December 2004

Eric Helleiner
Trent University
Canada

The Strange Story of Bush and the Argentine Debt Crisis

ABSTRACT
When the government of Argentina declared itself unable to pay its debts in December 2001, the world witnessed the largest sovereign default in history. While international investors were predictably upset, the response of the USA was more unusual. Instead of supporting foreign private creditors as it had during most sovereign debt crises of the 1980s and 1990s, the US government did very little. Indeed, since the initial default, US policy makers even went out of their way to express support for the Argentine government’s tough negotiating stance vis-a` -vis these creditors and the IMF. The Argentine government’s stance culminated in early 2005 in the most dramatic private debt restructuring of recent years, under which investors took a cut of roughly 70% on the value of their bond holdings. Although US policy towards the Argentine debt default and restructuring contrasted sharply with the Bush administration’s aggressive broader foreign policy since September 2001, this article shows that it reflects familiar influences: strategic goals, neoliberal ideology and conservative anti-internationalist sentiments. The article concludes with a brief discussion of the implications of this US policy for the broader politics of international debt.

When the government of Argentina declared itself unable to pay its debts in December 2001, the world witnessed the largest sovereign default in history.
While international investors were predictably upset, the response of the USA was more unusual. Instead of supporting foreign private creditors as it had during most sovereign debt crises of the 1980s and 1990s, the US government did very little. Indeed, since the initial default, top US officials?including President Bush?even went out of their way to express support for Argentina’s tough negotiating stance vis-a`-vis these creditors.

The Argentine government’s stance culminated in early 2005 in a successful debt restructuring under which investors took a cut of roughly 70% on the net present value of their bond holdings. This cut was roughly twice as large as that associated with other private debt restructurings during the past decade.

This aspect of the Bush administration’s foreign policy has not attracted much scholarly attention, perhaps because it is so at odds with the conventional view of the US role in the world since 11 September 2001.

The Bush administration has earned the reputation of a government intent on projecting US power globally in an aggressive and unilateral manner. It is also seen as a highly ideologically driven, conservative administration with little sympathy for the aspirations of more moderate or left-wing governments abroad. But when we examine the US approach towards this all　important default?which occurred just a few months after 11 September? we see quite a different story. In this episode the Bush administration adopted a less aggressive approach vis-a　vis a major Latin American debtor country than any US government since the 1930s. And this stance provided important political and economic support to a moderate left-of-centre Latin American government.

What then explains the US approach to Argentina’s debt default and restructuring? After describing the unusual nature of the US approach, this article shows that the policy does not in fact reflect a different set of underlying values from those driving US foreign policy in other areas. As elsewhere, US policy towards Argentine debt has been influenced by a combination of strategic goals, neoliberal ideology and conservative anti-internationalist sentiments. But these same values translated into a very different set of specific policy preferences in the field of Latin American debt for reasons that are explained. The article concludes with a brief discussion of some of the broader implications of the US policy towards the Argentine crisis for the politics of international debt.

The nature of the US response to the Argentine default
Sovereign debt crises have been a persistent feature of international finance for hundreds of years. The question of how to distribute the burden of adjustment between debtor countries and foreign private creditors is, thus, hardly a new one. The answer, however, has differed quite dramatically from one era to the next. In some periods countries have simply defaulted on external debt or successfully demanded large debt write-downs, thus pushing the burden of adjustment on to international investors. In other contexts debtor countries have repaid their debts in full by undergoing painful economic adjustments.

The international debt crisis of the early 1980s represented an example of the latter phenomenon and the USA played a critical role in determining this outcome. Siding heavily with foreign private creditors, the US government initially deemed unacceptable the idea of debt restructuring or default. It intervened heavily to prevent these outcomes by offering financial assistance to bail out private investors and by tying this assistance to the adoption of tough IMF structural adjustment programmes in debtor countries. The debt only began to be restructured near the end of the 1980s after private creditors had signalled their willingness to accept write-downs. When new sovereign debt crises broke out in the 1990s, the USA continued this policy of bailing out international investors and pressing debtor countries to accept stiff IMF medicine.

Doing nothing in the face of default
The contrast between this approach to sovereign debt crises and US behaviour during the Argentine crisis is striking. In late December 2001 the　Argentine government defaulted on some $100 billion worth of private debt, of which close to $50 billion was owed to foreign private creditors (the remainder was owed to private Argentine creditors).1 This debt was held not just by foreign institutional investors but also by hundreds of thousands of individual bondholders in OECD countries. Despite the large exposure of these investors, the US government chose to do little in response to Argentina’s default decision. No financial rescue package was offered, and the decision was met largely with silence from Washington. As one Washington Post writer put it, the Bush administration ‘shut their eyes, gritted their teeth and hoped for the best’.2

This policy stance was particularly striking because of the way Argentine politicians defended the decision at the time. Many governments that have defaulted historically have gone out of their way to tell foreign investors that they have taken the decision very reluctantly in the face of adverse economic circumstances. To cheers of ‘Argentina, Argentina’, then President Adolfo Rodriguez Saa´ announced the default decision in a more confrontational manner: ‘the payment of the foreign debt has been prioritized over the debt this country has with its own people. We are going to take the bull by the horns.’ 3 Argentine politicians also linked the default decision to a broader rejection of the neoliberal economic model promoted by Washington. Soon after the default decision, the newly installed president Eduardo Duhalde defiantly declared the ‘Washington consensus’ to be ‘broken model’.4 He argued: ‘For many years in Argentina, they have made us believe that amid this new world order, there is only one possible economic model. That is a complete falsehood.’ 5 In these circumstances the Bush administration’s policy of ‘doing nothing’ surprised many observers. As one Washington Post reporter, David Ignatius, noted, ‘the Bush administration paradox is that it is wildly interventionist in its foreign military policy but almost passive in international economic policy’.6

For the next year and half the Argentine government gave no specific indication of when, or how much of the defaulted debt, it intended to repay. The country was experiencing a severe depression and its politicians made it clear that the repayment of foreign debt was not a priority. Once again, US officials did not challenge this approach. To be sure, the USA did finally support the extension of an eight-month IMF credit line of $6.78 billion to Argentina in late January 2003. But this money was clearly designed to help the country repay loans to the public international financial institutions (IFIs) rather than the private creditors.7 Indeed, many private bondholders opposed the loan on the grounds that it might reduce the pressure on Argentina to negotiate with them.8 Their concerns were only reinforced when Duhalde declared for the first time?on the same day that the IMF loan was announced?that the private creditors would be asked to accept at least a 70% write-down on their debts and that the negotiations would be lengthy.9

