Economic Minister: Argentina the Least Indebted Ever to Default

EspañolHe was a presidential candidate in 2003 and 2007, and a candidate for mayor of Buenos Aires in 2011. He was also minister of the economy, defense, housing, and infrastructure during the presidency of Fernando de la Rúa (1999-2001). But these days, he is president of the Latin-American Liberal Network (RELIAL) and the Civic Republican Foundation (FCR). His name is Ricardo López Murphy — a politician and university professor, but still an unassuming, approachable man.

On Thursday, the former minister hosted me in his office that faces Córdoba Avenue, in the heart of the Buenos Aires financial district. The punishing humidity was Thursday’s second topic of conversation, but of course, we were there to address more daunting concerns: the default on the nation’s international obligations, and the future of the Argentinean economy.

He warned me that he had a busy schedule because of Argentina’s default, and he was telling the truth. Throughout the interview, the telephone rang at least four times.

Ricardo López Murphy in his office in Buenos Aires, Argentina.
Ricardo López Murphy in his office in Buenos Aires. (PanAm Post)

Let’s start with the local situation. How do you think the Argentinean government handled vulture-fund negotiations?

The trial was with distressed-asset funds. I never call them vultures, because if they are vultures, we are carrion. I understand that it is the slang used in Argentina, but that implies that their existence is a very sensitive issue for us…

These funds planned to push us to default as a key part of their strategy. That was the biggest threat to Argentina, and it was a complex threat, because a default would put the funds in a long queue. It was as though they said, “we’ll blow the plane if you don’t give in to our demands.” And the reality is that it what happened. For Argentina, it is tragic.

The threat was the default, but Argentina’s plight possesses three attributes that are very important if we are to understand the irrationality of the situation in which we find ourselves today.

(1) Argentina’s public debt is in fact low [officially at 45.6 percent of GDP] — not as a consequence of austerity, but rather because no one has been willing to lend us money, and that is an important consideration. In general, nations that default are those with an enormous public debt.

(2) Also, the debt’s annual service was low. The interest payments for Argentina were under 1 percent of GDP. There is no other nation that has defaulted on such a small debt with low annual servicing costs.

The standoff that has brought us to default is harming a country that already has big enough problems related to capital markets. I believe that this situation has been badly mismanaged, and that has brought us to this disaster — a triple disaster. This worsens Argentina’s problems, and the citizens here will be the most affected. But it is also a bad outcome for the judge, since his desire was to solve the disagreement.

I believe that perhaps if the decision had been issued in January, we would have been better able to solve such a traumatizing dilemma for the Argentinean government: the [Rights Upon Future Offers] clause. I would have said “we must be careful,” because this is no trivial matter.

(3) This is a very poor outcome for the holdouts, because what has happened is akin to terrorists killing each other. What is left after the smoke clears? If there is a default and it’s not paid, we all lose.

In sum, this was an inexcusable collective failure. Argentina’s paradox is that she has achieved two incredible feats: she has starred in the biggest default in history and the smallest default in history.

In 2002, we had a massive default, and we had a more serious problem with the debt, with adverse external conditions. Now we have good conditions and a small debt. Argentina is the only country in the world to “achieve” a default under these conditions.

I believe that the Argentinean government has underestimated this problem, and has resorted to cheap rhetoric. Targeted for local consumption, it does nothing help solve the problem. I don’t think they perceive the default in the same manner as a I do, with its immense costs for Argentina.

Those in government may have an optimistic vision. However, even if you may know how to enter into default, you will never know how to exit it.

In this process, though, we do all learn. I believe also that those who accepted the restructured bonds learned that the holdouts’ outcome was better than theirs.

Would you exchange your bonds again if you knew the outcome for those who litigated? Or would you litigate too? Now, if everyone litigates, there is no solution. A need to solve these problems was the very basis for why limited liability and bankruptcy laws were invented.

There are tools available to solve these problems, but they are not available to sovereign debtors. That is why we face a very complex issue, and everyone must be prudent with their rhetoric. No one should talk without a lawyer next to him. Nor should one do what Minister [of Economy Alex] Kicilloff did [on Wednesday] — although, after negotiating for five hours under extreme stress, that is a challenge. It’s difficult to control ones emotions in such circumstances.

