ARGENTINE UPDATE – Mar 17 & 18, 2016


– America’s Role in Argentina’s Dirty War

A few months after a military junta overthrew President Isabel Perón of Argentina in 1976, the country’s new foreign minister, Adm. Cesar Guzzetti, told Henry Kissinger, America’s secretary of state, that the military was aggressively cracking down on “the terrorists.”

Mr. Kissinger responded, “If there are things that have to be done, you should do them quickly,” an apparent warning that a new American Congress might cut off aid if it thought the Argentine government was engaging in systemic human rights abuses.

The American ambassador in Buenos Aires soon reported to Washington that the Argentine government had interpreted Mr. Kissinger’s words as a “green light” to continue its brutal tactics against leftist guerrillas, political dissidents and suspected socialists.

Just how much the American government knew about Argentina’s repressive “Dirty War,” which lasted from 1976 to 1983 — and the extent to which it condoned the abuses — has remained shrouded in secrecy.

When President Obama visits Argentina next week during the 40th anniversary of the coup, he should make a pledge that Washington will more fully reveal its role in a dark chapter of Argentine history. Military officials abducted thousands of civilians during this period. Hundreds of babies, stolen from Argentines who were arbitrarily detained, were raised by military families.

Human rights groups in Argentina have long sought access to classified American intelligence and diplomatic records, hoping that they will shed new light on the abuses and the fate of missing Argentines. The Argentine government itself has formally asked for declassification. “There is absolutely no doubt that the release of these records on repression in Argentina would reveal substantive information on the years of repression and advance the cause of truth and justice in that country,” said Peter Kornbluh, an analyst at the National Security Archive who specializes in Latin America.

In 2002, Washington partly declassified roughly 4,700 State Department records from the Dirty War period. Those documents have aided judicial proceedings and added to a historical record. But much of that record remains obscured.

Declassifying a more extensive set of documents would also bring into sharper focus a shameful period of American foreign policy, during which Washington condoned and in some instances supported the brutal tactics of right-wing governments in the region. It is time for the American government to do what it still can to help bring the guilty to justice and give the victims’ families some of the answers they seek.
















By Peter Prengaman and Paul Haven 
March 16, 2016

Argentina’s president said Wednesday he is outraged by corruption that seeped into all facets of society during his predecessor’s administration and believes next week’s visit by Barack Obama will be a new chapter that could lead to billions of dollars in investment.

President Mauricio Macri assumed power in December after campaigning on promises to crack down on graft, open up Latin America’s third­ largest economy and reverse many of the populist policies of his predecessor, Cristina Fernandez. In a wide­ranging interview with The Associated Press, the former Buenos Aires mayor and son of one of the country’s richest businessmen said he was particularly perturbed by rampant corruption at all levels.

“I feel the same as the majority of Argentines: rage, disenchantment and helplessness,” Macri said, reflecting on a video this week that allegedly showed the son of a businessman with close ties to the former president counting what appear to be tightly wrapped stacks of dollars, euros and Argentine pesos at an illegal exchange house. “There will not be a repeat of this kind of embarrassing corruption, these abuses of power.”

Macri cast the two­day visit by the U.S. president as an opportunity to show the world that Argentina is cleaning up its act and hopes to open its doors to billions in investment. The last state visit by an American president was by Bill Clinton in 1997. Such a trip would have been unthinkable under Fernandez, who during her eight years in office aligned herself with socialist leaders in Cuba and Venezuela while often being outwardly antagonistic toward the United States.

Unlike several other Latin American leaders, Macri sidestepped questions about the U.S. election and the controversial candidacy of leading Republican candidate Donald Trump. Macri said he knew both Trump and Democratic front­runner Hillary Clinton personally and would be able to work with either should they reach the White House. Hours before the interview, the lower chamber of Argentina’s Congress approved a negotiated deal on repaying bonds held by a group of creditors in the United States, a step toward ending a long­standing fight that made Argentina a financial pariah and kept it on the margins of international credit markets.

The legal battle had its origins in Argentina’s financial collapse in 2001­2002, when it defaulted on $100 billion in debt. Creditors led by billionaire hedge fund manager Paul Singer refused to accept bond swaps with lower values. Instead, they took Argentina to court in New York and won. While Fernandez branded the group “vultures” and refused to negotiate, Macri made reaching an agreement one of his top priorities. “It’s the first step. It’s as important as opening the door,” Macri said.

“We need to stop arguing about things that don’t help Argentina grow.” In the weeks since assuming power, Macri’s administration has rewritten much of the country’s social contract. It lifted export taxes on the agricultural sector, effectively freeing up one of the world’s breadbaskets, and it lowered import taxes, devalued the Argentine peso, cut energy and other subsidies, and fired thousands of public workers.

Macri agreed his administration has yet to make good on his promise to curb inflation, which approached 40 percent last year. Prices that were already skyrocketing jumped even more when the peso was devalued in December.

The president said his economic changes need more time to bear fruit. “A year from now, we hope to be growing, and we hope to be receiving investments from all over the world,” he said. As he often did during the campaign, Macri blamed Fernandez for overseeing “700 percent” inflation over the last several years. When asked whether he wanted to see Fernandez prosecuted for several alleged corruption scandals during her administration, Macri said he would not get in the way of any investigation, while noting that she has not been charged with any crime.

Macri also said he hoped investigators would get to the bottom of the mysterious death of prosecutor Alberto Nisman, who was found shot dead in his apartment early in 2015. Days before, Nisman had accused Fernandez of helping Iranian officials hide the Middle Eastern nation’s role in the 1994 bombing of a Jewish community center in Buenos Aires that killed 85 people and wounded hundreds. Fernandez has denied the allegations and the case against her was thrown out by a federal judge.

Nisman’s death, which has yet to be solved, shook Argentina. For many, it was one more sign of a justice system that doesn’t work, of impunity without limits. “Everything that happened made us look weak in the world,” Macri said. “But now we are determined to bring what happened to light.

March 16, 2016

BUENOS AIRES, Argentina — The lower house of Argentina’s Congress has approved the government’s deal with holdout-creditors — a measure meant to give the country access to global credit markets.

The measure approved Wednesday now goes to the Senate for final approval.

The government lacks a majority in both houses of Congress, but won over a part of the Peronist opposition.

Under the deal, Argentina would pay $4.7 billion to resolve all related claims stemming from bonds issued in the U.S. before Argentina’s 2001-2002 financial collapse, when it it defaulted on $100 billion in bonds.