This ‘haircut’ was much more severe than any that had been requested of bondholders in other recent sovereign defaults. Backing a different kind of IMF programme

In September 2003 the USA also supported a second IMF assistance programme which proved to be even more controversial with private creditors. The programme offered $13.3 billion over three years, and again the money was primarily to be used to repay the IFIs. Although the programme required Argentina to negotiate with its private creditors, it did not endorse any particular outcome for these negotiations. Indeed, it did not even assign any specific targets in the second and third years of the programme for the country’s primary budget surplus?the size of which helps to determine how much money is available for debt repayments. While the agreement stated that this figure should rise above the 3% target of the first year, its language was vague: ‘beyond 2004, the authorities have committed to primary surpluses at levels sufficient to cover net payments on performing debt and obligations that may result under a debt restructuring agreement’.10

The Argentine government was quite pleased with this agreement, which was much less stringent than IMF structural adjustment programmes of the 1980s and 1990s.11

During negotiations with the IMF, President Nestor Kirchner had in fact shown his willingness to default to the IMF if tougher conditions were imposed; one day before the deal was reached, his government chose to withhold a $2.9 billion scheduled repayment to the Fund. At the time of his inauguration in May 2003 Kirchner had advocated a‘national capitalism’ and had made it clear that he would prioritize Argentina’s domestic needs over those of foreign creditors. As he put it at the time, ‘it’s not that we want to not comply, to not pay. . .but neither can we pay at the expense of seeing more and more Argentines postponing their access to proper housing, a safe job, education for the children, and health services’.12

The same provisions that pleased Kirchner angered the private bondholders.13 But once again the USA sided strongly with the Argentine government. During Argentina’s negotiations with the IMF, Roger Noriega, the US assistant Secretary of State for Western Hemisphere Affairs, annoyed IMF management by publicly stating: ‘it’s time for the IMF to be more flexible and reasonable with Argentina’.14 Once the agreement was reached, President Bush made a point of telephoning Kirchner to congratulate him and to say that he was quite pleased with the agreement; Kirchner thanked him for the US support during the negotiations.15 Similarly, the new US Treasury Secretary, John Snow, was reported to be very supportive of the IMF deal.16 Indeed, a top US Treasury official?Randal Quarles, assistant secretary for international affairs?later noted that the USA had deliberately pushed for the budget surplus targets to be left undefined in the second and third years?over IMF objections?because it wanted the IMF not to take a stance in the debt negotiations with private creditors: ‘it’s not the IMF’s role to impose any particular terms of a deal’.17

The initial debt offer
The USA continued to side with Argentina’s government shortly thereafter when the latter finally announced, on 22 September 2003, the terms on which it would repay its debts to private bondholders. Kirchner had earlier vowed not to discuss the issue until an IMF agreement was reached. With the IMF deal in hand, Kirchner now offered the private creditors a bond swap with a number of different options at the annual IMF /World Bank meeting in Dubai. Just before the details of the offer were made public, Argentina’s economy minister, Roberto Lavagna, had warned the creditors that they
would not like it: ‘when Argentina explains the guidelines of its offer, there will be lots of long faces in many languages. In Italian, in German, in Japanese and certainly in English’.18 His prediction was accurate.

Under the offer Argentina would not be required to pay more than 25% of the nominal value of the principal of its debts. Since Argentine debt was trading at about 30% of its face value in secondary markets at the time of this offer, some observers argued that the Argentine government’s position was not unreasonable.19 But the creditors described it as ‘barbarous’ and ‘unfair and morally unacceptable’, and their representatives demanded that they be repaid at least 65% of the principal instead.20 This was more in line with the cut they had accepted after the Russian and Ecuadorian defaults of 1998 and 1999, and they were keen not to set a bad precedent for future debt rescheduling talks with other countries.21 They were also incensed that the Argentine government refused to include in the offer the accumulated interest that had not been paid since the default.

Despite the outcry from the private creditors, the US raised no objections to the Argentine offer. Indeed, the very next day, Bush had a brief 10-minute meeting with Kirchner on the sidelines of a UN General Assembly meeting at which he seemed to endorse it. According to Kirchner’s spokesperson, Bush made the following comment in the meeting: ‘congratulations again for the agreement with the IMF; now you must keep negotiating firmly with private creditors’. And later that same day, when he saw Kirchner approaching. Bush reportedly joked to a group of other foreign leaders: ‘here comes the conqueror of the IMF’.22

The IMF programme reviews
The next key moment in Argentina’s negotiations with private creditors came in late January 2004 when the IMF executive board approved the first review of Argentina’s three-year loan programme, thereby allowing a further $358 million to be disbursed. This review was supposed to have been approved in mid-December, but the decision had been delayed because of IMF concerns about the lack of progress in Argentina’s negotiations with the private creditors. The delay had prompted Kirchner to launch what one reporter called ‘almost daily public condemnations of the Fund’ and Kirchner insisted that ‘we will not cave into open or hidden pressure to increase our foreign payments’.23 In early January he and Lavagna prevailed in this position during some intense negotiations with the IMF managing director Horst Koehler. Although Koehler asked Argentina to treat the private creditors differently, he did finally decide formally to recommend the approval of the review to the IMF executive board at this point.
Private creditors were incensed at Koehler’s recommendation. They accused the IMF of ignoring their interests, while ensuring that its own debts were repaid through the approval of the IMF lending programme. This approach, they argued, unfairly reinforced the IMF’s position as a ‘preferred creditor’ and undermined their own bargaining power vis-a`vis Argentina.

The creditors also argued that the IMF was in danger of breaking its own rules which note that the IMF can lend to a country in default to private creditors only if the country is ‘making a good-faith effort to reach collaborative agreement with its creditors’.24
When Koehler’s recommendation came before the IMF executive board in late January 2004, it also provoked controversy there. Although the recommendation was approved, eight of the 24 members of the board chose to abstain from the decision, including the three G-7 countries of Italy, Japan and the UK. This was, as one reporter put it, an ‘unprecedented revolt on the IMF’s governing board’.25 By convention this board operates by consensus and abstentions are traditionally used only as a way of expressing objections.

In this case the abstaining countries expressed strong concerns about the Argentine government’s attacks on the IMF as well as its treatment of the private bond holders. The official IMF statement after the meeting noted that the executive board in fact agreed that ‘certain’ performance criteria had not been met by Argentina, but that the board had granted Argentina a waiver.

