Wanted: debt or "a life"

DIE HARD III
Herman Tiu Laurel
3/9/2005



The Economist, the staunchly conservative and pro-oligarch British magazine, has been forced to respond with a March 5 editorial to the 70% Argentine debt discount. It warns that, “Debtor governments should not conclude from Argentina that default is an easy option”. Yet, The Economist could not deny how Argentina is benefiting from that default saying, “Its economy has bounced back strongly.” Argentina has achieved the recovery from debt default and closes the debt in only 38 months. That isn’t bad at all. The Philippines? It will continue to suffer under the weight of the debt in perpetuity.

Argentina now has a life after giving up living death with debt. Look at the Philippines and you see a walking dead; carrying its debt burden around wherever it goes bending its back further onto the ground. The Economist can’t get over the success Argentina has achieved in its debt restructuring and tries to find fault, saying for example that Argentina’s debt will still be 75% of GDP compared to Brazil 52% even though the latter has kept up with its debt payments; but Argentina’s GDP growth hit 8% last year and with import substitution might well overtake that soon.

What The Economist cannot deny is that Argentina, with the $ 81-B of debt out of the way, will now be paying much less interest rate on their remaining loan or even new loans. Lower than Brazil or any other South American country still in debt row because with a lower debt level now its ability to pay or credit rating improves with it. Argentina really got a tremendously good deal from defaulting in 2001 even though it did suffer right after it a 20% loss in general standard of living, which was probably actually healthy because they were fat on an artificial exchange rate and massive importations.

The Economist’s expresses a huge problem, “The bigger worry is Mr. Kirchner’s political grandstanding. His rants against the IMF, bondholders and privatized utilities may sway Latin America’s public opinion.” Rantings like Ding Lichauco’s, mine and of the many advocacy groups here, the difference is Argentines and Kirchner now have a chance to redress their evils. Kirchner announced that with the bigger part of the debt behind them he will renegotiate onerous contracts of past administrations with their privatized energy companies (just like the oppressive IPPs in the Philippines).

The Economist is in a quandary contemplating Argentina’s improving economy and its impact on the foreign-owned privatized power companies saying, “As the economy recovers, Mr. Kirchner can hardly continue to claim a national emergency to ride roughshod over utility contracts.” But a “national emergency” is not the only reason to re-negotiate unjust contract terms and lower oppressive rates. Justice is argument enough, but the recovering economy puts Kirchner in a position of strength to demand justice. The privatized utilities can not longer run roughshod over the Argentines and their political leadership again.

The Economist admits that “most institutional investors got their money out of Argentina one way or another”, i.e. the bankers and finance brokers got away with their profits! What they did was unload the risks on hapless small investors all over the world particularly Italians pensioners. The Italian parliament is now investing these banks and investment brokers who preyed on the innocent emerging markets investors, blaming them and not Argentina for the financial woes of small Italian investors.

The Economist advises institutional investors to “…be wise to pick more carefully among emerging-market borrowers. The safe level of debt for emerging economies is lower than previously assumed.” As if they didn’t know this even before. We know now, after the incontrovertible testimonies of many and the confessions of John Perkins on “economic hit men” that the creditor nations and its bankers have deliberately pushed over decades, overpriced and unnecessary loans to emerging economies in order to finance projects contracted to their own selected transnational corporations.

As a final point the editorial says, “Lastly, it is wrong to imagine that default has become a painless route to prosperity. It has not.” Not defaulting does not exempt one from pain either, as Filipinos know very well as we face higher and higher taxes on everything including the most basic necessities such as power and other utilities; the continuing payments to an unjust and endless debt is reducing our economic existence to that of the pre-modern times. Many poor Filipinos will have to give up use of electricity altogether after the new VAT law removes tax exemptions on power, for example.

We agree that defaulting is not painless but, as in Argentina, default can lead to a cure and recovery of economic health. Only the dead suffer no pain and, as doctors say, pain is not bad because it alerts the body to an ailment. The pain from the debt disease is a signal that a cure must be found, and more debt from paying the debt that will increase the interest and principal on the debt, ad nausea, is not cure. It is perpetual suffering and eventual death of society. The question left is: What do we want – debt or “a life”. I prefer life, and after Argentina we confirm that there’s life after debt.

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