Only socialist policies can end extortion of vulture markets
Thirteen years after it was the stage of the biggest sovereign debt default in history, Argentina has defaulted yet again, on the same debt. This follows weeks of speculation and panicked negotiations between the government and vulture “holdout” bondholders to avoid such an outcome. However, on 30 July, talks again collapsed as a 30-day “grace period” granted to Argentina in which to pay up expired. This situation is a reminder of how under the capitalist system – itself a dictatorship of the vulture markets and profit – whole states and nations can be brought to their knees by “the markets” unless an alternative road is charted.
The latest round of crisis was sparked off by a US Supreme Court ruling which ordered Argentina to immediately pay out $1.5 billion to “holdout” bondholders. The ”holdout” creditors are the minority of holders of Argentinian debt who refused to participate in the debt restructuring of the Kirchner governments in 2005 and 2010. This restructuring – which 93% of Argentina’s creditors had signed up to – was essentially an agreement for the repayment of the debt, but with a reduction in the value of bonds.
The holdouts waged a years-long legal battle to demand full repayment and the US supreme court ruling found in their favour. This represents a momentous victory for private bondholders over national governments, and sets an important precedent for future conflicts and defaults. Vulture capitalists inclined to ignore the pleas of countries on the abyss of default for a restructuring or “haircuts” of debt to save their economies from collapse will be bolstered internationally.
For socialists and the working class movement, however, it should serve to hammer home the reality that there is no lasting viable solution to debt crises on the basis of capitalism. The “solution” of the Kirchner dynasty to last decade’s default was previously lauded from capitalist quarters as a shining example of how countries can recover from debt crisis on a capitalist basis, through negotiation and a later return to the markets. The rapid unravelling of this much-lauded solution following the US Supreme Court ruling shows that it was built on sand. This should stand as a powerful warning to those in Europe, such as the leadership of Syriza in Greece, who entertain illusions in similar “solutions” within the framework of capitalism.
It is in the logic of the system – based on the defence of the private property of the rich – to favour the “rights” of private super-rich debt investors over those of democratically elected governments. In some respects, the recent court case represented a showdown between the Argentinian government and super-speculator Paul Singer, whose investment firm NML led the creditors’ claim. Singer, a well-known supporter and funder of the US Republican party is reported to have a fortune of $1.1 billion and specialises in sovereign debt speculation. The court’s ruling confirms who the laws and courts of capitalism are designed to serve – the Paul Singers of this world. Only a break with this system and a socialist alternative can make the rights of people and their livelihoods come before the right of a multi-millionaire to make more profits.
For socialist policies to end the dictatorship and extortion of the vulture markets
The Kirchner government has proved itself unwilling to take such a path. It is talking tough following the breakdown in negotiations, with Finance Minister Alex Killicof, pledging “We are not going to sign any agreement that compromises the future of the Argentine people,”. But it proved willing to bend over backwards to come to a deal with the vultures in the preceding weeks. Default comes precisely as the government hoped to complete its successful return to the markets, after a multi-billion dollar deal with another group of holdout creditors – the Paris club – some months ago. The price of this and other deals is indeed compromising the future of the Argentinian people, grappling with out of control inflation and austerity measures. The government struggled until the last minute to find a solution which could please the bondholders. However, it found itself caught up in a legal mess, linked to agreements made with those creditors who had accepted its previous restructurings, and was left with no alternative but to default, admitting that to pay the full demands of all creditors at once was simply impossible.
A workers’ government would respond to the US court ruling and extortion of the bondholders with defiance and repudiation of the debt in its entirety. However, this would need to be accompanied by the nationalisation of the banks and financial sector under democratic control, and the implementation of a state monopoly on foreign trade, in order to protect the economy and prevent a flight of capital. These and other socialist policies would be part of an emergency plan to confront the crisis. Such a plan would be aimed at making the rich both at home and abroad pay for the crisis while protecting the salaries and living standards of working people against the effects of inflation and devaluation. Instead of pouring billions into the pockets of bondholders, a massive plan of public works could be put in place to drive genuine economic growth.
If implemented, such policies would gain widespread sympathy and support internationally, not only in Latin America but beyond, including in Europe where workers are suffering endless austerity in the name of paying bondholders of the same ilk. This could be translated into the building of an international movement to break with the vulture markets and establish a socialist federation of Latin America.
The concrete impact of Argentina’s default on the national and world economy remains to be seen, though it will surely add to an explosive economic and social mixture, as the economy enters recession. Many of the heavyweights of capitalism internationally will not want to see an overly deep debt crisis emerge, given the wider impact this could have, and some kind of late deal to avoid such an outcome cannot be ruled out. Indeed, private Argentinian banks stepped in toe the deal negotiations at the last minute, and may negotiate a separate private deal with the vulture holdouts in order to fend off a deep default.
However, there are already rumours that the ensuing damage inflicted in the currency markets by the default will push the government to implement a second devaluation of the currency in less than one year, in a situation where inflation is already wreaking havoc on the purchasing power of workers and the poor. It could also have a parallel impact, radicalising the already escalating class struggle, bringing back memories of its 2000-2002 financial crash, when a series of governments were brought down in quick succession by repeated explosions of mass struggle.
The development of such a wave of struggle, a sustained plan of militant workers’ action, including escalating general strikes to impose a workers’ alternative to the policy of making workers and the poor pay the price of the crisis and default is now the responsibility of the left and workers’ movement in Argentina, which has a proud tradition of militant struggle. The dramatic collapse of Kirchnerism’s capitalist “solution” to the debt crisis shows the importance of a socialist perspective at the head of this movement, under the banner of a socialist revolution across the continent and internationally.