After the board’s decision, Koehler emphasized the importance of Argentina ‘deepening their relations with private creditors, ahead of the second program review’.26 But Kirchner continued to make it clear that he had no intention of changing Argentina’s offer and he told a rally in early February that paying more would be the equivalent of genocide against the Argentine people.27

In this whole episode, the USA was once again quite sympathetic to the position taken by the Argentine government. Both John Snow and his Undersecretary for International Affairs, John Taylor, participated actively in the intense negotiations with Koehler in early January, and Lavagna publicly thanked Snow for his help after the IMF executive board meeting.28

When Bush met Kirchner briefly on 13 January at a special summit of the Americas meeting in Monterey, one reporter noted that Bush ‘quite significantly, did not echo Koehler’s request that he consider paying more than just 25 percent to holders of bonds’.29 Indeed, during the meeting, Kirchner reminded Bush that Enron was able to pay its investors only 14 cents on the dollar and the Argentine Foreign Minister reported that ‘Bush expressed surprise at this and looked to Condoleeza Rice, who confirmed President Kirchner’s statements’.30

When Argentina faced a second review of its IMF loan in March, its treatment of the private creditors once again emerged as the central issue.
Because Koehler resigned on 4 March to become a candidate for the presidency of Germany, acting managing director Anne Krueger now led the IMF negotiations with Argentina. Kirchner described the negotiations as ‘very tense’ and they culminated in an agreement on 8 March just before Argentina faced a deadline for a scheduled repayment of $3.1 billion to the IMF.31 During the negotiations Kirchner threatened once again that Argentina would not make the IMF payments unless the second review was approved (which would release roughly $3 billion in new funding).32 This threat no doubt complicated the negotiations from the IMF’s perspective, but its bargaining position was also strengthened by a slight hardening of attitudes towards Argentina among US officials. At its ministerial meeting in February, the G-7 appeared more united on the issue when it endorsed a statement urging Argentina to ‘engage constructively with its creditors to achieve a high participation rate in its restructuring’.33 And the day before the final agreement in March, the G-7 members of the IMF executive board had collectively criticised Argentina for its inflexibility in negotiating with the creditors.34

By the end of the negotiations Krueger was able to extract some new commitments from the Argentine government over the debt negotiations.
Under the deal Argentina agreed to present a more formal debt restructuring package no later than August and to formally authorize the three banks that had been advising the government to organise this package.35 In addition, Argentina agreed to ‘engage in constructive negotiations with all representative creditor groups, including the Global Committee of Argentina Bondholders’ and to ‘give due consideration to the initiatives that they may be willing to put forward’. Up to this point the Argentine government had resisted the formal use of the word ‘negotiate’ and it had also refused to acknowledge the existence of the Global Committee of Argentina Bondholders (GCAB). The latter had been formed in early 2004 and claimed to represent the holders of roughly two-thirds of the bonds outside Argentina.36

Because this agreement had more teeth, it did not provoke the same level of criticism as the first review and it was approved with no abstentions by the IMF executive board on 22 March. Many creditors, however, remained angry and they implored Lavagna and Kirchner to ‘grow up’ and ‘address your responsibilities like adults’.37 They were particularly annoyed that Argentina had still managed to get its way on some important points. The IMF had pressed Argentina to accept a provision stating that the offer would not be considered sufficient if less than 80% of the bondholders accepted.

But Argentina had countered that a 50% approval rating from the creditors would be adequate and the final agreement with the IMF simply required ‘an appropriate minimum participation threshold necessary for a broadly supported restructuring’.38
More generally, the IMF agreement still did not bind Argentina to any commitment on the specific size of the formal offer to the creditors. Indeed, immediately after the deal was struck with Krueger, Argentina’s Cabinet Chief Alberto Fernandez declared that ‘the size of the cut is not up for discussion’.39 Significantly, the USA strongly supported the idea that the IMF should not get involved directly in setting the terms of an offer. As Quarles in the US Treasury put it, ‘it’s not the IMF’s role to impose any particular terms of the deal. . .How much can Argentina repay?. . ..I think that’s something that the IMF and the US, as a shareholder in the IMF, should not have a view on.’ 40 And John Taylor reiterated this view in mid-June, ‘the idea here is to allow negotiations but not be in the middle, or choose sides. That’s for the creditors and Argentina to work out.’ 41

Suspending the IMF programme
On 1 June Argentina carried through on its commitment to present a formal offer to the bondholders. The offer still contained a 75% cut in the nominal value of the debt, along with various bond swap options. But it was a little more generous to the creditors because the Argentine government now agreed to include some unpaid accumulated interest since the default. It also promised to repay a little more if 70% of creditors accepted the offer.
Predictably, the GCAB and other creditor groups rejected the offer immediately and soon produced a counter-proposal in mid-July involving a smaller write-off of 40% ?45% of the debt in net present value terms.42

Argentina disregarded this proposal and made it clear that it would go ahead with the offer and let the market decide whether to accept it.

To bolster their autonomy vis-a`vis the private creditors, the Argentine government then requested in August a temporary suspension of its IMF lending programme until the debt restructuring negotiations had been completed. Negotiations concerning the third review of its lending programme had been dragging on since June, with IMF officials insisting that the country was not meeting some of the requirements of the programme. By suspending the programme, the Argentine government hoped to insulate itself from IMF demands that it engage in ‘good faith’ negotiations with the bond holders. One advisor to the Argentine government noted that this insulation was particularly important because ‘the US elections have removed from the debate the traditional moderator between the government and the IMF’. 43

Under the proposal Argentina would continue to meet its required IMF repayments by drawing down its foreign exchange reserves, but it asked the IMF to defer $1.1 billion in upcoming repayments in late 2004 and early 2005 in order to help the government reach a settlement with the bondholders.

Representatives of the international financial community argued that it was ‘very inadvisable’ for the IMF to agree to these requests. In their view a suspension of the IMF programme would reduce the likelihood of a successful debt settlement with the creditors. They urged the G-7 and IMF to take a more active role in helping to resolve the stand-off between Argentina and the bond holders.44 But this advice was ignored. On 17 September the IMF agreed to suspend its programme with Argentina and defer the payments Argentina had requested.

After the suspension of the IMF programme the USA and IMF stood on the sidelines as Argentina launched its formal debt rescheduling. The initial details of Argentina’s final offer were released on 1 November and submitted to securities regulators in various G-7 countries for approval. These details were a little more generous to the creditors and, in net present value terms, represented a cut of a little under 70% (instead of roughly 75% in the case of the June offer). Once again, this offer was unanimously rejected by many representatives of the foreign bond holders.45 After some delays the final details were announced on 12 January 2005 and the debt swap was launched two days later with a deadline of 25 February. At the time of the launch Lavagna stated that the operation would be considered a success if 50% of the bonds were swapped, while private creditors argued that the figure would need to be much higher. The IMF made it clear that it was not prepared to comment on this issue.46 In the end, 76% of Argentine’s default debt was swapped?a rate that led most observers to declare the swap a great success.