Most creditors renegotiated in bond swaps in 2005 and 2010. But a group of creditors refused to take lower-value bonds. U.S. courts rejected Argentina’s attempt to force those creditors to accept cut-rate terms.

By The Editorial Board
March 17, 2016

A few months after a military junta overthrew President Isabel Perón of Argentina in 1976, the country’s new foreign minister, Adm. Cesar Guzzetti, told Henry Kissinger, America’s secretary of state, that the military was aggressively cracking down on “the terrorists.”

Mr. Kissinger responded, “If there are things that have to be done, you should do them quickly,” an apparent warning that a new American Congress might cut off aid if it thought the Argentine government was engaging in systemic human rights abuses.

The American ambassador in Buenos Aires soon reported to Washington that the Argentine government had interpreted Mr. Kissinger’s words as a “green light” to continue its brutal tactics against leftist guerrillas, political dissidents and suspected socialists.

Just how much the American government knew about Argentina’s repressive “Dirty War,” which lasted from 1976 to 1983 — and the extent to which it condoned the abuses — has remained shrouded in secrecy.

When President Obama visits Argentina next week during the 40th anniversary of the coup, he should make a pledge that Washington will more fully reveal its role in a dark chapter of Argentine history. Military officials abducted thousands of civilians during this period. Hundreds of babies, stolen from Argentines who were arbitrarily detained, were raised by military families.

Human rights groups in Argentina have long sought access to classified American intelligence and diplomatic records, hoping that they will shed new light on the abuses and the fate of missing Argentines. The Argentine government itself has formally asked for declassification. “There is absolutely no doubt that the release of these records on repression in Argentina would reveal substantive information on the years of repression and advance the cause of truth and justice in that country,” said Peter Kornbluh, an analyst at the National Security Archive who specializes in Latin America.

In 2002, Washington partly declassified roughly 4,700 State Department records from the Dirty War period. Those documents have aided judicial proceedings and added to a historical record. But much of that record remains obscured.

Declassifying a more extensive set of documents would also bring into sharper focus a shameful period of American foreign policy, during which Washington condoned and in some instances supported the brutal tactics of right-wing governments in the region. It is time for the American government to do what it still can to help bring the guilty to justice and give the victims’ families some of the answers they seek.

By Julie Wernau
16 March 2016

Lucrative settlement with hedge funds leaves out many smaller investors who are likely to get much less

Argentina’s lucrative settlement with hedge funds holding its defaulted bonds was hailed as a landmark. But it leaves out several hundred smaller investors—many holding the same bonds—who are likely to get much less.

Individual savers, pensioners and small money managers in Argentina and around the globe have claims that add up to about $2 billion. They didn’t take the 30 cents on the dollar Argentina offered after it defaulted on $80 billion in debt in 2001, and they aren’t eligible to get the same relatively generous terms struck in the $4.65 billion deal with the hedge-fund holdouts.

Instead, they are subject to the public offer Argentina made to all bondholders last month. Payouts under that proposal would vary widely based on which bonds are involved, whether the holder had a court judgment, and how the bonds’ interest accumulated. Some investors could receive up to 70% of their claims, while others could walk away with as little as 24 cents on the dollar, according to bond-research firm Exotix Partners.

The hardball offer threatens to leave some investors with little to show for their decade-and-a-half wait and could cut into the goodwill Argentina won in international markets when it moved to resolve the long-simmering dispute with the hedge funds.

“As long as there are lawsuits, there isn’t normalcy,” said Diego Ferro, co-chief investment officer at Greylock Capital Management, which has about $1 billion under management and plans to pass on any new bonds issued by the country as it contemplates a return to the capital markets. “I think there are things that are much more interesting in emerging markets than buying Argentina.”

The big bondholders, led by Paul Singer’s Elliott Capital Management, reached a deal last month to receive about 75% of what they said they were owed. Elliott is taking home 10 to 15 times what it paid for some Argentine debt, bond analysts say.

Argentina’s most recent proposal to smaller bondholders offers one of two payouts: 70% of a claim, including interest, or 150% of the principal value of the bonds. It is the best offer this last set of holdouts has received, but is less than what the hedge funds negotiated.

Some smaller bondholders​called the offer confusing and asked for a 30-day extension, but were rebuffed by a U.S. court. Others continue to press their cases.

“They can’t just leave us out in the cold,” said Mohammad Ladjevardian, an investor in Houston who said ​the offer covers just 50% of his claims and is litigating in a U.S. court to get more.

Mr. Ladjevardian bought Argentine government bonds in 1997. The country’s low debt to gross domestic product ratio and abundant natural resources made them​seem like a safe bet, he said. But the economy went into recession and Argentina was forced to pay increasingly higher yields on its debt to attract foreign capital, eating up reserves and leading to default.

His family holds an unpaid 2007 court judgment against Argentina, but he worries he has run out of options for the bonds, which account for about 70% of ​his family’s net worth. Mr. Ladjevardian said Argentina is offering to pay 150% of ​the ​principal value of his bonds. That works out to about half of what he claims he is owed​given the large amount of interest that has accrued over the years.

The ​ remaining holdouts are running out of time to fight. The hedge funds had an important bargaining chip in their negotiations: An injunction preventing Argentina from raising money in the international capital markets until the dispute was resolved. Their settlement has led a New York federal judge to say he is prepared to lift the injunction, and Argentina has indicated plans to sell about $12 billion in bonds when the agreement becomes final as early as next month. Once Argentina re-establishes its access to the capital markets, the remaining bondholders will have little bargaining leverage.

On Wednesday, Argentina moved closer to returning to the bond market when its lower house of Congress voted to approve President Mauricio Macri’s deal with the hedge funds. The Senate vote is expected next week.The judge has said that approval is necessary before he lifts the injunction.

“Argentina could just ignore the rest of the folks who have not been paid,” said Jennifer Scullion, a partner at Proskauer Rose LLP, who represents bondholders in eight class-action cases in New York.

How Argentina resolves the issue could pose a test for the new government led by Mr. Macri. His administration has been lauded at home and in the U.S. for ending a bitter 15-year stalemate with overseas bondholders by reaching a deal in only three months. But some investors say they are judging the new government not only by how it negotiated with people like Mr. Singer, but how it treats less powerful bondholders, too.

