There's been a significant development in the financial world in Argentina(shared with us courtesy of Mr. T.M.), and it has some intriguing geopolitical implications:
Consider the following statement from the article, as Argentina considers selective default on some bonds held by American hedge fund investors:
"First we're not going to sign any agreement that hurts Argentina's future," Kicillof said. "Second, we're going to defend the 92% of bondholders that did restructure ... In third place, we're going to take every measure ... we have to make sure this situation is not perpetuated. Argentina is ready to talk, to come to an agreement. Let's come to a just, fair ... ruling for 100% of our investors. But do not make us do anything illegal ... Do not make us do anything unjust ... Do not make us do anything that will make us put Argentina's economy at risk ... We won't allow it."
As the statement indicates, Argentina's real problem is not with payment, but with the refusal on the part of some to restructure. (One wonders, why, in the aftermath of the Argentine default in 2001, why any hedge fund CEO would invest anyway, but that's another story... but perhaps one might venture to say that such an "investment" might have motivations other than financial, but rather, geopolitical. But see also This Is How A Hedge Funder Brings An Entire Country To Its Knees
As the immediately preceding linked article makes clear, Singer has refused to take any discount, or haircut, on his bonds, and is pursuing Argentine assets all over the world. In short, we have a speculator, whose track record is one of recovering more in courts than what he originally invested, and President de Kirchner is saying "no!"
While one can perhaps muster a bit of empathy for Mr. Singer, my problem here is the geopolitical fallout from such international predatory practices: in effect, we have one American hedge fund manager holding an entire country's feet to the fire. Granted, Argentina's prodigality have certainly contributed, and it bears some of the responsibility for this. But by the same token, one cannot expect a country to get its financial house in order when one adamantly refuses any renegotiation and restructuring.
The geopolitical consequences are what should disturb anyone, and we've just seen that President Putin and Argentina's de Kirchner have negotiated an energy deal during the recent Forteleza BRICSA summit in Brazil.
So herewith a bit of high octane speculation: such pressures are only going to increase the compulsion for Argentina to seek some sort of relief from the BRICSA bloc, and it is conceivable that if there is any restructuring, it may ultimately involve BRICSA intervention in the affair. One can easily imagine scenarios where, say, China buys Mr. Singer's bonds at par, and then renegotiates them with Argentina, in return for privileges and so on.
And that means you can say goodbye to another prominent South American country as it reorients more and more toward the BRICSA bloc. And it's a lesson in how private capitalism of this sort is always fraught with geopolitical consequences...
See you on the flip side...