Natacha Pisarenko/AP Photo
Javier Milei, presidential candidate of the Liberty Advances coalition, speaks at his campaign headquarters after polling stations closed during primary elections in Buenos Aires, Argentina, August 13, 2023.
On Sunday, a neofascist candidate named Javier Milei, in the mold of Donald Trump and Jair Bolsonaro, shocked the political establishment by placing first in the preliminary round of Argentina’s presidential elections.
The reasons for popular frustration are not hard to discern. Argentina’s inflation rate has been running in excess of 113 percent. The real, black-market rate of the peso against the dollar keeps plummeting. After Sunday’s surprise result, the central bank raised the key interest rate from 97 to 118 percent.
This is in a country that was once among the world’s wealthiest, and now has a poverty rate of around 40 percent. The political center, not surprisingly, has lost legitimacy.
The Peronists, once a left-populist outsider party, have been the governing party for much of the recent past, and are now seen as hopelessly part of the discredited establishment. In Sunday’s election, the Peronist candidate, Sergio Massa, placed third. The center-right candidate, representing the mainstream opposition, came in second.
It’s not as if Milei has a realistically radical program to cure Argentina’s ills. Like other neofascists, he stands for a spasm of nihilism. A onetime tantric sex coach, Milei would abolish Argentina’s public-health and education systems, shut down the central bank, and use the U.S. dollar as national currency.
While Argentina has itself to blame for some of its woes, the international financial system, including the IMF and U.S.-based hedge funds, share the blame. Argentina has oscillated between running up foreign debt, and then succumbing to IMF-enforced austerity programs to pay off or write off debt. None of this has rescued its economy, but it has enriched speculators.
Some U.S.-based hedge funds, notably Paul Singer’s Elliott Investment Management, bought distressed Argentine bonds at about one-sixth of their face value over a 15-year period. When creditors came together to negotiate a settlement at so many cents on the dollar, Singer was the holdout. In 2001, after Argentina defaulted on $131 billion of debt, 93 percent of the country’s creditors, in two restructurings, agreed to take 30 cents on the dollar. But Elliott held out for a sweeter deal. In the final settlement in 2016, Elliott netted billions at Argentina’s expense.
Before World War II, banks that invested in the debt of South American countries, often at inflated interest rates and profits, knew that they were taking a risk. When nations defaulted on the bonds, as they often did, the creditors lost everything. But there was so much money to be made that bankers soon were offering more loans.
The International Monetary Fund was created after World War II to help debtor nations refinance debt and avoid crippling austerity. But by the 1970s, the IMF had mutated into the agent of creditors, with the help of U.S. courts and U.S. bankruptcy law.
There is a horrific double standard in the use of bankruptcy. Large corporations are able to use bankruptcy to shed their debts while the same management that incurred massive losses is often able to keep control. But households and student debtors who try to use the bankruptcy process face total economic ruin. Countries are precluded from using bankruptcy to shed debts altogether.
We need a massive reform of the one-sided bankruptcy laws, an end to the favorable tax and regulatory treatment of hedge funds and private equity firms, and a restoration of the role of the IMF as it was created at Bretton Woods in 1944. Argentina can take its share of blame, but the role of predatory global finance makes its situation far worse.