“What they should have done is had a deal where everyone could be involved, get the same terms,” Jim Craige, a portfolio manager at Stone Harbor Investment Partners, said of the Argentine government. The firm has $35 billion under management in emerging markets, including Argentine bonds. He said he hasn’t decided if he will buy the new debt. A concern, he said, is “they don’t respect bondholder rights.”

A spokesman for Mr. Macri was not available for comment.

Cesar Castro, a 60-year-old Argentine investor, said he bought his country’s sovereign debt in the late 1990s after seeing patriotic advertisements in Argentine newspapers encouraging citizens to purchase local bonds. Mr. Castro said in those days the local currency was pegged one-to-one to the U.S. dollar, inflation was low and Argentines like him trusted the government to pay. Now he feels differently.

“There has to be some kind of punishment to the government,” he said.

By Taos Turner
16 March 2016

Senate is expected to vote on the plan later this month

BUENOS AIRES—Argentina’s lower house of Congress on Wednesday approved a deal to settle a long-running legal dispute with creditors who hold defaulted Argentine bonds.

After a marathon overnight debate session, the lower house voted 165 to 86 to approve the deal. The plan now moves on to Argentina’s Senate, which is expected to vote on it later this month.

Last month, President Mauricio Macri agreed to pay $4.65 billion to Paul Singer’s Elliott Management Corp. and three other hedge funds to settle their claims against Argentina.

Earlier Wednesday, Sen. Federico Pinedo, who leads Mr. Macri’s Pro party in the upper house, said he is confident he will have the votes needed to approve the deal. Mr. Pinedo said Argentina’s provinces have run out of money and will support the agreement because it will help them obtain the funds needed to invest in public-works projects.

“Argentine provinces need financing. We need to invest $100 billion in infrastructure projects like roads and ports,” he told Radio Continental in an interview. “We think the interest of the provinces will outweigh partisan interests.”

Still, Mr. Macri may need to horse trade in the Senate, where the opposition Victory Front Party has a majority. The party, which is loyal to former President Cristina Kirchner, has long argued against supporting Mr. Macri’s plan to settle with the hedge funds.

The Victory Front party holds 43 out of the Senate’s 72 seats, meaning the government will need to persuade some senators to break with the party if the legislation is to pass.

Argentina owes the money to the hedge funds because they own bonds that Argentina defaulted on in 2001, and they obtained favorable rulings from U.S. courts that require Argentina to settle up on its debt. Mrs. Kirchner’s refusal to settle with the hedge funds prolonged a legal conflict that is keeping Argentina locked out of foreign credit markets.

Mr. Macri has said that approving the agreement is critical to his to plans to jump-start an economy that has shown little or no growth in four years. A deal would give Argentina access to credit markets, allowing the federal government—as well as companies and provinces here—to obtain billions of dollars in fresh financing.

Without that financing, Mr. Macri and his finance minister, Alfonso Prat-Gay, have said the government would have to drastically cut spending, further damaging an economy already suffering from annual inflation totaling 30% or higher.

By Chun Han Wong and Taos Turner
16 March 2016

Argentine coast guard fired on and sunk a Chinese boat on Monday; no casualties reported

BEIJING—China on Wednesday expressed “serious concerns” over Argentina’s recent sinking of a Chinese trawler for alleged illegal fishing off the Argentine coast.

In a statement, China’s foreign ministry confirmed that the Lu Yan Yuan Yu 010 was operating in Argentine fishing waters when it was fired upon and sunk by Argentina’s coast guard on Monday, after an hours long pursuit.

Argentina’s foreign ministry declined to comment on the incident.

On Monday, Argentina’s coast guard rescued four members of the boat’s crew while another 28 were rescued by nearby Chinese fishing boats, China’s foreign ministry spokesman, Lu Kang, said in the statement. No casualties were reported.

The incident is the second involving a Chinese fishing boat in two weeks, an Argentine coast guard official said Wednesday. Twelve days ago, the coast guard tried to detain another Chinese boat for operating in Argentine waters. The coast guard fired warning shots at the boat, but the vessel eluded capture.

Chinese fishing boats routinely interact with coast guard ships but are generally more cooperative, the official said.

The last time a similar incident required Argentina to rescue Chinese fishermen was 15 years ago, the official added.

Chinese diplomats have called for an investigation into Monday’s incident and asked Argentine officials to “take effective measures to avoid any repetition of such an incident,” Mr. Lu said.

Argentina’s coast guard, formally known as Naval Prefecture, said it intercepted the Chinese boat off the coast of Puerto Madryn, a city located about 750 miles south of Buenos Aires, Argentina’s capital. The trawler was detected within Argentina’s exclusive economic zone, where the country has sole rights to exploit its natural resources, the coast guard said in a statement.

The trawler didn’t respond to repeated warning signals or radio calls made in both English and Spanish. Instead, it turned its lights off and tried to flee back into international waters. The coast guard fired warning shots at the boat, which also failed to stop it. The trawler then tried to ram directly into an Argentine coast-guard vessel, “putting its crew’s life at risk,” according to the coast guard statement.

Argentine officials then fired at the Chinese boat, causing it to sink, the coast guard said.

The coast guard didn’t say on Wednesday what would happen to the four Chinese crew members, including the boat’s captain, who were detained on Monday.

By Charlie Devereux
March 16, 2016

* Lower house voted 165 for with 86 against in favor of bill
* Argentina needs to resolve dispute to return to credit markets

Lawmakers in Argentina’s lower house of Congress voted Wednesday to approve a bill that seeks to end a 15-year legal battle with disgruntled creditors from the 2001 default which would pave the way for the nation to return to international capital markets.

Lawmakers voted 165 for and 86 against to support a package of measures that calls for the repealing of two laws that prevent the government from paying some creditors, the approval of the accord which calls for settling at a discount of about 25 percent and permission to issue about $12 billion of debt to pay holdouts. The bill now goes to the senate for final approval.

President Mauricio Macri is seeking to put an end to a dispute that has isolated Argentina financially as he seeks to close the largest fiscal deficit in nearly 20 years and tame inflation of 30 percent. The government, which doesn’t have a majority in either house, was obliged to grant some concessions to the opposition in order to secure enough votes. Macri is trying to obtain congressional approval for the plan and the issuance of billions of dollars in bonds before an April 14 deadline established with creditors.

