Have the Kirchners taken over Argentina?

American Task Force Argentina is a Washington-based lobbying organization financed by vulture funds, which exists to extract money from the government of Argentina and move it instead to the hedge funds and others who own the country's defaulted debt. They tend to have rather extreme views, and so I generally look forward to a bit of a giggle when I get one of their semi-frequent emails. Today, for example, they pointed my to a piece by Mark Falcoff which has just been posted on the website of the conservative American Enterprise Institute.

Imagine my surprise, then, when Falcoff's piece turned out to be accurate, well-written, and, in fact, a very good guide to where Argentina stands today, under president Nestor Kirchner, and how it got there over the past few years. I've read a lot about Argentina over the years, and very little of this calibre. But there seems to be a weird sentence inserted into the final paragraph:

Argentina's history tends to be cyclical. For the past seventy years or so, the country has bobbed back and forth between crises and recovery, each time convinced that it has finally found a formula for sustained prosperity. Elected governments and military dictatorships, Peronists and anti-Peronists, protectionists and free marketers have each taken their turn at the wheel, each enjoyed a moment of euphoria and mass support, each ultimately suffered discredit and collapse--with some recent presidents forced to depart the government palace by helicopter. Sooner or later the country will have to return to the capital markets and settle accounts with its remaining creditors if it wishes to sustain and improve its present recovery. In the meanwhile, Kirchner rides the high curve of a cycle. He can only hope that his own landing will be softer than that of all his predecessors.

That sentence (the italics are mine) is unrelated to anything that has gone before, and is, in point of fact, not true. Argentina has demonstrated that it's perfectly capable of borrowing money from foreign investors - in fact it does so every month, in both pesos and dollars. It just uses its own capital markets, rather than those of New York or London. So it really has no need "to return to the capital markets", insofar as it hasn't returned already.

As for international bond investors (or, as the IMF likes to call them, "hot money") being necessary for sustained growth - well, I think that the past seventy years or so of Argentine history proves that false, too. Latin America is very good at borrowing far more money than it can reasonably expect to repay, which creates a boom-to-bankrupcty cycle which benefits nobody. Given the real money currently pouring into Argentina for its beef and soy and oil, it shouldn't need to be borrowing more from abroad in any event. In fact, Argentina could almost be seen as following a counter-cyclical fiscal policy, borrowing less when times are good. They should be applauded for this, rather than being told that the only way to improve their present recovery is to borrow even more.

It is true that if Argentina settled with its holdout creditors, that might increase the amount of foreign direct investment in the country. But it's hard to make a compelling case that the increase in FDI would itself justify the up-front cost of paying off the holdouts.

That one sentence aside, however, I can highly recommend Falcoff's piece. Here's one provocative passage:

Unlike Bill Clinton, Kirchner is not particularly charming or charismatic. One wit has remarked that the Argentine president has accomplished the impossible: he has created a cult of personality with no personality at all. His home province is also unlike Arkansas. Santa Cruz has a mere 120,000 residents, but is blessed with huge amounts of oil and gas, of which Kirchner made uninhibited use during his mandate there. In contrast to the U.S. Constitution, the Argentine charter of 1994 makes it possible for the Kirchners--if their popularity endures--to theoretically rule the country for the rest of their lives either by taking turns in four-year terms or by succeeding each other for eight years at a time.

Argentines have always loved strong leaders, from Peron to Menem. Kirchner's only the latest in a long line, and if he can keep control of the economy - a very big if - then he and his wife could be running Argentina more or less indefinitely.