21 November 2008

Our illegitimate debt

The government of Ecuador is considering defaulting on 40% of its debt because it's "illegitimate, corrupt and illegal" (as per the words of president Rafael Correa). An ad hoc international committee studied 32 years of indebtedness, with a focus on the dictatorial period of 1976–1980, and produced a 30,000-page document detailing how and why a large part of the buildup of Ecuador's US$13-billion debt involved questionable or outright criminal maneuvers by governments, creditors, negotiators and other middlemen.

The committee included President Correa's advisor, Argentine historian Alejandro Olmos Gaona. You might remember I mentioned the possibility of Argentine collaboration with Ecuador in a post of February 2007.

Crítica de la Argentina titles this, quite appropriately, Ecuador hizo el Nunca Más de la deuda — a reference to Argentina's Nunca Más ("Never Again") document about forced disappearances. To my knowledge, this is the first time a Latin American country revises its history of debt in this manner. Most of if not all Latin American countries have had long periods of right-wing dictatorship in the late 1970s and early 1980s and neoliberal governments during the 1990s, and a common tendency for these has been to get the country indebted with the IMF, the World Bank and other financial vultures, then divert funds for corrupt purposes and finally trash the economy, leaving the next administration with no seeming choice but to ask for more money and repeat the cycle... each time squeezing the economy a bit more.

Not only did the Argentine military abduct, torture and murder thousands, but they also increased our debt and stole whatever they could. A creditor that lends money to a corrupt, illegal government shouldn't expect to be paid, least of all if the negotiators and overseers of the loans were well aware of that corruption. Moreover, anything done under the pretense of legality during a dictatorship shouldn't be, in principle, considered legally binding. (Laws and other regulations passed by a dictatorial government should be voided ipso facto, though this hasn't been done for practical reasons.)

In 2000, Judge Jorge Ballesteros ruled that the part of Argentina's external debt contracted during the 1976–1982 dictatorship was fraudulent, due to more than 470 irregular operations detected in the loans' proceedings. The debt went from 7 to 45 billion dollars, including formerly private debt that was nationalized by then-minister Domingo Cavallo (a specialist in this matter, judging by his career). Ballesteros left it in the hands of Congress to take action. Nothing happened.

Argentina has much to learn, even from Ecuador — most people don't even question the legality of the debt, but only complain about the politicians who took the money. Would it be impossible to repeal the illegal debt and take the responsible people to court? Even in those cases where 30 years have passed, an argument could be made that Argentina's indebtedness has caused more misery and death than all our dictators. Of course, the reason is political: most of those who benefited from bankrupting the state repeatedly are still Senators, Deputies, ministers, government secretaries, prominent lawyers, presidents of corporations, respected bankers, or family or relatives thereof. In politics and big money, these dynasties and mafia-like networks, essentially the country's owners and managers, haven't changed in decades.

PS: More reading material: Committee for the Abolition of Third World Debt.

07 November 2008

No more trams for Rosario

I was going to write about Obama's victory (and I will eventually), but I just spotted a bit of bad news over here on Rosario3.com. On February 2007 I was happy to report that the mayor's trip to San Francisco had resulted in a conversation with that city's Rosario-born Secretary of Transport and an agreement to mediate in the donation of a fleet of old trolleybuses from Vancouver, Canada (negotiations for which had started before).

Unfortunately, although the trams were almost free (a symbolic amount, as I understand), we had to pay for the shipping. Bringing 80 buses from the opposite end of the planet costs a lot. The national government promised to help us with 2.5 million pesos, but the money never arrived, and the municipality of Rosario is really strapped for cash. So the trams are going to the city of Mendoza, which could afford them (being a provincial capital has its advantages, I guess). They left Vancouver by boat on November 4 and are now headed for the port of Valparaíso, Chile.

I'm beginning to sound like a broken record, but I must say this: it's a shame how local governments are always poor, how provincial administrations have lost control of their own financial resources, and how the national government takes more and more money from us without our representatives doing anything about it. I'm not advocating for the kind of independence from the federal administration seen in the United States; that would be impossible because some provinces, left alone, would simply be inviable. And some things (such as large public works) might be better left to the federal state. But for a city of 1 million to be unable to disburse some US$7 million to take advantage of such a fantastic opportunity is terrible.

I suppose I must be happy for Mendoza, a beautiful city and one I love... but I'm just very frustrated.

03 November 2008

Nationalizing pension funds: more money for the Kirchners?

It's time again for a depressing anti-government post! This time, about the nationalization of AFJPs (private retirement funds). I strongly feel it's a good idea, and as strongly as that I also feel we must keep it from happening as intended by president Néstor Kirchner. (If you think Cristina's the one in charge, you must be living inside a jar, as we say over here. For months she's been devoting her time exclusively to cutting ribbons to [unfinished] public works and, lately, to writing newspaper articles in praise of her husband's ideas. Néstor is de facto big guy.)

Now you mustn't believe I do this because I like destructive criticism. I'm absolutely for "big government" as Americans call it, and I believe important stuff should never be left fully in the hands of private corporate interests whose creed is "make money fast whatever way you can". Kirchner's government has taken us far in this sense, and that's OK.

The problem with the Kirchner administration is that they always, somehow, manage to turn good theory into bad practice, and for a long while now (and not because the media or the far right are trying to make it look so, as C&K passionately believe) everything they've proposed has been born tainted by association. Or, as in this case, destined to fail before (a good part of) public opinion because common sense and the typical Argentine paranoia will kick in, and all alarms will go off, as soon as the state gets close to our pockets.