While the opposition alliance has the majority in the Senate, it is riven by divisions and most of their legislators will be open to bargaining in exchange for funds that benefit their provinces. Most of the provinces also have a pressing need to access international credit at lower borrowing costs.

By Carolina Millan
March 16, 2016

* Company names Emilio Ilac as new CEO, Tomasevich as Chairman
* Puente will announce new strategic partnership in next month

Puente, an Argentine investment bank and brokerage, is looking to expand its international reach with plans for an initial public offering in 2017.

The company, which seeks to sell a stake of about 20 percent through the IPO, may consider holding the offering in London or New York, company officials said Wednesday. Puente also announced that Emilio Ilac will become its new chief executive officer as predecessor Federico Tomasevich takes on the role of global chairman.

“In the next three or four years, Argentina will be the star of emerging markets, which will naturally spill over to Paraguay and Uruguay, so we want to consolidate the focus on these countries,” Ilac said in an interview. “We’re seeing appetite for Argentina grow in a very aggressive way in Asia and the Middle East, and we want to be the main conduit for institutional investment to the Southern Cone.”

Puente looks to benefit from increased investor interest in Argentina after the election of President Mauricio Macri, a market-friendly candidate who has ended currency controls, removed most export taxes and reached a milestone settlement with holdout creditors leftover from the country’s 2001 default in his first three months in office.

Ilac also said he expects a high number of corporate finance deals this year, including deals in mergers and acquisitions and corporate debt sales once a decade-long dispute with creditors is resolved. Tomasevich told reporters that in the next 30 days the company will announce a strategic venture with an international partner.

Ilac, who moves up from his role as co-head of sales and trading, started at Puente in 2009 as assistant to the operations desk of the institutional clients.

The Buenos Aires-based company has offices in Paraguay, Uruguay, Panama and London. In the past year, Puente did investment banking transactions worth over $2.5 billion and handled $15 billion in trading volume. It oversees $3 billion in its wealth management division, Tomasevich said.

“Investment banking in the region had been mostly led by international banks,” Ilac said. “We think there’s huge growth potential in investment banking in the region and look to be a leader in this area.”

By Robin Emmott and Francesco Guarascio
16 March 2016

BRUSSELS, March 16 (Reuters) – Europe and South America hope to revive stalled free-trade talks in early April with formal offers on how far they are willing to open up their economies to foreign goods, Argentina’s trade minister said on Wednesday.

After more than a decade of leftist rule in Argentina, the new pro-business government in Buenos Aires offers the Mercosur trade bloc led by Brazil its best chance in years to complete a deal that has faced multiple setbacks since its launch in 1999.

“Argentina is ready to move forward,” Miguel Braun told Reuters during a visit to Brussels to meet EU trade officials to discuss trade talks. “For Mercosur, this is a priority.”

Attempts to relaunch the trade talks, most recently at an EU-Latin American summit in Santiago in 2013, failed because of Argentine policies to protect local industry, diplomats say.

Brazil and its other Mercosur partners, Paraguay and Uruguay, were unwilling to do a trade deal without Buenos Aires, despite the urging of Brazilian business.

Argentina is Brazil’s closest partner, but until the November election of Argentine President Mauricio Macri, it was one of the most protectionist members of the Group of 20 leading economies.


The so-called ‘exchange of offers’ would set out the duty-free access each side is willing to consider and then allow negotiators to draw up a trade deal designed to encompass 750 million people and $130 billion in annual trade.

The foreign minister of Uruguay, which holds the rotating Mercosur presidency, will visit Brussels on April 8 and the exchange of offers could take place then, and no later than the middle of this year, Braun said.

“The Uruguayan foreign minister is coming here specifically with a proposal to exchange offers,” Braun said. “It would be fantastic if they can get that moving then, we cannot move quickly enough.”

The Uruguay minister’s visit follows EU foreign policy chief Federica Mogherini’s trip to Argentina earlier this month, when she met Macri and pledged EU support for a free-trade deal.

While the EU and Mercosur have already held many rounds of trade talks over the years, both sides are eager to avoid a repeat of 2004, when the offers made on both sides were considered too timid, failing to liberalise flows in trade and services and resulting in a collapse of talks.

The market access proposals involve lists of imports that each side would be prepared to liberalise in negotiations. The European Union is looking for more than 90 percent of goods and sectors to be opened up, EU officials said.

Difficult areas include access to Mercosur for European manufactured goods and EU access for Mercosur’s agricultural products, which today face high EU farm subsidies.

By Richard Lough
March 16, 2016

Argentina’s President, Mauricio Macri, won the support of the lower house of Congress for a settlement with bondholders on Wednesday, leaving Argentina one Senate vote away from ending a 14-year battle with creditors.

Lawmakers across the political divide voted 165 to 86 to approve the deal after a 20-hour televised debate.

Macri needs to close the festering dispute to tap global credit markets and lure back investors, and had warned Argentina faced a return to hyperinflation or aggressive spending cuts if the chamber had knocked down the proposal.

Legislators loyal to former leftist president Cristina Fernandez, a Peronist who refused to negotiate with the bondholders, argued Macri was selling out to Wall Street investors by offering repayment terms of 70-75 cents on the dollar.

Former Economy Minister Axel Kicillof blasted the government’s proposal to finance the accords brokered in New York with a planned $11.68 billion bond issuance, saying it would increase government debt.
“We’re not increasing debt. We’re decreasing it,” Mario Negri, a senior lawmaker in Macri’s Let’s Change alliance, said minutes ahead of the vote, referring to the write down on outstanding debt agreed with investors.

Among the agreements negotiated in New York is a $4.65 billion cash payment to the main holdout creditors, including billionaire Paul Singer’s Elliott Management. Argentina has until April 14 to make the payment.

Macri garnered enough votes to push the vote through the lower chamber after making last minute concessions to secure the support of dissident Peronist Sergio Massa and his lawmakers, plus a group of legislators which split with Fernandez last month.

They won the insertion of a collective action clause, which requires creditors to negotiate together for any changes in bond payment terms, and a cap of $12.5 billion on the bond sales, according to state-run news agency Telam.

Massa said it was now time for lawmakers to debate matters important to him: inflation, the income tax threshold and pensions.

The bill now moves to the Senate, where the opposition’s majority is dogged by internal divisions and Macri will expect to leverage support in return for government funds and access to lower borrowing costs to finance much-needed infrastructure projects.

