Academic journal article Canadian Journal of Latin American & Caribbean Studies

The International Dimensions of the Argentine Default: The Case of the Sovereign Debt Restructuring Mechanism

Academic journal article Canadian Journal of Latin American & Caribbean Studies

The International Dimensions of the Argentine Default: The Case of the Sovereign Debt Restructuring Mechanism

Article excerpt

Abstract. Aside from representing the biggest default of its kind in history, the Argentine default in December 2001 triggered several important, albeit largely neglected, debates on how best to manage future sovereign bankruptcies. These debates centre on the key policy to emerge from the International Monetary Fund (IMF), the so-called Sovereign Debt Restructuring Mechanism (SDRM). Despite the significance of the debates around this mechanism, particularly with respect to understanding Washington's position vis-a-vis providing new financing for Argentina, the literature on the SDRM continues to be dominated by economic analyses. As such, the SDRM has been discussed without consideration of either power relations or contradictions in the global political economy. By situating the key debates on the SDRM in this wider context, I suggest that the debates on the SDRM do little to promote economic stability and social justice in emerging market economies, like Argentina, but instead by reproducing the imperative of capital account liberalization, the SDRM increases the power of transnational capital over sovereign states.

Resume. En plus de representer la plus importante banqueroute de son histoire, la suspension de paiement de la dette par l'Argentine en decembre 2001 declencha d'importants debats sur la facon de gerer de futures faillites nationales. Ces debats se concentrent sur la politique qui emergera du Fond Monetaire International (FMI) : le Mecanisme de Restructuration de la Dette Souveraine (MRDS). En depit de l'envergure des debats au sujet de ce mecanisme, en particulier en ce qui a trait a la position de Washington quant a la possibilite de pourvoir l'Argentine avec du nouveau financement, la litterature sur le MRDS continue d'etre dominee par des analyses economiques. C'est pourquoi, le MRDS a ete discute sans prendre en consideration les relations de pouvoir ou les contradictions emanant de l'economie politique mondiale. En situant les debats cles sur le MRDS dans ce contexte plus ample, cet essai suggere que ces debats contribuent tres peu a promouvoir la stabilite economique et la justice sociale au sein des economies emergeantes, telle que l'Argentine. Au contraire, en reproduisant l'imperatif de liberaliser le compte capital, le MRDS accroit le pouvoir du capital transnational sur celui des Etats souverains.

Introduction

Despite an excess of high-level discussions and agreements dedicated to strengthening international financial architecture, neither governments nor markets are nearer to solving the problems of transnational debt. This refers to "all the forms of debt across frontiers: all the liabilities incurred, and claims established, between institutions or individuals under one political jurisdiction" (Strange 1998a, 91-92). Up to now, transnational debt has been managed by the world's lender of last resort (LOLR), the International Monetary Fund (IMF). It should be underlined that the IMF has continued to govern over this increasingly complex phenomenon despite the lack of changes to its legal mandate or an international consensus on how transnational debt should be managed. The debate surrounding the creation of a competing institution--the Asian Monetary Fund--in the wake of the Asian crash of 1997 evidenced the competing views that exist on how crises should be addressed. The position of the US government has been that if complemented with proper institutions and best practices in the South, the Fund's role as LOLR is sufficient to deal with crises. This stance was thrown into question, however, when the Argentine government defaulted in December 2001 on most of its $141 billion debt, thereby creating the biggest sovereign default in history.

In November 2001, in response to the mounting economic problems in Argentina, and its apparently imminent default, the IMF's First Deputy Managing Director, Anne Krueger, put forward a new approach to dealing with sovereign debt, the Sovereign Debt Restructuring Mechanism (SDRM) (Eichengreen 2002a). …

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