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Economist James Henry explains how the new conservative president will make vulture capitalists like Paul Singer turn a $43 million loan into a $1.5 billion return

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JESSICA DESVARIEUX, PRODUCER, TRNN: Welcome to the Real News Network. I’m Jessica Desvarieux in Baltimore. Wall Street is celebrating this week after Argentina elected a new conservative president. Conservative opposition leader Mauricio Macri beat the ruling party candidate by a 51-48 percent margin. The change in government could end a decade-long battle between hedge funds and Argentina over huge debt payments. You may remember back in 2001 Argentina set a record by defaulting on $95 billion worth of loans. Their economy tanked and vulture capitalists like Paul Singer swooped in and purchased nearly worthless debt after the default. Then they waited while the debt gained value, and now they want full repayment. A plan this new administration is more amenable to than sitting president Cristina Fernandez de Kirchner. She and her party have refused to pay the hedge funds for the past twelve years. Here to give us more context is our guest James Henry. James is a leading economist, attorney, and investigative journalist who has written extensively about global issues. Thanks for joining us, James. JAMES HENRY: You’re very welcome. DESVARIEUX: So James, Paul Singer, who I mentioned in the intro, he wants Argentina to pay back at least $1.5 billion. Why shouldn’t they pay back these hedge funds? I mean, a New York judge recently said they should. So do you agree? HENRY: No, I don’t. I think, you know, governments don’t have a bankruptcy court, unlike the rest of us. And so when they get into deep debt problems, by virtue in this case of the previous neoliberal government in Argentina under my classmate Domingo Cavallo, they ran up a huge foreign debt that they just could not service. And there was no place for Argentina to go other than to restructure that debt on its own. So they issued new bonds in 2004, and 95-98 percent of the bond owners, the creditors, that had bought Argentina debt, Argentine debt before, accepted those bonds and the terms of the bonds. Paul Singer actually didn’t buy the bonds that he owns in 2004-2005. He waited till 2008 and purchased them for $48 million. And today he’s claiming the face value of the bonds he bought back then at $1.5 billion. So you know, that’s–it’s really a basic fault of the international system that we don’t have a bankruptcy court for a government where they can work out reasonable payment terms and figure out how to restructure debts. Because every government in the world, including our own, gets into debt problems. But Argentina has a history of indebtedness. In the 1970s about half of the 2001 debt, $180 billion, came from the military junta during the 1970s. Nobody even knows where that money went, about $88 billion was inherited by the succeeding democratic government. And you know, it’s outrageous to deny Argentina the right to restructure those odious debts. But in fact, one of the good things about the Kirchner government, I mean, you can criticize them for being, you know, letting inflation getting out of control more recently, and corruption problems have emerged over a 12-year period. But one of the great legacies of this Kirchner government is that they reduce the debt to practically nothing. I mean, the current net public debt over looking at reserves for Argentina is less than $25 billion. DESVARIEUX: And how did they do that? HENRY: So I think the fact–what people are really worried about here, in fact, is that the Macri government might come in and do what previous neoliberal governments and military junta did, which is to run up the debt as an alternative to raising taxes. DESVARIEUX: What is the new president proposing? How does he propose to handle the debt, and can you just speak briefly about how the Kirchner administration handled the debt? HENRY: Well, they’ve engaged in this bond restructuring, and they stubbornly refused to negotiate with Singer, because it would make a, it would set a bad precedent. They were supported, by the way, with hedge funds all over the country that are basically supporting the Argentine position, as well as leading economists like Joe Stiglitz. I mean, I don’t know of a single Western economist that, or even at the IMF, who doesn’t agree that the vulture capitalists need to be put out of their misery. But Macri has indicated that he’s going to get beyond this issue and basically settle with Singer. And so, you know, because discussions will probably lead to a payout for Singer and he’ll realize a huge return on this $48 million. DESVARIEUX: All right. Let’s turn the corner a bit, James, and let’s talk about an alternative plan that would give everyday Argentines a more prosperous future. Considering, as you said before, massive inflation is happening in Argentina right now, declining cash reserves, and really a meager economic growth some say due to exclusion from the global markets post-default. Do you agree with that assessment, and what should be done to address the clear economic woes that the country currently faces? HENRY: Well, one of the opportunities for Argentina is that their own citizens have about $400 billion offshore of private wealth that they’ve kept outside of the country. So I would love to see a government that was able to attract that investment back to Argentina. I think there’s tremendous growth potential there. They have enormous resources, including, you know, some of the largest untapped oil reserves in the south. This government has talked a good game. But I think in terms of mounting a concrete economic strategy to compete, they’ve lost a lot of opportunities, and they’ve been riding the backs of the commodity boom and the China growth spurt during the last decade. So you know, Argentina is a country with a very well-educated labor force. They have enormous natural resources. It’s practically empty Much of the country is, you know, there’s enormous agricultural potential there. But they have a, they’ve had a consistent–the whole century of sort of bad governance. The Kirchner government I think was actually relatively adept at solving certain problems, like I mentioned, with debt. But on the tax front, one clear thing that they need to do is a tax reform not only reducing payroll taxes, which are exorbitant, but to have taxes, actually a more fair tax system that takes advantage of all this wealth that many wealthy Argentines have offshore. I would say focusing on the tax system would be one of the first priorities. DESVARIEUX: Okay. James Henry, thank you so very much for joining us. HENRY: Quite welcome. DESVARIEUX: And thank you for joining us on the Real News Network.


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James S. Henry is an investigative economist and lawyer, a Global Justice Fellow at Yale University, and a Senior Advisor at the Tax Justice Network. Previously, James served as Chief Economist at the international consultancy firm McKinsey & Co. As an investigative journalist his work has appeared in numerous publications like Forbes, The Nation and The New York Times.