The dispute stems from Argentina’s default on $100 billion in bonds in 2002. The holdout creditors rejected 2005 and 2010 debt swaps that offered 30 cents on the dollar.

By Maximilian Heath
March 16, 2016

Argentina’s state energy company YPF (YPFD.BA) said on Wednesday it appealed a local court ruling ordering it to disclose details of its contract with Chevron Corp (CVX.N), amid allegations of secret clauses in the agreement.

Chevron in 2013 signed a deal to explore the Vaca Muerta shale formation. It was the largest foreign investment in Argentine energy since the government seized Spanish giant Repsol’s (REP.MC) controlling stake in YPF the year before.

Opposition lawmakers believe the contract contains secretclauses that hand concessions to Chevron and undermine national interests.

“Shareholders decided to appeal the resolution issued by the Administrative Court Federal No. 7,” YPF said in a statement.
On Monday the court gave YPF five days to disclose contract details. The Supreme Court said in November that the company “cannot deny access to information of unquestionable public interest.”

By Charles Newbery
16 March 2016

Buenos Aires (Platts)–16Mar2016/1009 pm EDT/209 GMT Argentina’s state-run energy company YPF said Wednesday it would appeal a court order to make public the full contents of a joint venture contract with Chevron to develop shale resources.

The board of directors decided to appeal in order “to safeguard the public interest and that of its shareholders [public and private],” YPF said in a statement.

YPF and Chevron teamed up in 2013 to develop Loma Campana, the first mass development of Vaca Muerta, one of the world’s biggest shale plays. The companies have since invested more than $2.5 billion and drilled more than 470 wells. Loma Campana is the source of most of YPF’s shale production, which rose to 50,600 b/d of oil equivalent in the fourth quarter last year, from 38,000 boe/d a year earlier, Platts reported previously.

Judge Cristina Carrion de Lorenzo of the No. 7 Federal Administrative Court ruled Monday that the company would have to divulge the full contents of the partnership contract. This was in line with a Supreme Court decision in November.

YPF in February complied with the Supreme Court ruling to make the agreement with Chevron public, but withheld disclosure of confidential clauses to protect commercial, financial and geological information of strategic value to both companies.

YPF said at the time — and repeated in this latest statement — that if such information was made public, it would put both companies at a disadvantage against competitors, contractors and potential partners.

YPF added now that the latest court ruling did not take into account the company’s “request for a hearing” and “did not establish precautions to prevent disclosure to third parties outside the process [competing companies and other stakeholders] of information with clear geological, commercial, technical and industrial value.”

The lack of such protection could put the company at “a competitive disadvantage” and threaten the development of Loma Campana and the company’s future projects, YPF said.

YPF also said that public disclosure of the full contract could be used “for political means” without taking into account the damage it would cause for YPF and “future oil and natural gas investment projects in the country.”

This is the latest legal battle over disclosure of the contract, which has divided much of the political class. While some members of the government of President Mauricio Macri had been in favor of the public disclosure of the contract before taking power in December, some have changed their opinion. Last week, the Anti-Corruption Office came out in favor of YPF, saying confidential clauses are an industry norm around the world.

YPF is 51% owned by the state and 49% by private shareholders, and is traded on the Buenos Aires and New York stock exchanges.

As well as working with Chevron, YPF has entered into joint ventures to develop Vaca Muerta and other unconventional plays with Dow Chemical, Argentina’s Petrolera Pampa and Malaysia’s state-owned Petronas. It also has held talks with ExxonMobil, Russia’s Gazprom and other companies, and signed a memorandum of understanding with American Energy Partners, or AELP, for a shale oil development project.

YPF produces 43% of Argentina’s 532,000 b/d of crude and 30% of its 120 million cu m/d of gas, according to the Argentine Oil and Gas Institute, an industry group.

By Andrew V. Pestano
March 16, 2016

BUENOS AIRES, March 16 (UPI) — Argentina’s coast guard on Monday sank a Chinese fishing boat that it says was fishing illegally in its exclusive economic zone off the Atlantic coast.

In a statement, the Argentine Naval Prefecture said it tried communicating with the boat, the Lu Yan Yuan Yu 010, via radio in Spanish and English and with both visual and audio signals, and that the Chinese vessel failed to respond.

The Argentine coast guard then said one of its ships fired a warning shot as the Lu Yan Yuan Yu headed for international waters. The Chinese ship was later sunk and all 32 crew members were rescued.

“The vessel was hailed over radio and both visual and audio signals were sent to make contact. However, the vessel turned off its fishing lights and proceeded to flee towards international waters without responding to repeated calls over various frequencies,” the Argentine Naval Prefecture statement says. “On several occasions, the offending ship performed maneuvers designed to force a collision with the coastguard, putting at risk not only its own crew but coastguard personnel, who were then ordered to shoot parts of the vessel.”

In response to the incident, Chinese Foreign Ministry spokesman Lu Kang said Beijing expressed “serious concern” and has “made urgent representations” to Argentina, also demanding a thorough investigation.

By Thomas E. Ricks
March 16, 2016

This is interesting: The Argentine coast guard tried to stop a Chinese fishing boat that it believed was operating illegally in an area rich with squid. The Argentines say that the Chinese boat refused to heed an order to stop and instead tried turned off its running lights and aimed to crash into their craft. The Argentines report that fired warning shots and then, after several hours of giving chase as the boat headed to sea, shot into the ship, apparently with great success.

The Argentines rescued four members of the fishing crew, while 28 others were picked up by other boats in the Chinese fleet.

I keep on returning to the thought that the Chinese ultimately are their own worst enemy in international relations, overstepping and treating others with contempt. I wonder how many Argentine warnings were ignored before this happened. On the other hand, Mario Vargas Llosa once described the ego as “the little Argentine that lives inside all of us.”





4. ‘DIRTY WAR’ RECORDS (Pittsburgh Post-Gazette)


Intelligence Unit – ViewsWire)


8. ARGENTINA NOW SEEKS 600MW FROM BOLIVIA (Business News Americas)







15. ARGENTINIAN CRIME STORY (The Wall Street Journal)


By Nick Miroff
March 17, 2016

BUENOS AIRES — Ahead of President Obama’s trip to Cuba and Argentina March 20 to 24, nearly all the attention — and controversy — has centered on his visit to the communist island, the first by a sitting U.S. president in 88 years.

But Obama’s trip to Argentina is no afterthought, and is arguably more important to the future of U.S. relations with Latin America.