And the Argentine government indicated that it would not recognise the claims of the remaining bond holders who did not participate.

Explaining US policy
Throughout this period the Bush administration’s approach to the Argentine debt crisis was much less sympathetic to the concerns of private foreign creditors than that of previous US administrations during the debt crises of the 1980s and 1990s. Indeed, to find a precedent for its policy stance, one has to return to the 1930s, when the Roosevelt administration made a strong point of refusing to intervene on behalf of US bond holders in the context of the Latin American defaults of that era. Roosevelt’s approach was part of his broader ‘Good Neighbor’ policy and reflected the ideological reaction of
New Dealers against the interventionist ‘dollar diplomacy’ promoted by big business and New York financiers in Latin America during the earlier years of the 20th century.47 The Bush administration, however, shares neither the left-wing sentiments of the New Deal nor its antagonism towards big business. And it has shown little reluctance to project US power abroad in defense of US interests in other contexts. Why then did this right-wing administration accommodate and even support Argentina’s tough handling of international investors?

Cultivating Argentina’s political support
Some observers argue that the US government was driven by the desire to cultivate Argentina’s political support in a changing regional context. During the 1990s the Argentine government was one of the USA’s closest allies in Latin America and it strongly supported the neoliberal ‘Washington consensus’, as well as the drive to create the Free Trade Area of the Americas (FTAA). From a US perspective the political instability unleashed by Argentina’s financial collapse was thus worrying, particularly in a context where the political left was gaining ground across Latin America and leaders such as Chavez in Venezuela and Lula in Brazil were assuming regional prominence. At the time of Argentine’s default US policy makers were clearly worried about encouraging ‘virulent anti-Americanism’ if the USA was too tough on Argentina.48 As one US journalist put it, ‘there’s a danger of what might be called ‘‘political contagion’’, as the populist anger of ordinary Argentinians spreads to other countries in Latin America’.49

By the time Kirchner assumed the Argentine presidency in May 2003, these concerns of US policy makers were still prominent. During the election campaign Kirchner had deliberately distanced himself from Argentina’s pro-US policy of the 1990s and indicated his desire to build closer ties with other Latin American leaders on the left such as Lula. US policy makers responded to his election by actively trying to cultivate the support of this new leader.

He was, for example, surprised to receive an invitation to the White House in July, at which he reported that Bush made a ‘clear, concrete commitment’ to support Argentina in its negotiations with the IMF.50 When the Bush administration carried through on this commitment at the time of the controversial September 2003 IMF agreement and Argentine debt offer, analysts noted that this support continued to be linked partly to the fact that ‘the Bush administration did not want to risk Kirchner going it alone and perhaps becoming another Hugo Cha´ vez’.51

The USA was also keen to cultivate Argentine’s support for the war on terrorism and for the FTAA at this time. Both issues had been raised by US officials during Kirchner’s first meeting with Bush, and the latter became a particularly important issue in the following months.52 Completing the FTAA had been one of Bush’s top foreign policy priorities when he had assumed the presidency, and it was to be discussed at a Miami summit meeting in November 2003. But the collapse of the World Trade Organization (WTO) trade talks in Cancun in mid-September represented a serious setback for the
FTAA project, particularly because Lula had shown his ability during these talks to stand up to US pressure and to mobilize other Southern countries. In this context, US policy makers needed to offset Brazil’s influence and recruit as many Latin American supporters as they could find. Argentina’s position was particularly important because Kirchner was flirting with a strategy of co-ordinating his country’s trade policy somewhat with Brazil’s, a strategy he did eventually endorse in mid-October.53 After a much watered-down version of the FTAA deal was agreed in November, analysts continued to argue at the time of the first review of the IMF programme in January 2004 that US policy towards Argentina was being influenced by its ‘need to hang on to allies in the region’.54

Neoliberal ideology
A more important influence on US policy was the neoliberal ideological orientation of key financial policy makers in the Bush administration. At first sight it might seem odd that this orientation would encourage support for the goals of Argentine politicians determined to break with the Washington consensus. But many US neoliberal policy makers saw the Argentine crisis in a different light. From their perspective, the US response to the crisis was part of their broader effort to break with the Clinton administration’s interventionist approach to international financial crises.

During the second half of the 1990s many neoliberal US analysts had become very critical of the tendency of the IMF and the Clinton administration to bail out foreign investors during sovereign debt crises.

These criticisms became particularly intense in the wake of the enormous international financial rescue packages extended to sovereign debtors during the severe international financial crises of 1997 ? 98. In the view of these critics these bail-outs were distorting proper market signals and encouraging reckless lending as international investors began to see sovereign lending as risk-free. To address this ‘moral hazard’ problem, they felt it necessary to scale back?or even end altogether?the practice of international bail-outs.

This policy shift, it was hoped, would not only change market expectations but also ‘bail in’ foreign private creditors by forcing them to accept sovereign defaults and debt restructuring at the outset of debt crises.

The fact that the bulk of international lending had shifted from bank credit to securitized finance only strengthened this argument against massive international bail-outs. When Latin American governments threatened to default on loans to the largest Western banks in the early 1980s, there was a serious risk of a meltdown in the Western financial system. But a default to thousands of individual Western bond holders did not pose the same kind of systemic financial risk. Moreover, in the 1980s,
Western financial regulators had been able to twist the arms of their largest banks to support bail-outs and other initiatives designed to resolve the international debt crisis of that era. By contrast, it had proven much more difficult to organise and ‘bail in’ decentralized bond holders in the sovereign debt crises of the 1990s. Indeed, in this new context, there was a prospect of ‘rogue’ creditors disrupting official initiatives to restructure sovereign debts.

Even before the Bush administration assumed office these arguments for a new approach to sovereign debt crises had begun to influence the behaviour of the USA and the IMF.55 When Bush was elected, key officials in the new administration highlighted their desire to reinforce this shift in policy, including the new Treasury Secretary, Paul O’Neill, his Undersecretary for International Affairs, John Taylor, and White House chief economic advisor Lawrence Lindsay.56 In their first few months in office Bush administration officials attempted to change market expectations by publicly clarifying that investors should not expect bail-outs in future sovereign debt crises.57 They also highlighted their determination to influence IMF policy in this regard.

