When Javier Milei won the global sycophancy race to congratulate Donald Trump on his election victory, it was not without considerable irony.
The Argentine president joined other heads of state in Israel, El Salvador, Italy and the United Kingdom—all countries run by the far right or, in the case of Britain, by a subservient poodle struggling to avoid irrelevance—in rushing to heap praise on the Republican strongman.
“Congratulations on your formidable electoral victory,” Milei wrote on X, the social network owned by Trump’s neophyte cheerleader, Elon Musk, adding: “Now, Make America Great Again. You know that you can count on Argentina to carry out your task.”
Argentina’s rightwing establishment soon followed suit, with gushing words of praise for Trump flooding in from officials in Milei’s government and unhinged lawmakers of his La Libertad Avanza coalition.
We must not forget, of course, that there is a political premium from praising the lord: linking Trump’s victory to Milei’s own domestic triumph last year adds credibility to the maverick Argentine leader’s agenda, and currying favour from the next US president—a man who takes things personally—clocks up future brownie points for times of need.
The irony, however, resides in the fact that Milei’s own political victory, a product ultimately of Argentina’s unfathomable economic woes, owes almost everything to the fact that it has been Trump’s rapacious natural bedfellows that have brought the country to its knees.
Billion-dollar donors at banks, hedge funds and other financial firms flocked to support the US president-elect, conveniently forgetting how they denounced his efforts to overturn the results of the 2020 election and brushing off concerns about the threat to democracy this time round.
Trump 2.0 will lead the most plutocratic administration in US history—epitomised by the special role he is likely to give the world’s richest man, Musk, and the hedge fund managers now vying for the top jobs at the Treasury.
As legal disputes with Argentina’s former investors come to a head in this climate of empowerment for unregulated capital—in courts within the US, not Argentina—the stakes are high enough to potentially derail Milei’s own efforts to fix his country’s crippled economy. This sad tale provides a lesson in the reality of colonialism.
Economic woes
Argentina is struggling with triple-digit inflation, a deep recession and poverty rates exceeding 50 per cent. Debt, as ever, is the timebomb ticking beneath its social fabric. Its total sovereign debt exceeds $400bn, some $110bn of which it owes to the International Monetary Fund and holders of restructured, privately-held bonds.
There is little to pay this with: central bank reserves are in the red by $10bn, there is no chance Buenos Aires will be able to obtain further international credit—ratings agencies are unremittingly negative about the country—and $16bn in repayments will come due next year.
Lawsuits over decisions taken by the Argentine president’s predecessors are making their way through courts in the US and greedy US plaintiffs, many of whom have made a career of swallowing distressed state assets, are pressing Milei to settle in their favour.
Unfortunately for Argentina’s latest populist saviour, final judgments on cases that have been simmering for two decades are all imminent during his term.
Some estimates put potential awards in these ongoing cases against Argentina at a total of $31bn—without interest—enough to pull the rug definitively from under the president’s promises to rescue his economy.
An appeal is pending on the $16bn award last year by a New York court to former minority shareholders of the state energy corporation YPF, which Argentina’s government expropriated in 2012. The court is considering whether to force Argentina to give 26 per cent of YPF shares to plaintiffs who are largely financed by a specialist litigation funder, Burford Capital.
The matter of US jurisdiction over the assets of a foreign country—and, inevitably, the enforcement of court rulings—is at the heart of arguments in this case currently underway in New York, and remains legally at issue.
Indeed, the US government itself has sided with Argentina in urging the court not to force the country to give up its stake in YPF to partially satisfy the judgment, arguing that American courts cannot order the seizure of foreign sovereign property. In a statement this week, Burford was at pains to point out how strenuously it disagrees with that—it would, wouldn’t it.
In August, again in a US court, the World Bank’s International Centre for Settlement of Investment Disputes was permitted to enforce a debt owed by the Argentine government to a group of Spanish companies for $340m. The case followed the expropriation in 2008 by the government of Cristina Kirchner of Aerolíneas Argentinas, the country’s flag-carrier, after severe mismanagement took the airline to the brink of failure, threatening the national economy.
In June, the US Supreme Court also refused to hear an appeal by Argentina seeking to overturn a lower court’s decision ordering that it pay “holdout” creditors from the 2001 sovereign default some $1.33bn after a long and bitter legal dispute.
In August, the Second Circuit court on the US upheld a lower court’s decision that rejected Argentina’s argument that funds held by the Federal Reserve Bank of New York were protected by the Foreign Sovereign Immunities Act.
As if on cue—and perhaps it was—the Supreme Court in Britain then rejected Argentina’s attempt to appeal against a $1.5bn judgment in a case brought by four hedge funds over changes to the way the country calculates GDP, which reduced payouts on bonds.
These rulings in foreign courts—and the fragility of Argentina’s economy—make it very possible that the country will simply be unable to meet its debt obligations within the next few years. Not surprisingly, plaintiffs are seeking Argentine assets to seize in lieu of payment—a specialism of the US and European vulture funds that stalk Latin America looking for scraps to feed on.
Impact of debt
For most of us, the esoteric worlds of sovereign debt and the courts that hear litigation in disputes are of little concern to our daily lives. The financial mechanisms discussed are complex, the market-speak impenetrable, and the media coverage confined to specialist publications we are never likely to read.
But the underlying issues raised by Argentina’s case are not so complex and touch on principles that, indeed, have a great bearing on our daily lives and how we govern ourselves.
Debt has a debilitating impact on communities across the world, with around 3.3bn people now living in countries where interest payments are greater than expenditure on health or education.