He arrives at a moment of epochal political change in South America. After more than a decade of dominance by leftist populist leaders, many of whom thrived on opposition to the United States, the continent is swinging back toward the center. Obama wants to push it along.

Falling prices for oil, minerals and other commodity exports have sapped economic growth and crimped government spending on social welfare programs, ripping bandages off old problems like corruption, crime and lousy public services. Leftist incumbents across the region who once seemed unassailable are now in trouble.

Argentina was the first pin to fall. In November voters elected center-right candidate Mauricio Macri, bringing an end to 12 years of rule by the late Nestor Kirchner and his wife, Cristina Fernandez de Kirchner, who had aligned the country with Hugo Chavez’s Venezuela and clashed eagerly and often with Washington.

A wealthy businessman fond of jeans and polo shirts, Macri presents himself as a problem-solving pragmatist, a nonideological figure who wants to bring transparency and turn down the temperature of Argentine politics. He promises to deliver growth by attracting new foreign investment and re-engaging Argentina with the rest of the world. He is not in the habit of referring to the United States as “The Empire.”

“Argentina is the first country on the continent to turn away from the populism of the previous era, and that has made Macri a regional leader, whether it was his intention or not,” said Dante Sica, director of an economic consulting firm in Buenos Aires.

Macri’s success is far from certain. He moved swiftly to lift Kirchner-era currency controls on the Argentine peso, and since then it has lost 40 percent of its value against the dollar. Domestic food prices soared after he slashed export taxes on Argentine grains. His decision to cut electrical subsidies jacked up Argentines’ utility bills.

Macri and his team of economic advisers, many of whom bring Ivy League pedigrees and résumés from Wall Street, insist that these shocks are one-time, bitter pills to fix a badly distorted economy. But for a president elected by a narrow margin — Macri won just 51.5 percent of the vote and lacks a majority in Argentina’s congress — he is under enormous pressure to show results before his honeymoon runs out.

“These changes scare me,” said Vivian Valqui, a Peruvian immigrant who sells mattresses and furniture from a cramped shop in Villa 31, a Buenos Aires slum that sits right next to the city’s wealthiest business districts. Her sales have plunged. “People are worried because they don’t know what is going to happen next,” she said.

As mayor of Buenos Aires prior to winning the presidency, Macri made an impression in Villa 31 by visiting the neighborhood and supporting projects to pave the streets and install sewer lines. Settled by squatters in the 1930s during the Depression, Villa 31’s residents still lack property titles.

Analysts say Macri’s post-inaugural grace period won’t last beyond this year, if that.

If Macri fails, the fallout would ripple across the region, validating skeptics who say free trade and a friendlier approach to the United States remains a losing formula for Latin American governance.

Macri scored a major victory early Wednesday as Argentina’s lower house approved his proposed settlement with the holdout creditors whom the Kirchners had cast as “vultures” because they refused to renegotiate debt from Argentina’s 2001 default. After a 20-hour debate, the package won backing across the political spectrum and now faces a vote in Argentina’s senate that is also expected to break Macri’s way.

A deal would pave the way for a badly needed injection of foreign currency, lowering the demand for dollars and helping stem inflation.

Coupled with the visit by Obama — the first by a U.S. president in nearly 20 years — a settlement would send the signal that Argentina is open for business, said Lucas Llach, vice president of Argentina’s Central Bank. “Obama’s visit is a sign that we are returning to world markets,” he said, noting that it follows visits by the Italian prime minister and French president.

Macri’s adjustments should start to bear fruit in the second quarter of this year with slowing inflation, Llach said. But they have left him vulnerable to criticism by still-powerful Kirchner loyalists who see Macri as the latest incarnation of the laissez-faire economic policies many Argentines associate with the 2001 crisis that paved the way for the Kirchners’ rise to power.

Macri is banking heavily on his ability to attract new investment from foreign companies, particularly American firms that have been wary of putting money into Argentina over the past decade. Here Obama’s visit is critical as well. To offset the economic downturn, Macri, a civil engineer by training, is planning to launch big infrastructure projects. Advisers say he is acutely aware of the need to create new private sector jobs as he fires thousands of government workers hired by the Kirchners.

“We’re coming out of an era in which we hid unemployment with public sector jobs,” Macri said this month.

Mario Blejer, a banker and economist who was an adviser to Daniel Scioli, the candidate from the Kirchners’ party who lost to Macri, said Obama’s arrival could backfire on the new Argentine leader. “His opponents will use the visit to portray Macri as a puppet of Washington, and it’s not going to help that there will probably be a big demonstration against the president of the United States.”

Union leaders and anti-Macri activists will also be motivated by the timing of Obama’s visit. March 24 marks the 40th anniversary of the 1976 military coup, initially backed by the United States, and the seven-year “Dirty War” that left as many as 30,000 dead. Obama will fly to the Bariloche resort that day to play golf before returning to Washington.

With its on-again, off-again relationship with the United States, Argentina has been a bellwether for relations with Latin America in recent decades.

The country’s ties to the United States were so close in the 1990s under President Carlos Menem that his foreign minister famously called the relationship a “carnal” one. Then came the crash of 2001, which wiped out the savings of millions of Argentine families and left the country deeply skeptical of liberal economic policy prescriptions.

Elected in 2003, Nestor Kirchner brought stability, then presided over an economic bonanza driven by China’s voracious demand for Argentine grain and other exports.

It was in Argentina in 2005 that Latin America essentially split into two blocs during the Summit of the Americas. President George W. Bush arrived to promote a hemisphere-wide free trade agreement but faced massive protests and ridicule from Hugo Chavez. The free trade agreement failed and the Chavez-led bloc urged Latin American integration instead.

The United States is now partnering with Chile, Peru, Colombia and Mexico on the Trans-Pacific Partnership. Macri’s win raises the possibility that Argentina might seek to join the alliance.

During Obama’s visit, analysts say, Macri must execute a balancing act by embracing the U.S. president but not appearing too solicitous.

In an interview broadcast this week, Obama told CNN en Espanol that Argentina was an example of the United States’ changing relationship with Latin America, now that Macri had left behind policies that were “systematically anti-American.”

Macri, Obama said, “recognizes that we’re in a new era, and that we should look forward, and that Argentina, that has historically been a powerful country, has seen itself weakened by not adapting as efficiently to the world economy as it could.”