And when the IMF’s deputy managing director, Stanley Fischer, stepped down in mid-2001, they pressed Koehler to accept Krueger, a free market Republican, for the position. Although she had defended the IMF during the 1997 ? 98 crisis, Krueger was much less supportive of large-scale bail-outs than Fischer (who had been closely associated with them).58 Indeed, one month before the Argentine default, she put forward an ambitious IMF proposal for a kind of international bankruptcy court?or ‘sovereign debt restructuring mechanism’ (SDRM)?which could legitimise sovereign debt defaults and prompt private foreign creditors to join debt restructuring
negotiations.59

The Argentine crisis provided these officials with an opportunity to translate their promises into action (or more accurately, inaction).60 After initially supporting an IMF loan to Argentina in August 2001, they backed the IMF’s decision to withdraw its support three months later when the country did not meet IMF targets, a decision that was a key catalyst for the financial crisis and default in December. Argentina’s Economy Minister at the time, Domingo Cavallo, later noted that O’Neill had been willing to support the August IMF loan only on the condition that it include a commitment to an orderly debt rescheduling process. Cavallo had agreed and had looked to the IMF to help develop such a process, but neither that institution nor US officials subsequently provided any such specific help.61
He argues that the US officials had subsequently decided to choose Argentina ‘as an example to send the message that the new administration would avoid moral hazard no matter how much that decision would cost Argentina’.62

And it is certainly true that Treasury officials defended their decision not to extend a rescue package or intervene in the crisis on moral hazard grounds.63

The fact that the Argentine crisis did not provoke contagion effects beyond
Argentina strengthened the resolve of US officials in continuing to take a laissez faire, hands-off approach to the crisis. Indeed, both Taylor and O’Neill quickly used this fact to argue that the Argentine crisis was proof of the success of the new US policy in encouraging international investors to become more discriminating.64

It is interesting to note how the ideas of these neoliberal US policy makers dovetailed nicely with the perspective of the Argentine policy makers who came to power after December 2001.65 Both agreed that international investors were partly to blame for the financial crisis and thus should be made to pay for their mistakes. The following statement by Lavagna, for example, could easily have been made by Taylor or O’Neill: ‘for the bondholders to say: I made a good investment and it is for the country to pay, that is not true. They made mistakes.’ 66 Indeed, Lavagna often found it useful to invoke the neoliberal stance of US policy makers to justify his tough negotiating position vis-a`-vis the private creditors. As he put it in early 2004:
I agree that you must not use the money of American plumbers and carpenters or German dentists to bail out Argentina, Turkey or any other country. But if you take that decision many other things have to happen too. . .That is the reality. It was not Argentina’s decision. It was the US’s, and it means we have to carry out a restructuring deal with our own resources.67

The role of the US Congress
US opposition to large-scale international bail-outs had one further source that deserves attention: Republican members of the US Congress. This source of opposition had already been very apparent in 1998 when the Clinton administration had asked Congress to approve an $18 billion increase in funding to the IMF. At the time, the IMF s resources had been severely depleted by the international financial crisis of 1997 ? 98.

The proposal to increase US funding passed the Senate easily, but it was much less popular with House Republicans, including prominent figures such as the House Majority Leader Dick Armey and the chair of the Joint Economic Committee James Saxton. Some Republicans were influenced by the neoliberal critique just outlined, while others were driven by a more general distrust of multilateral institutions and a desire to save US taxpayer money.

In the end the proposal passed but subject to certain provisions, one of which was that Congress establish a commission to review US policy towards the IMF and other international financial institutions. The resulting Meltzer Commission?named after its head, Allan Meltzer, a conservative economist who had advocated abolishing the IMF in the mid-1990s68?published its report in March 2000, in which the majority recommended a dramatic scaling back of the activities of the IMF. This recommendation was embraced by many Republicans in Congress, who then continued throughout the Bush administration to welcome the advice of Meltzer and other economists from the Commission.

Interestingly, during the months leading up to the Argentine crisis in late 2001, Meltzer’s advice was that Argentina should be encouraged to default.

In May 2001 he had joined with his Commission colleague Adam Lerrick to write a report that argued ‘only default and the losses that follow will create the incentives to deter speculative flows in the capital markets’. They advocated an IMF -supported ‘constructive default’ that would write down Argentina’s debts, in an orderly fashion, by about 70% of the face-value.69

During a visit to Buenos Aires in December, Meltzer also backed the idea of a unilateral default.70 His views were endorsed and promoted by Armey and Saxton in the US Congress, who also then joined Meltzer in supporting the IMF decision to cut off funds to Argentina in late 2001. As Saxton put it on 14

December 2001 ‘The IMF’s new attitude towards bailouts deserves our support so long as it remains in place. Countries that maintain bad economic policies, and investors who seek extra-normal returns in high risk foreign investments, should not look to the taxpayers for an automatic bailout.’ 71

Even if the Bush administration had wanted to organise a large-scale rescue package for Argentine, it is thus clear that Congressional opposition would have made this difficult.72 The Congressional mood was also important in influencing the Argentine negotiations in another way. It forced the Bush administration and IMF officials to recognize that any subsequent new increases in funding for the IMF were unlikely.73

This fact provided Argentine politicians with extra leverage during the important negotiations of 2003 ? 04 because of the size of the IMF’s outstanding liabilities to the country. At the end of October 2003 Argentina was the third largest debtor to the IMF (after Brazil and Turkey) and its almost $16 billion debt to the Fund represented roughly 15% of that institution’s outstanding credit at the time. In this context Argentina’s negotiators were well aware that their threat to default on large repayments to the Fund in September 2003 and again in March 2004 could have had a serious impact on the institution, particularly since its precautionary balances were only about $8.7 billion at the time.74 As the Financial Times journalist Martin Wolf put it, ‘Argentina has proved brilliant at exploiting its knowledge of the IMF’s
vulnerability’.75

It is interesting, then, that Republicans in neither the White House nor Congress were terribly supportive of the interests of international investors during the Argentine crisis. Republicans are normally seen as the party of Wall Street, but in this case they had other priorities. As one reporter noted in early 2002, ‘the surprising fact is that the Bush Republicans have been much less sympathetic to financial worries than the Clinton administration? which in retrospect seems one of the most ardently pro-Wall Street administrations in the nation’s history’.76 Some have suggested that their view was also influenced by the fact that Americans were not the largest holders of Argentine debt. While it is true that Italian and Swiss investors held the largest shares of the total private debt (15% and 10%, respectively), the US share, at 9%, was not far behind and its absolute size left US investors facing much larger losses than in other recent debt crises.77 A more important fact was that most Argentine debt to Americans was held by large institutional investors who had not been terribly surprised by the default and had been prepared from the outset of the crisis for a long negotiation with the Argentine government.78 By contrast, most of the holders of Argentine debt in Europe and Japan were retail investors who were much more upset about Argentina’s policies and the slow progress of negotiations.

