the worst case scenario could be that violence escalates to a point of no return. On the contrary, political settlement will require dialogue and thus toning down the mutually exclusive claims of fascism by the government referring to the opposition, and of tyranny by the opposition speaking about the government.  President Maduro gave some indication of having understood this, calling for dialogue with some sectors of the opposition in search of that elusive and contingent balance so necessary to Venezuela and the rest of the region. Addressing political and social polarisation is key in Venezuela – yet not only- as conservative forces are emerging as a real challenge to current Leftist experiments. Ultimately, it is the very ability of democracy to combine new forces of transformation and resistance which is, once again, at stake in Latin America.