If Obama’s arrival — and Macri’s visit to Washington later this month for a nuclear summit — is meant to signal a reset in U.S.-Argentine ties, the new era may also face an unfavorable comparison to the “golden years” of booming trade with China, said Christopher Sabatini, an adjunct professor of Latin American studies at Columbia University.

“The risk is that Argentines will see the United States as a poor alternative to China, and if things don’t go well, they will associate the United States with pain and China with the sunny days of never-ending surplus,” he said.

Nick Miroff is a Latin America correspondent for The Post, roaming from the U.S.-Mexico borderlands to South America’s southern cone. He has been a staff writer since 2006.

By Josh Lederman and Peter Prengaman 
March 17, 2016

WASHINGTON — President Barack Obama will move to declassify U.S. military and intelligence records related to Argentina’s “Dirty War,” the White House said Thursday, aiming to bring closure to questions of U.S. involvement in a notorious chapter in Argentina’s history.

Obama’s visit to Buenos Aires next week coincides with the 40th anniversary of the 1976 military coup that started Argentina’s 1976-83 dictatorship. Little is known about the U.S. role leading up to that period, in which thousands of people were forcibly disappeared and babies systematically stolen from political prisoners.

Susan Rice, Obama’s national security adviser, said Obama would use his trip to announce a “comprehensive effort” to declassify more documents, at Argentina’s request. She said Obama would also visit Remembrance Park in Buenos Aires to honor victims of the dictatorship.

“This anniversary and beyond, we’re determined to do our part as Argentina continues to heal and move forward as one nation,” Rice said in a speech ahead of Obama’s trip.

The announcement was sure to have a big impact in Argentina, where even today what happened during the dictatorship is often a part of the national discourse.

“This is transcendental. We believe it’s a huge gesture,” Marcos Pena, the Cabinet chief of Argentine President Mauricio Macri, told local channel Todo Noticias. Pena added that it would be welcomed by human rights groups who have questioned Obama’s presence on the anniversary.

The U.S. has previously released 4,000 State Department documents related to that period, but those documents tell only part of the story. Notes from a 1976 meeting between Secretary of State Henry Kissinger and Argentina’s foreign minister, for example, seemed to show Kissinger urging his new counterpart to clamp down on dissidents they referred to as “terrorists.”

“If there are things that have to be done, you should do them quickly,” Kissinger said, according to a transcript the U.S. declassified more than a decade ago.

In Argentina, human rights advocates have repeatedly called for the U.S. to divulge the rest of the information it has in hopes of exposing any wrongdoing.

As part of the new declassification effort, the U.S. will search for additional records related to rights abuses committed by the junta, said a senior Obama administration official, who wasn’t authorized to discuss the program by name and requested anonymity. That search will for the first time include records from U.S. intelligence agencies, along with the Pentagon, U.S. law enforcement agencies and records housed in presidential libraries, the official said.

Claudio Avruj, Argentina’s secretary of human rights, said opening the archives could shed light on Argentine soldiers trained at the School of the Americas and the so-called Plan Condor, a coordinated effort between South American dictatorships to stamp out dissent through assassinations, torture and repression.

“This is also going to help in the search for grandchildren taken during the dictatorship,” said Avruj via Twitter.

Gastón Chillier, executive director of the Buenos Aires-based Center for Legal and Social Studies, said, “These documents could help both in judicial cases of human rights abuses in Argentina and in the public debate about the role of the United States during the dictatorship.”

In an interview with The Associated Press on Wednesday, Macri sidestepped questions about whether he would ask Obama to declassify documents, a question activists had been raising ahead of Obama’s trip. He also dismissed criticism that Obama’s visit overlapped with the 40th anniversary of the coup that ushered in one of Latin America’s most brutal dictatorships.

Such opponents “need to realize that important world leaders have a very busy schedule,” Macri said, adding that Obama has been a staunch defender of human rights and should be welcomed.

Argentina’s government estimates that at least 13,000 people were killed or disappeared during the crackdown on leftist dissidents that became known as the “Dirty War.” Activists believe the figure was as high as 30,000.

The administrations of former President Cristina Fernandez, and before her, that of late husband Nestor Kirchner, oversaw massive efforts to try alleged perpetrators of crimes. Hundreds of former military officials have been convicted and jailed for their role in abuses during the dictatorship.

The South American nation also spends millions every year in search of missing, along the way developing a sophisticated DNA bank.

By Julie Hirschfeld Davis
18 March 2016

WASHINGTON — President Obama is moving to declassify American military, intelligence and law enforcement records that could reveal what the United States government knew about Argentina’s brutal ”dirty war” of the 1970s and ’80s, a senior adviser said on Thursday, hoping to pierce the shroud of secrecy that has surrounded a painful chapter in that country’s history.

Susan E. Rice, Mr. Obama’s national security adviser, said that the president would use a visit to Argentina on Wednesday and Thursday, which coincides with the 40th anniversary of the 1976 coup that began the war, to honor the victims and formally begin the declassification process.

”On this anniversary and beyond, we’re determined to do our part as Argentina continues to heal and move forward as one nation,” Ms. Rice said during a speech at the Atlantic Council in Washington.

Human rights activists have long pressed for access to more classified United States records about the war, which lasted from 1976 to 1983, a period when the Argentine government and military carried out vicious crackdowns against dissidents and abducted thousands of people, including babies taken from parents who were detained.

The Argentine government had formally requested that the documents be declassified. The issue has taken on greater urgency in recent days, after human rights groups noted that Mr. Obama would be in Argentina on the painful anniversary and began pressing him to use the occasion to acknowledge the abuses that took place.

Several of the groups, including Abuelas de la Plaza de Mayo — which works to find people who were taken as babies during the dictatorship and raised by families close to the military — submitted a formal request on Monday to the United States Embassy in Buenos Aires for Mr. Obama to release the secret records.

Peter Kornbluh, a senior analyst at the National Security Archive, a group that opposes government secrecy, said Mr. Obama should be applauded for engaging in ”declassified diplomacy.”

The president’s decision, Mr. Kornbluh said, ”not only provides a historical atonement for early U.S. support for the coup and the repression in its aftermath, but also can provide actual evidence and answers to the families of human rights victims who continue to search for their missing loved ones in Argentina, 40 years after the coup took place.”