Conclusion
The unusual US policy towards the Argentine default thus reflected a combination of strategic goals vis-a`-vis Argentina, the influence of free market thinking and conservative Congressional interests. This conclusion is an interesting one because these kinds of influences?the prioritization of strategic thinking, neoliberal ideology, conservative anti-internationalism? are familiar to anyone who has examined other aspects of US foreign policy during the Bush administration. In this sense the sources of US policy towards Argentine debt have not in fact been unusual. But in this particular instance, they had the effect of generating an unfamiliar policy preference: that is, taking sides with a moderate left-of-centre government against the interests of international investors. The case thus suggests that the Bush administration’s approach to foreign policy might better be characterized by its consistent sources than by its outcomes.

Does the US policy towards the Argentine crisis contain any broader lessons for the politics of international debt? The private international financial community has been keen to argue publicly that the handling of the Argentine case has been an anomalous one with no broader implications.

And there is some truth to this claim. The fact that the IMF was so heavily financially exposed to Argentina exerted a unique influence on the debt negotiations. So too did the distinct US political interest in Argentina. But it would be wrong to argue that US policy towards the Argentine debt crisis has no broader implications, since the influence of neoliberal thinking and US Congressional opposition to large-scale bail-outs is likely to endure.

Indeed, the US policy towards Argentina has already had an important impact on the international debt regime. It has prompted sovereign debtors and private international investors to recognize that the USA and IMF are now willing to accept major sovereign defaults and will no longer necessarily intervene in private debt renegotiations in the wake of defaults. From the standpoint of sovereign debtors, this recognition has, in turn, suddenly opened a policy option?unilateral default?that was considered heresy in the 1980s. And the dramatic ‘haircut’ that Argentine bondholders have received on their investments has also established for sovereign debtors a new and potentially useful precedent for future debt negotiations. As the co-chair of the GCAB, Hans Hume, acknowledged in January 2005, ‘If Argentina’s offer succeeds it will dramatically lower the cost of defaulting and strip power from creditors’.79
From the perspective of private investors, the Argentine crisis forced an acknowledgement of their limited bargaining power in a context where the USA and IMF were not supportive of their interests. As the head of the Emerging Markets Group at JP Morgan Chase, Joyce Chang, put it in early 2004: ‘Argentina raises the question of what leverage do you have over a country once they stop payments. . .The answer is, not much.’ 80 This acknowledgement has led the private international financial community to become much more willing to endorse some official reforms to make sovereign debt rescheduling more orderly, most notably through the use of ‘collective active clauses’ (CACs) in new international bond issues. During the 1990s they opposed official initiatives to encourage these clauses?which outline mechanisms by which a majority of bond holders can set the terms for debt restructuring?on the grounds that this move might encourage debtor governments to default. But, in the wake of the Argentine default, their attitude changed as they witnessed how the difficulties of organizing thousands of bond holders undermined the negotiating power of creditors vis-a`-vis the Argentine government. Within a very few years, and strongly encouraged by US Treasury officials, CACs have become a standard element in new international bond issues. In this way US policy towards the Argentine crisis has provided an important catalyst for changing private sector views towards broader international financial reform.81