Will complaining before the International Court of Justice in the Hague help the Argentinean position? 

You can go to the Hague and protest, but that it is not going to solve the problem. Sure, you can get emotional relief, as with mourning someone’s passing, and in this case mourning the process of the failure. That will fix neither the problem with the debt nor the access to capital markets.

At the PanAm Post, we have a large Venezuelan readership; how do you see our economic situation relative to that nation’s problems?

Venezuela has not defaulted, so Argentina deserves a lower rating. The only Latin-American country in default, as far as I know, is Cuba. We are in an extremely critical situation; Venezuela has not stopped servicing their debt; we have.

However, in the case of Venezuela, their debt is substantial. In our case, it is not. What is incredible is that Argentina has this problem amid a very small debt.

Government spending is a recurrent theme among the opposition; how would you solve the problem of high spending? 

To put this into perspective, government spending was at 30 percent of GDP, and now it is at 50 percent. So we will have to return to reasonable, lower levels. This will come gradually, if we have resources available, or more urgently, if there are no resources.

Sometimes one has to make corrections, because there is no other option, as opposed to on account of intelligence or clarity. It is not something that one chooses.

Bloated and inefficient government spending lowers a nation’s standard of living, because it impedes job creation and productivity. It is a surefire way to impoverish oneself terribly.

In the case of Venezuela, this is more evident. It is an immensely wealthy nation — beyond that of Argentina — but they live more poorly, because they are overwhelmed by the public sector, which has crushed all profitable activities in the nation. This can only end badly.

It may be possible to correct that intelligently, because they have had a terrible crisis. I believe that Maduro and his ilk will make a correction, because they are now more aware, and the unmanageable situation has backed them into a corner.

 Would you offer a brief overview of the Kirchner decade in Argentina?

It has been a squandered decade, at an enormous cost for younger generations — a vast burden for our future that gives me immense sadness.

It makes me think of what we have lost, what we have wasted, and of the consequences that will remain. The decade has done so much damage to our culture and to our way of thinking.

[Our thinking] has succumbed to ludicrous rhetoric that has left Argentineans misinformed. We have lost our capacity to think through our dilemmas, and for this reason, we see unfortunate outcomes, such as the case of the debt.

What is your take on the National Secretariat of Thought, created a few weeks ago?

The notion that one can impose a single way of thinking from the state, one that deifies the leaders, is a totalitarian paradigm. It seeks to make the state the center of our lives and elevates the leader, as occurred in the Stalinist, Maoist, and fascist eras. It subordinates and hands over individual rights and freedoms to the state. This is what defines collectivism and for me it was the nightmare of the 20th century.

What is the status then of liberalism in the region?

I see an energized ideological battle, both conceptual and cultural. The most important battle is the battle of ideas, and I hope that this movement will mature sufficiently so that it can deliver in the electoral arena.

But the first step precedes the second. The values of liberty, the successes of liberty, and the type of society that undergirds liberty are to me without comparison. When one considers this from a rational perspective, I find it hard to believe that someone would seek another path.

In this sense, we are done with simply resisting the wave of collectivism and totalitarianism and must embark on a vigorous offensive. From now on, no one will see us silent.

Young leaders have emerged with an extraordinary fervor, willing to risk their lives on the streets, and amid societies that have suffered tremendous assaults on freedom. I did not see that in my own youth, and after all these years battling for the ideas we are now among the company of many. To see that fills me with pride.

Part of this is an educational process, the spreading of ideas. This battle is far from reaching a conclusion, though. On the contrary, we are in the middle of battle. Unfortunately, many people still live with a totalitarian outlook.

I can share that one development that has touched me the most is the observed success and growth of these ideas in literature, the public debate, and among the youth. I will say, with some excitement, that I would like for nothing more than to live to see this come to fruition. What has been akin to someone sitting alone, can become a forum, and then a legion of young people defending these ideas. To this, I have dedicated my life, so you can imagine how much I would like to see these ideas prevail.

In this sense, we are invincible, because you would have to kill us to stop us.

Translated by Adam Dubove and Fergus Hodgson.

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