About 15 years ago, the law that allowed the creation of the AFJP system was drafted and passed, accompanied with a heartfelt defense of private capital accumulation (the so-called "capitalization scheme") by many who now profess to be old-time fans of the old-fashioned state-regulated collective saving scheme, including many faithful Kirchnerists (flip-flopping is another word for pragmatism — the only thing that can be truly called "Peronist doctrine"). Gobs of money were transferred to private capitalization accounts from the state's coffers, and the AFJPs (Administradoras de Fondos de Jubilaciones y Pensiones) started recruiting associates. The law said if you didn't choose where your retirement funds should go, then it would be automatically assigned to an AFJP; thus millions of distracted workers were signed up for a massive speculative operation. The AFJPs invested money in assets of various kinds and for a while they actually increased their clients' funds, although they charged huge commissions.

Pensions were frozen for ten years, as the economy entered into a low-growth phase, unemployment rose steadily, and finally recession entered the picture. After president Carlos Menem (cursed be his name) got away with murder, president Fernando de la Rúa found the dying economy and, instead of trying to resuscitate it, he finished it off with such nice measures as cutting 13% of pension payments. We all know what happened then... so fast forward to 2003.

Néstor Kirchner passed a series of decrees increasing both salaries and pensions, which were well-received, even as employers complained. The economy took off and pensions did as well. There was a small problem, though: the private pension funds couldn't keep up. They started losing money. The law said that the state must guarantee pension payments, if necessary by compensating (subsidizing) the private funds. So the state poured money into the AFJPs, whose risky investments had proven disastrous (does that sound familiar?), and when the companies began accumulating too much debt, the government forced them to buy national debt bonds. Yes, that's right: the government forced the guarantors of retirement funds for millions of Argentinians to accept what amounted to wet paper in order to rid itself of them (the only other feasible destination for those bonds was Hugo Chávez).

In January 2008, after the scarce enthusiasm that followed Cristina's election had faded, someone near her came up with the idea of "letting people choose" where to place their retirement savings. The Kirchnerists hastily passed a law opening up the choice for everyone: 180 days to take your money away from the private box to the state's bag (or the other way round). And the law also established that, if newcomers to the labor market didn't explicitly choose which way, their funds would go to the state system, not some AFJP. The AFJPs understandably lost a lot of clients, but in all fairness they deserved to, and the law didn't force anyone to accept anything against their interest. It had some other very good points as well, so good in fact that, "better late than never" aside, some of us wondered why it hadn't been passed before. Like four years before.

The answer came easily. Why indeed? Because it was only now that the economy had begun slowing down, while debt payments were looming closer and the whole economic structure was showing the strain. High inflation, high interest rates, no way to get fresh funding for things like the bullet train, and the need to pump more and more money into subsidies for electric power, drinking water, fuel, natural gas and everything else. Néstor Kirchner had always ruled with a big wallet of state money freely available to him, but Cristina's future was uncertain. The fresh funds from the AFJPs, of course, should have never been used to fund the state in any respect other than pension payments, but the new law didn't say anything about that. Already in 2007, his last year, Kirchner had signed a decree allowing the government to divert funds from ANSeS (the social security agency) to expenses such as public works.

After the fiasco of Resolution 125 (another, more desperate attempt to get money for the state) came the worldwide financial crisis. After being deprived of juicy taxes on exports of soybean, both exporters and the government have seen the prices of soybean plummet to half the levels of the first quarter: less and less money! Subsidies on buses, natural gas and power were reduced, but that's not enough; with a world recession looming, and the economy visibly decelerating, it would be economic suicide to raise the prices of basic services. On top of that, 2009 is an electoral year, and that means a lot of wills and votes must be bought. Back then, Néstor and Cristina could campaign all year round, visiting one town after another in provinces with "loyal" governors, handing out multimillion checks without any real oversight, and making sure crowds of bussed-in "supporters" would be ready to applaud their presence; but all that costs money.

The national state keeps about 70% of what the provinces contribute, and what it shares, it does so rather unfairly. Most provincial governments are strapped for cash right now, and more than a few are absolutely dependent, on a short-term basis, on presidential whims when it comes to distribution.

Kirchner's desperation is now becoming noticeable. Initially he ordered the bill that nationalizes AFJPs to be approved and turned into law at once, without any changes. His parliamentary bulldog, deputy Agustín Rossi, first attempted this, then saw it was impossible, and timidly conceded that the government's bloc would accept discussion of the finer points.

Now, the bill seeks to overturn a 15-year-old system with millions of associates, in a context of financial turbulence, and to do so in a matter of weeks, so that all the money from the private pensions can be transferred to the state's social security before the end of the year. Not only does this negate the choice of millions of people who decided to stay in the private companies earlier this year, but it also looks rather suspicious.

Why the hurry? True, the assets of the AFJPs are taking heavy hits from the world's financial meltdown. But those things come and go. It's also true that the AFJPs haven't given their associates what they promised, and that they've engaged in some dubious practices. That's something to be settled with general audits. If you have a critical system that doesn't seem to work as intended, you don't decide to break it. You fix it and keep it going while you prepare the transition. The president can count on ample powers, a Congress controlled by overwhelming margins, and a social consensus that private pension funds aren't a good idea for most of us. I repeat, why the hurry? Cristina still has three years to go.

This administration has frustrated me time after time. I'm really tired of seeing great ideas given such bad names by the Kirchnerist gang. I'm fed up with having to agree with certain people... being forced to be on the same side as some who hold principles completely opposite from mine.

Yet I have no alternative. It's just plain common sense that the Kirchners want the private pensions' money to continue their incessant campaigning for their own permanence. They have no new ideas, no plan, no policies, nothing but a hunger for power that sometimes translates into seemingly brilliant developments, soon marred by corruption and negligence. Are we as a nation doomed to go from one rotten set of politicians to another?