Notes
1 At the time, Argentina did not default on its large debt to foreign public sector entities such as the IMF, World Bank and the Inter-American Development Bank (IADB).
2 Paul Blustein, ‘IMF, White House fumble for a strategy as Argentina founders’, Washington Post, 18 January 2002.
3 Thomas Cata´ n, ‘Argentines cheer debt default decision’, Financial Times, 23 December 2001.
4 Quoted in Blustein, ‘IMF, White House fumble for a strategy’.
5 Quoted in Thomas Cata´ n & Mark Mulligan, ‘Argentina set for 30 ? 40% devaluation’, Financial Times, 5 January 2002.
6 David Ignatius, ‘Doing nothing’, Washington Post, 13 January 2002.
7 Repayments to the IMF had already been deferred three times in 2002 and the Argentine government even defaulted to the World Bank in November 2002 and to the IADB in mid-January 2003.
8 See, for example, Alan Beattie, ‘IMF urged to go easy on Argentina’s future government’, Financial Times, 6 February 2003.
9 David Haskel, ‘IMF extends Argentina $6.78 billion loan: Duhalde sets target of 70% debt write-off’, International Business and Finance Daily, 27 January 2003.
10 Quoted in David Haskel, ‘IMF tells Argentina to up debt payments past 3% of GDP; no way, says nation’, International Business and Finance Daily (The Bureau of National Affairs, Washington), 17 March 2004.
11 The IMF also backed down from its initial attempts to impose a detailed schedule for raising utility rates and to require that banks in Argentina be compensated for the way in which the government had imposed an asymmetric devaluation on them (in which the dollar ? peso exchange rate for deposits and liabilities had been differentiated).
12 Quotes from David Haskel, ‘Poverty alleviation more important than honoring debt, new Argentine leader says’, International Business and Finance Daily, 28 May 2003.
13 David Haskel & Diana Gregg, ‘Argentina, IMF agree on three-year lending program’, International Business and Finance Daily, 12 September 2003.
14 Quoted in Jon Jeter, ‘Argentina defaults on IMF payment’, Washington Post, 10 September 2003.
15 David Haskel, ‘Upbeat Argentina warns bondholders to expect unappealing rescheduling offer’, International Business and Finance Daily, 15 September 2003.
16 Haskel & Gregg, ‘Argentina, IMF agree on three-year lending program’.
17 American Enterprise Institute, ‘Argentina: economic challenges in the wake of default’, 31 March 2004,
at www.aei.org/include/event_print.asp?eventID=767, p 4.
18 Quoted in Haskel, ‘Upbeat Argentina’.
19 Marcela Valente, ‘Argentina: government proposes record-setting debt write-off’, IPS (SUNS News Service), 22 September 2003.
20 Quotes from Adam Thomson, ‘Argentina on the edge’, Financial Times, 8 March 2004; and David Haskel, ‘Argentina offers bondholders haircut, triggering instant refusal by creditors’, International Business and Finance Daily, 23 September 2003.
21 The cuts in the Ecuadorian and Russian cases were roughly 40% and 35%, respectively. Lesley Wrouton & Brian Winter, ‘Argentina’s request for 75% cut in debt angers creditors’, Globe and Mail, 23 September 2003.
22 Quotes from David Haskel, ‘Bush said to back tough Argentine stance on bondholder debt talks, praise Kirchner’, International Business and Finance Daily, 25 September 2004.
23 Quotes from David Haskel, ‘World Bank postpones consideration of $5 billion loan package to Argentina’, International Business and Finance Daily, 9 January 2004.
24 Quote from Adam Thomson, ‘Bondholders to quit talks on Argentina debt’, Financial Times, 2 March 2004. For these arguments, see, for example, Martin Wolf, ‘The IMF should stand firm against Argentine blackmail’, Financial Times, 28 January 2004; Alan Beattie, ‘IMF in revolt on releasing loan to Argentina’, Financial Times, 29 January 2004; and Adam Thomson, ‘Argentina on the edge’.
25 Allan Beattie, ‘Argentine ? IMF rancour starts to turn personal’, Financial Times, 30 January 2004.
26 Quotes from Diana Gregg, ‘Argentine review frees up $358 million, IMF chief calls debt restructuring”critical’’’, International Business and Finance Daily, 30 January 2004.
27 Joshua Goodman, ‘Scepticism over Argentine debt management move’, Financial Times, 12 February 2004.
28 Allan Beattie, ‘Argentine ? IMF rancour starts to turn personal’; and David Haskel, ‘Koehler tells Argentina’s Kirchner loan review now has IMF management backing’, International Business and Finance Daily, 12 January 2004.
29 David Haskel, ‘Following key talks with Bush, Koehler, Argentine leader affirms debt-cut decision’, International Business and Finance Daily, 15 January 2004.
30 Quoted in ‘Argentine and US presidents’ talks ‘‘frank’’’, BBC Monitoring Americas, 15 January 2004.
31 Quote from David Haskel, ‘Argentina says will talk to bondholders but not budge from 25% debt cut demand’, International Business and Finance Daily, 12 March 2004. See also Haskel, ‘Argentina makes last minute IMF payment’, International Business and Finance Daily, 10 March 2004.
32 Adam Thomson, ‘Argentina defies creditors by refusing to modify offer on debt restructuring’, Financial Times, 4 March 2004.
33 Quote from Andrew Balls, ‘United front on Argentina pays off’, Financial Times, 10 March 2004.
34 Marcela Valente, ‘Argentina: last-minute IMF agreement averts default’, IPS (SUNS News Service), 9 March 2004.
35 They were Merrill Lynch, UBS Investment Bank and Barclays Capital. Their advisory role had been announced in mid-February after a meeting between Lavagna and Koehler.
36 Quotes from Adam Thomson & Andrew Balls, ‘Argentina pledges to make progress on debt’, Financial Times, 24 March 2004. Argentina also made some other commitments that were unrelated to the bond holders’ concerns but which had been contentious issues for some time, such as allowing large increases in electricity and natural gas prices.
37 Ignacio Sosa, of OneWorld Investments, in the letters section of the Financial Times, 9 March 2004.
38 Quoted in Thomson & Balls, ‘Argentina pledges to make progress on debt’. See also Haskel, ‘Argentina makes last minute IMF payment’.
39 Quote from David Haskel, ‘Argentina says will talk to bondholders’. 40 American Enterprise Institute, ‘Argentina’, p 5.
41 Quoted in Diana Gregg, ‘Taylor says IMF’s third review will show if Argentina sticking to plan’, International Business and Finance Daily, 10 June 2004.
42 Joshua Goodman, ‘Argentine investors reject debt offer’, Financial Times, 2 June 2004; and Goodman, ‘Argentina creditors unveil generous debt workout plan’, World Bank Press Review, 16 July 2004.
43 Quoted in Marcela Valente, ‘Argentina: paying the IMF?and ignoring its advice’, IPS (SUNS News
Service) 9 August 2004.
44 Quote from ‘Financial group seeks action on emerging markets’, World Bank Press Review, 15 September 2004.
45 David Haskel, ‘Argentina to issue $41.8 billion in bonds, make extra cash payment under debt plan’, International Business and Finance Daily, 2 November 2004; and David Haskel, ‘Argentina’s debt restructuring plan unanimously rejected by creditors’, International Business and Finance Daily, 3 November 2004.
46 Dianna Gregg & David Haskell, ‘IMF not telling Argentina acceptance level for debt swap’, International Business and Finance Daily, 14 January 2005.
47 See, for example, Samuel Flagg Bemis, The Latin American Policy of the United States, New York: Harcourt, Brace and World, 1943, ch 19; and David Green, The Containment of Latin America: A History of the Myths and Realities of the Good Neighbor Policy, Chicago, IL: Quadrangle Books, 1971, p 21. Even the Roosevelt administration helped to organise US bond holders into a Foreign Bondholders Committee in late 1933 to facilitate negotiations with the debtor countries, a form of
assistance that the Bush administration has not offered. Moreover, in practice, the State Department during the 1930s did in fact increasingly intervene on behalf of US bond holders in negotiations with Latin American governments.
48 Quote from Senator Evan Bayh in Argentina’s Economic Crisis, Hearing before the Subcommittee on International Trade and Finance of the Committee on Banking, Housing and Urban Affairs, US Senate, 107th Congress, 2nd session, 28 February 2002, Washington, DC: Government Printing Office, 2002, p 3.