Yet countries cannot declare bankruptcy, unlike corporations, making them vulnerable to private creditors spurning debt reduction talks who are eager to litigate because they are likely to get far more back in court than governments which are also owed money. Private lenders do not believe in debt relief to help the poor, they believe in lawsuits to help the rich—and the Argentine case demonstrates that democracy has no relevance to this issue.
A key underlying complication of the Argentine case has been jurisdiction—the legal system where court cases are conducted.
Most debt contracts of low- and middle-income countries are governed by New York or UK laws, because these are where bond debt globally is mostly sold and agreed. By September, 2017, of the total outstanding stock of international sovereign bonds, approximately 46 per cent were governed by English law and approximately 52 per cent by New York law.
This fact alone hands private creditors who are invariably based in the US and UK distinct advantages—not least the crude stereotyping of Latin American countries by judges, which turns a form of reflexive xenophobic prejudice into a practical legal asset.
Take for example comments by Judge Thomas Griesa—whose rulings in the Argentine holdouts case made him notorious on Wall Street and infamous on the streets of Buenos Aires.
Griesa bridled at Argentina’s robust defence of its national interest, and branded the country a “uniquely recalcitrant debtor”. In 2014, he took the unprecedented and humiliating step of holding Argentina in contempt of court for refusing to obey an order to pay the US vulture funds what they demanded—the first time a sovereign nation had ever been treated in this way.
Argentina’s ambassador to the US made a very reasonable protest to the then US Secretary of State John Kerry stating that if the country was found to be in contempt of court, it would represent “unlawful interference” in Argentina’s domestic affairs.
Argentina’s foreign ministry in Buenos Aires said Griesa’s ruling “violates international law” and “has no practical effect other than to provide new elements helpful to the slanderous political and media campaign conducted by vulture funds against Argentina”.
It is hardly surprising, then, that Griesa ruled in favour of US hedge funds with deep pockets against Argentina, and historians will be forgiven for concluding that the New York judge did so in part because he was profoundly prejudiced against the country.
Jurisdiction
Jurisdiction matters, not only because of the bias of individual judges but because authorities in the US and UK—lobbied hard by their avaricious capital markets—have dragged their feet irresponsibly in legislating to create a legal framework like bankruptcy that would protect countries from opportunistic holdout creditors.
Moves are afoot—the Sovereign Debt Stability Act in New York would make a difference, and there is support for action in the UK and UN—but these will not help the Argentine state, which is still grappling with hostile US courts that treat it like a bankrupt car dealership.
Indeed, Greece offers a very good example of why jurisdiction matters. In 2011 it found itself having to restructure €200bn of sovereign debt, but within just a few months was able to exchange €77bn of this for debt worth less than 75 per cent. Its success was mainly due to the fact that more than 90 per cent of the bonds were governed by laws set in Athens—not New York or London.
In the case of Argentina, the US Supreme Court ruling in June has particular implications not just for the Latin American country but for the world, effectively giving private US bondholders the upper hand in legal disputes with defaulting nations—an outrageous empowerment of American capitalism to the detriment of the rest of us.
This empowerment again derives from the issue of jurisdiction—if a case is held in a debtor country, creditors are at a severe disadvantage, but if it is held in New York, holdouts can normally get a court order directing a country to pay. As Griesa demonstrated, US legislation in cases involving US plaintiffs inherently contradicts legal commitments to equal treatment.
Milei’s ability to deal with the scale of Argentina’s problems is yet to be seen—they may be insurmountable—but the question that must be asked is what happens if he fails.
What is indisputable is that his very presence in the Casa Rosada is a product of the country’s economic crisis, and that this has stemmed ultimately from unmanageable debts. The mandate given to Milei was not an affirmation of support for his bizarre, pro-US agenda.
Voters in Latin America have shown time and again that they will flock to whoever can improve the economic situation, or rather whoever makes the boldest promises to do so.
Milei is the incarnation of a form of global financial capitalism headquartered in Wall Street that has nothing but imperial contempt for national sovereignty and, by definition, the popular sovereignty underpinning it.
The Argentine president is a radical right-wing, antisystem outsider elected during a severe economic crisis out of desperation by a population deeply dissatisfied with the status quo. His election, like that of Trump, has wholly ominous implications for the country’s democracy and coincided with a severe erosion of faith in it among the electorate.
To say his economic vision aims to deliver the country to wholesale control of international capital—and the arcane, opaque and anti-democratic decisions of authorities in Washington and the international financial system—would be an understatement.
Many of his ambitions are nothing sort of insane, beginning with his intention to dollarize the economy and close the central bank. It is a plan that is destined to make a bad situation worse, with even such colonial satraps as the IMF expressing reservations.
Milei makes no attempt to hide his desire for a neocolonial relationship with the US and, upon Trump’s re-election, demonstrated that with a fireworks display and gushing posts on social media. Like a loyal proconsul of Rome, he has already arranged to fly to the US in coming days to meet with Trump and his billionaire cheerleader Musk.
And who has been the immediate beneficiary of this sycophantic hysteria? Has it been the long-suffering Argentine people now losing faith in their latest saviour as they begin to grapple with the hard reality of his policies?
No. The answer, as ever, is: foreign owners of Argentine debt. In the immediate aftermath of Trump’s election victory Argentina’s dollar bonds jumped and the country’s risk index dropped sharply as investors cheered the prospect of closer ties between Milei and his idol.
Regardless of the convolutions of economic reform, it is quite clear that the roots of Milei’s tenure—in debts to US capitalism, the looming US judgements on those debts, and the victory of plutocrats embodying the US investors holding those debts—will soon confront the citizens of this unhappy South American country with one, simple existential question: who actually runs Argentina?
Read this and receive articles straight to your inbox by subscribing on Substack
Categories: Argentina, North America, South America, United States