If Argentina were in a high-stakes chess match, the country's actions this week would be the equivalent of flipping over all the pieces on the board.
-- David Dayen, Fiscal Times, August 22, 2014
Argentina is playing hardball with the vulture funds, which have been trying to force it into an involuntary bankruptcy. The vultures are demanding what amounts to a 600% return on bonds bought for pennies on the dollar, defeating a 2005 settlement in which 92% of creditors agreed to accept a 70% haircut on their bonds. A US court has backed the vulture funds; but last week, Argentina sidestepped its jurisdiction by transferring the trustee for payment from Bank of New York Mellon to its own central bank. That play, if approved by the Argentine Congress, will allow the country to continue making payments under its 2005 settlement, avoiding default on the majority of its bonds.
Argentina is already foreclosed from international capital markets, so it doesn't have much to lose by thwarting the US court system. Similar bold moves by Ecuador and Iceland have left those countries in substantially better shape than Greece, which went along with the agendas of the international financiers.
The upside for Argentina was captured by President Fernandez in a nationwide speech on August 19th. Struggling to hold back tears, according to Bloomberg, she said:
When it comes to the sovereignty of our country and the conviction that we can no longer be extorted and that we can't become burdened with debt again, we are emerging as Argentines.- Advertisement -
. . . If I signed what they're trying to make me sign, the bomb wouldn't explode now but rather there would surely be applause, marvelous headlines in the papers. But we would enter into the infernal cycle of debt which we've been subject to for so long.
The Endgame: Patagonia in the Crosshairs
The deeper implications of that infernal debt cycle were explored by Argentine political analyst Adrian Salbuchi in an August 12th article titled "Sovereign Debt for Territory: A New Global Elite Swap Strategy." Where territories were once captured by military might, he maintains that today they are being annexed by debt. The still-evolving plan is to drive destitute nations into an international bankruptcy court whose decisions would have the force of law throughout the world. The court could then do with whole countries what US bankruptcy courts do with businesses: sell off their assets, including their real estate. Sovereign territories could be acquired as the spoils of bankruptcy without a shot being fired.
Global financiers and interlocking megacorporations are increasingly supplanting governments on the international stage. An international bankruptcy court would be one more institution making that takeover legally binding and enforceable. Governments can say no to the strong-arm tactics of the global bankers' collection agency, the IMF. An international bankruptcy court would allow creditors to force a nation into bankruptcy, where territories could be involuntarily sold off in the same way that assets of bankrupt corporations are.
For Argentina, says Salbuchi, the likely prize is its very rich Patagonia region, long a favorite settlement target for ex-pats. When Argentina suffered a massive default in 2001, the global press, including Time and The New York Times, went so far as to propose that Patagonia be ceded from the country as a defaulted debt payment mechanism.
The New York Times article followed one published in the Buenos Aires financial newspaper El Cronista Comercial called "Debt for Territory," which described a proposal by a US consultant to then-president Eduardo Duhalde for swapping public debt for government land. It said:
[T]he idea would be to transform our public debt default into direct equity investment in which creditors can become land owners where they can develop industrial, agricultural and real estate projects. . . . There could be surprising candidates for this idea: during the Alfonsin Administration, the Japanese studied an investment master plan in Argentine land in order to promote emigration. The proposal was also considered in Israel.
Salbuchi notes that ceding Patagonia from Argentina was first suggested in 1896 by Theodor Herzl, founder of the Zionist movement, as a second settlement for that movement.
Another article published in 2002 was one by IMF deputy manager Anne Krueger titled "Should Countries Like Argentina Be Able to Declare Themselves Bankrupt?" It was posted on the IMF website and proposed some "new and creative ideas" on what to do about Argentina. Krueger said, "the lesson is clear: we need better incentives to bring debtors and creditors together before manageable problems turn into full-blown crises," adding that the IMF believes "this could be done by learning from corporate bankruptcy regimes like Chapter 11 in the US".