49 Ignatius, ‘Doing nothing’.
50 Quoted in Tony Smith, ‘Power shift between Argentina and the IMF’, New York Times, 29 July 2003.
See also Adam Thomson, ‘Kirchner invited to Washington’, Financial Times, 19 July 2003.
51 Alan Cibils, ‘Argentina’s IMF agreement: the dawn of a new era?’, Foreign Policy in Focus, 10 October 2003, p 3.
52 For the meeting, see Nancy San Martin, ‘Argentine president meets with president Bush’, Knight
Ridder Tribune News Service, 23 July 2003.
53 Tony Smith, ‘Argentina and Brazil align to fight US trade policy’, New York Times, 21 October 2003.
On 16 March 2004 Argentina and Brazil also agreed that they would adopt some common positions in negotiating with the IMF on issues such as primary budget surplus targets and the definition of government spending. Raymond Colitt, ‘Argentina and Brazil urge IMF to relax rules’, Financial Times, 17 March 2004.
54 Allan Beattie, ‘Argentine ? IMF rancour’.
55 See, for example, Paul Blustein, The Chastening: Inside the Crisis that Rocked the Global Financial System and Humbled the IMF, New York: Public Affairs, 2001, chs 7, 9, p 386.
56 Ron Suskind, The Price of Loyalty: George W Bush, the White House, and the Education of Paul O’Neill, New York: Simon and Schuster, 2004, pp 173, 175, 243 ? 244; and ‘Tricky moves for the Bank and the Fund’, The Economist, 17 February 2001. O’Neill resigned in December 2002 and was replaced by John Snow. When he was an economist at Stanford, Taylor had called for the abolition of the IMF on moral hazard grounds during a 15 December 1998 debate on the television show Uncommon Knowledge: ‘It should be abolished, I agree. And I’d like to do it slowly in a way that takes some of the talents there and uses it in a more effective way’. ‘Adios IMF?’, at www.uncommonknowledge.org/ 99 winter/320.html.
57 ‘Tricky moves for the Bank and the Fund’; Michael Sesit, ‘Who’ll blink first: Bush administration or bold debtholders?, Wall Street Journal (European edition), 16 February 2001; and The State of the International Financial System and IMF Reform, Hearing before the Committee on Financial Services, US House of Representatives, 107th Congress, 1st session, 22 May 2001, Washington, DC: US Government Printing Office, pp 8, 13 ? 16.
58 ‘Kohler’s new crew’, The Economist, 16 June 2001.
59 Anne Krueger, ‘International financial architecture for 2002: a new approach to sovereign debt restructuring’, address given at the National Economists’ Club Annual Members’ Dinner, American Enterprise Institute, Washington, DC, 26 November 2001, available at http://www.imf.org/external/np/speeches/2001/112601.htm.
60 See, for example, Blustein, ‘IMF, White House fumble for a strategy’. They had in fact passed up an earlier opportunity in Turkey, which experienced a financial crisis in early 2001 and had received a large IMF loan.
61 Although Krueger’s SDRM was proposed in November, this was a longer-term initiative that was clearly not available to help Argentina with its immediate crisis.
62 Domingo Cavallo, ‘Argentina and the IMF during the two Bush administrations’, International Finance, 7(1), 2004, p 148. Cavallo argues that the crisis would have been much less severe if the USA and/or IMF had provided political support for a debt rescheduling process by mid-2001.
63 See, for example, Argentina’s Economic Crisis, p 33.
64 See, for example, Argentina’s Economic Meltdown: Causes and Remedies, Hearings before the Subcommittee on International Monetary Policy and Trade of the Committee on Financial Services, US House of Representatives, 107th Congress, 2nd session, 6 February, 5 March 2002, Washington, DC: US Government Printing Office, pp 19 ? 20, 27; and The State of the International Financial System, pp 28, 47.
65 Many left-wing members of the US Congress, such as Vermont’s Bernie Sanders, also found themselves agreeing with attacks on the IMF bail-outs on the grounds that this lending simply bailed out large financial institutions. See, for example, Blustein, The Chastening, pp 293 ? 296; and The State of the International Financial System, pp 15 ? 16.
66 Quoted in Beattie, ‘IMF urged to go easy on Argentina’s future government’.
67 Quoted in Adam Thomson, ‘Argentina on the edge’. He was explicitly making reference to statements O’Neill had earlier made that it was ‘ridiculous for America’s plumbers and carpenters to pay for someone else’s bad decisions’. Quoted in Hector Schamis, ‘Argentina: crisis and democratic consolidation’, Journal of Democracy, 13(2), 2002, pp 81 ? 94.
68 Allan Meltzer, ‘Why it is time to close down the IMF’ Financial Times, 16 June 1995.
69 Quotes from Adam Lerrick & Allan Meltzer, Beyond IMF Bailouts: Default Without Disruption, Quarterly International Economics Report, Gailliot Center for Public Policy, Carnegie Mellon University, May 2001, pp 1, 2. See also Pamela Druckerman, ‘US academics vex Argentina’, Globe and Mail, 27 August 2001. See also the proposal at this time from another economist involved with the Meltzer Commission, Charles Calomiris, for a 25%?30% write-down of Argentine sovereign debt. Calomiris, How to Resolve the Argentine Debt Crisis, Washington, DC: American Enterprise Institute, 16 April 2001. Calomiris’s proposal apparently had the support of some Wall Street bankers. See
Michele Wucker, ‘Searching for Argentina’s silver lining’, World Policy Journal, Winter 2003 ? 04, pp 49 ? 58.
70 Cavallo, ‘Argentine and the IMF’, p 147.
71 Quoted in ‘Scepticism on IMF lending to Argentina gains Congressional support’, US Congress Joint Economic Committee Press Release 107 ? 57, 14 December 2001. For Meltzer’s support for the IMF strategy in late 2001, see, for example, Argentina’s Economic Meltdown, p 41.
72 It is less clear, however, why the Bush administration did not back the idea of an orderly debt rescheduling in mid-2001, a move that would have been in keeping with the proposals of Meltzer and would probably have met with Congressional support (as well as the support of the Argentine government, as I note above in footnote 62).
73 Congressional Republicans welcomed the decision of the IMF Executive Board in early 2003 not to pursue a new quota increase. ‘IMF to forgo quota increase’, US Congress Joint Economic Committee Press Release 108 ? 3, 15 January 2003.
74 Martin Wolf, ‘If the debt is unpaid’, Financial Times, 8 March 2004.
75 Martin Wolf, ‘The Fund is not equal to the job it was meant to do’, Financial Times, 10 March 2004.
76 Ignatius, ‘Doing nothing’.
77 The largest group of private creditors by nationality were Argentines, with 38% of private debt. After the US holdings, the next largest groups were German (5%) and Japanese (3%) investors. Haskel, ‘Argentina offers bondholders haircut’.
78 See, for example, ‘American investors in Argentina mostly taking losses in stride’, New York Times, 25 December 2001; Paul Blustein, ‘Argentina didn’t fall on its own: Wall Street pushed debt till the last’, Washington Post, 3 August 2003.
79 Adam Thomson, ‘Creditors cry foul over debt as Argentina changes rules’, Financial Times, 12 January 2005.
80 Joyce Chang, quoted in Diana Gregg, ‘Latin America gets praise for progress on inflation, but high debt levels troubling’, International Business and Finance Daily, 6 February 2004. Some investors have tried to use legal routes to recover their investments, but they have found rulings either unfavourable or difficult to enforce. Argentine officials also note that they have no non-diplomatic assets overseas to
be seized (and diplomatic assets are protected by international law).
81 At the same time, the Argentine experience also reinforced private sector opposition to another reform proposal: Krueger’s idea of an international bankruptcy court. The initial proposal assigned the IMF a role in the bankruptcy process. But private investors note that the Argentine crisis has revealed how this institution would not always be a disinterested observer in these disputes because of its own exposure to sovereign debtors.