Argentina's financial woes a rerun of bitter history

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Seeing a large once prosperous country default on its international debts is sad. One cannot say the same thing when the same country — in this case Argentina — defaults on its international obligations for the eighth time in its history.

Excuses are many, and some are valid. It is true that the current Argentine crisis was in part provoked by a small group of creditors that during two restructuring agreements of the country's international debt in 2005 and 2010 refused to accept a general debt plan.

Argentine President Cristina Fernández de Kirchner has a name for these funds. She calls them "vulture funds." But led by NML Capital, these funds demanded that in order to prevent Argentina from agreeing to a new debt negotiation, they be paid the $1.3 billion plus interest they are owed.

For Argentina, this meant it had to negotiate with these funds that are squeezing it, or again enter into default. At first Argentina's Economy Minister, Axel Kicillof, refused to even meet with representatives of these funds until a day before the debt was due on July 29. Still, when they met, the sides failed to reach an agreement.

In simple terms, this means that Argentina, as of July 30, is once again in default of its international obligations. Its debts are now paid by order of New York court judge Thomas Griesa. The judge on Monday ordered JP Morgan to pay on an exceptional basis the interest accrued under the 2005 and 2010 default agreements. He had done the same previously with Citibank and with a series of European banks.

The experts say this time Argentina is in better shape as it enters into a new default because for the last 13 years it has been locked out of the international capital markets. They say if the default is short, things will not reach catastrophic levels for the Argentines.

Still, Argentina and its citizens know what default brings. It is painfully aware of what happens when the country's presses began to print money that cannot be backed by the economy.

I lived in Argentina during one of those times. In eleven months from July 1970 through the end of May 1971, Argentina had three presidents — all of them generals. When I arrived at Ezeiza International Airport July 4, 1970, the exchange rate was 350 pesos to the dollar. When I left Argentina, I had to come up with 1,400 Argentine pesos to get a dollar. And things only got worse.

At its peak, Argentina went into hyperinflation. Grocery stores did not have fixed prices on products. During my last days in the country the prices were written on a blackboard and changed each morning and afternoon. Later on my friends told me it got worse; much worse.

Nobody is saying that Argentina will again fall into such economic chaos. This time things will not be as bad. For the sake of our Argentine friends and for the citizens of that proud South American nation, one can only hope.

According to the British news magazine The Economist, nine of the top ten countries that default on their foreign debt are in Latin America. Since 1900, Ecuador has defaulted on its debt seven times; Venezuela five times; Uruguay seven times; Peru five times; Brazil six times; Chile six times; and Mexico three times.

Only Turkey has cracked the otherwise Latin American monopoly on countries going into default.

Governments try to avoid default, and once declared they do everything to get back into the good graces of international bankers and creditors who fund their shortfalls.

Most of the stories deal with countries that cannot pay their debt. Few, however, detail the difficulties this brings upon its citizens.

In Argentina last week, clients of HSBC Bank were met with an unpleasant surprise when they went to check on their bank safety deposit boxes. As they entered the bank, the clients were handed a card that gave "authorized government officials" the right to "search or forcibly open" their bank safety deposit boxes.

Clarín, Argentina's largest newspaper, reported the story.

Everybody tried to explain what was going on. Some said it was not new; that "authorized government officials" meant a "judicial order."

Argentines were fully aware of what the cards meant. In case of a dire economic necessity, the government had the right to open private safety deposit boxes and confiscate dollars, precious metals or jewels that might be needed to pay off its international obligations.

Guillermo I. Martinez lives in South Florida. His email is Guimar123@gmail.com.

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