----- Original Message ----- From: "Michael Perelman" <[EMAIL PROTECTED]>
a week or so ago, Jim D. made the point with which I agree that some of the Democrats differ from the Republicans in that they take a larger time horizon. Also, they can represent different factions. Historically, the Democrats favored Savings and Loans; the Republicans, banks. But what do we have to gain by debating whether John Kerry is a real progressive or not? I think we are all agreed on the answer. I don't think anybody's mind would be changed whether it makes sense to support Anyone But Bush or not. =========================== Amen. Isn't the following every damn bit as important as which factions of the rich get to run and ruin a big slice of the North American continent while making life horrendous for the rest of us on the planet? http://www.economist.com/agenda/displayStory.cfm?story_id=2440367 ARGENTINA and the International Monetary Fund (IMF) go back a long way. In 1991, Argentina's foreign minister famously declared that he was seeking "carnal relations" with Washington. The White House never fully requited this desire. But the IMF has been in and out of bed with Argentina ever since, offering advice (between 1991 and 2002, it sent around 50 missions to the country) and money (at the beginning of this year, Argentina owed the IMF $16 billion). In December 2001, of course, the couple endured the messiest of break-ups. The IMF stopped pouring money into the defence of Argentina's indefensible currency peg (at parity with the dollar); Argentina defaulted, devalued the peso, and descended into economic and political turmoil. Now the terms of its relationship with the Fund are once again in flux. Last September, the IMF agreed to lend Argentina $13.5 billion, handed out in stages over three years, to help the country repay past loans. In return, Argentina would reform its economy and negotiate in good faith with the private creditors who hold $88 billion of sovereign debt it no longer services. Next month, the IMF will review its progress and decide whether or not to hand over the next slice of the funds. But Argentina is not waiting passively for the Fund's approval. Néstor Kirchner, the country's fiery president, has threatened not to repay $3 billion due to the Fund on March 9th unless the IMF guarantees to keep sending the cheques. Such brinkmanship has become a habit for Mr Kirchner. In September, he temporarily defaulted on a $2.9 billion payment due to the Fund. His punishment? That $13.5 billion loan on relatively cushy terms. By threatening to default on the IMF again, Mr Kirchner clearly feels he can retain the upper hand in their relationship. Mr Kirchner has proven equally high-handed with the country's private creditors. He has offered to give them 25 cents-worth of fresh bonds for every dollar of Argentine debt they hold. Pricing in unpaid interest and the riskiness of the new bonds, bondholders face a "haircut" of 90% off the full value of what they are owed. Until this week, Mr Kirchner also kept the price of electricity and other utilities frozen at rates that made sense only when the peso was still worth one dollar, not 34 cents as it is now-despite inflation of around 40% in recent times. This amounts to a default on contractual promises made to those utilities' shareholders. Argentina's close-cropped creditors are outraged by their treatment. Some are threatening to seize Argentine assets abroad. German creditors tried to lay claim to an Argentine naval vessel. An Italian wanted to seize Mr Kirchner's presidential jet. A Japanese investor reportedly has his eye on parts of Patagonia, the southern Argentine region from which Mr Kirchner hails. Earlier this month, NML Capital, an investor based in the Cayman Islands which holds $172m in Argentine debt, won court orders to freeze properties owned by the Argentine government in Washington, DC, and Maryland. Such gestures, however, are more an expression of creditors' anger than a serious attempt to recoup their losses. Without an army to back it up, a creditor will find most of a sovereign state's assets out of reach. Prior to a default, as James Carville, a former adviser to President Bill Clinton, has said, the bond market can intimidate anyone. Governments, keen to borrow on favourable terms, will go to great lengths to maintain their good standing in the capital markets. After a default, however, a government no longer has any standing to worry about. It has nothing left to lose. What is at stake for Argentina is the timing and the terms of its re-admittance to the global capital markets. But Argentina is in no rush. Its current leaders complain that it has wasted much of the past decade trying to make the country safe for foreign investors. By binding itself to a currency board, pegging the peso to the dollar, Argentina let the ebb and flow of foreign capital dictate its booms, of which it enjoyed two, and its busts, the last of which persisted for four years. Now, shut off from world capital markets, its economy is growing again, by 8.4% last year, according to preliminary figures released on Thursday February 19th. Without foreign investment, particularly to rebuild the financial sector, this rebound will eventually run out of steam. But Mr Kirchner seems willing to enjoy it while it lasts. Besides, foreigners are not the only ones with money overseas. Argentines themselves are reckoned to have stashed $100 billion abroad. Before bidding for new foreign capital to flow in, Mr Kirchner will want to tempt back old Argentine capital that has flown out. Certainly, Mr Kirchner, unlike Mr Carville, does not seem very intimidated by the bond market. His tough offer of 25 cents on the dollar was seen by many as an opening gambit, though he has since declared it "unmovable". Repaying Argentina's debts, he has said, means "paying with the sweat and toil of the people". Foreign bondholders don't vote, and Mr Kirchner is reluctant to repay them with the sweat and toil of the people who do. Mr Kirchner's tough stance has driven away some of the banks that might have managed the debt restructuring on his behalf. Three banks-Merrill Lynch, UBS and Barclays Capital-have now come on board, but nine others, including Citigroup and J.P. Morgan Chase, refused to take the job, doubtful that it stood any chance of success. For most private creditors, the IMF remains their best hope of a better deal. It does not officially represent their interests. Indeed, some claim its interests conflict with theirs: the more money Argentina pledges to its private bondholders, the less it has available to repay the Fund. On the other hand, the IMF cannot remain oblivious to their complaints. Under its rules, it can lend money to a defaulter only if the defaulter is negotiating in "good faith" with its other creditors. In the past week, Mr Kirchner has tried to show somewhat better faith by allowing gas and electricity rates to rise for industrial and commercial customers and by reportedly looking into ways of sweetening his offer to creditors, perhaps by letting them have their unpaid interest after all. There is no "magic litmus test" of good faith, says the IMF, but Mr Kirchner has surely been testing its limits. Whether he will continue to do so will become clearer over the coming weeks.