In 2002, under pressure from human rights groups, the United States government released 4,700 partly declassified State Department documents on Argentina from the period. They included records that revealed the extent to which top American officials had been aware of the Argentine government’s brutal tactics. Among them was an account of a conversation in 1976 between Henry Kissinger, then the secretary of state, and César Augusto Guzzetti, the Argentine foreign minister, in which Mr. Kissinger appears to condone the military’s crackdown.

”If there are things that have to be done, you should do them quickly,” Mr. Kissinger told Mr. Guzzetti, according to the declassified account.

The administration refused at the time to do a multiagency review, so relevant records from the Defense Department, the Central Intelligence Agency and the Federal Bureau of Investigation remain classified. Mr. Obama’s effort will include records from military, intelligence and law enforcement agencies, as well as the presidential libraries and the National Archives, a White House official said on Thursday.

The president plans to travel to Argentina after a historic visit to Cuba, where differences over human rights remain an irritant even as the United States seeks to begin a new chapter of engagement. He will meet on Wednesday in Buenos Aires with Mauricio Macri, the newly elected Argentine president, and travel to Bariloche with his family on Thursday.

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4. ‘DIRTY WAR’ RECORDS (Pittsburgh Post-Gazette)
18 March 2016

WASHINGTON – President Barack Obama will move to declassify U.S. military and intelligence records related to Argentina’s “Dirty War,” the White House said Thursday, aiming to bring closure to questions of U.S. involvement in a notorious chapter in Argentina’s history.

Mr. Obama’s visit to Buenos Aires next week coincides with the 40th anniversary of the 1976 military coup that started Argentina’s 1976-83 dictatorship. Thousands of people were forcibly disappeared and babies systematically stolen from political prisoners.

Susan Rice, Mr. Obama’s national security adviser, said Mr. Obama would use his trip to announce a “comprehensive effort” to declassify more documents, at Argentina’s request.

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By Jeff Mason and Matt Spetalnick
March 17, 2016

The United States government will declassify documents from U.S. military and intelligence agencies related to Argentina’s 1976-83 “Dirty War,” the seven-year period when a military dictatorship cracked down on left-wing opponents, U.S. officials said on Thursday.

The move coincides with President Barack Obama’s visit to Argentina next week on the 40th anniversary of the 1976 coup that installed the dictatorship, which the United States initially supported. Argentina returned to democracy in 1983.

The declassification effort will include records from U.S. law enforcement agencies, the Department of Defense, the Department of State and the presidential libraries at the National Archives.

It follows the declassification in 2002 of more than 4,000 State Department cables and other documents related to human rights abuses from the 1976-83 period.

“President Obama, at the request of the Argentine government, will announce a comprehensive effort to declassify additional documents, including for the first time military and intelligence records,” U.S. national security adviser Susan Rice said in a speech hosted by the Atlantic Council in Washington.

“On this anniversary and beyond, we’re determined to do our part as Argentina continues to heal and move forward as one nation,” she said.

It is the latest effort by Obama to reconcile with Latin Americans by addressing Washington’s past backing of former military dictatorships in the region, such as he did on previous trips to Chile and Brazil.

The U.S. role in Latin America during previous administrations helped fuel ant-American sentiment, especially on the left.

Obama has declined on previous trips to Latin America to apologize for CIA activities in the region during decades past, but he left open the door to U.S. assistance in investigations of human rights abuses committed by former military governments there.

Argentina welcomed the announcement.

“Anything that helps analyze what happened during this chapter is a positive,” an Argentine government spokesman said, declining to comment further on a matter he said Obama and President Mauricio Macri would address.

Obama plans to visit Parque de la Memoria, or Memory Park, to honor the victims of that period.

The declassification announcement was aimed also at soothing criticism of the White House for planning the Argentina trip during such a sensitive week.

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17 March 2016


On March 16th the Chamber of Deputies (the lower house of Congress) approved a bill that would allow the government to pay holdout creditors who refused debt restructurings after Argentina’s 2001 default. The bill now moves to the Senate (the upper house) for final approval.


The government is edging towards closing the deal that it struck in February to repay litigant holdout creditors. These creditors recently agreed to haircuts of around 25% on claims filed in the New York court system. Crucially, the judge in the case, Thomas Griesa, has agreed to lift injunctions that since mid-2014 have left Argentina in default on its restructured debt, if Argentina pays the holdouts by April 14th. This would allow the country to repay existing creditors and regain access to international capital markets.

First, however, Congress must repeal a law that forbids better terms than the previous restructurings and approve initial debt issuance of just under US$12bn to raise the cash for payment. (This includes almost US$9bn in payments to holdouts and US$3bn in arrears on restructured bonds in default since 2014).

The government, which does not have a majority in Congress, has been manoeuvring hard to build cross-party support in both houses of Congress for the necessary legislation. It has had to make some concessions, such as the inclusion of a ceiling on initial bond issuance of US$12bn. Although external indebtedness is low (the total external debt to GDP ratio is just over 20%, and around half of this is accounted for by the private sector), the question of raising the level of the debt is still somewhat politically contentious in Argentina, given the country’s experience with default.

However, pragmatism has prevailed, and an acceptance of the need for external finance to support growth and avoid balance-of-payments difficulties was evident in the bill’s passage through the lower house by a margin of 165 to 85. The bill now moves to the Senate (the upper house), where we assume that it will be approved, paving the way for payment of holdouts before the mid-April deadline. Senators generally vote according to the wishes of provincial governors, who are keen to tap bond global markets themselves and gain better access to multilateral loans to finance infrastructure projects.

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By Robert Smith
17 March 2016

ROBERT SIEGEL: One of the world’s longest-running economic soap operas may end this week. Argentina is about to pay back its debts after 14 years of refusing to do so – 14 years of lawsuits and name-calling between the country and its lenders. Robert Smith of our PLANET MONEY team finds some lessons in the drama.

ROBERT SMITH: First lesson – when you find yourself in a hole, stop digging. Fourteen years ago, Argentina was in a hole so deep no one could see the sun. It was total economic collapse.

MARTIN MORATONA: The restaurants were empty. The main avenues of Buenos Aires were eerie because there was practically no traffic in the middle of rush hour.

SMITH: Martin Moratona was working for the city at the time.

MORATONA: And then one day, it all blew up. People started sacking supermarkets. And I remember there was this truck transporting cattle into Buenos Aires, and people blocked the highway. And they overturned the truck and took the cows. And then they practically slaughtered the cows right there in the middle of the highway because they were so desperate.

SMITH: There is no bankruptcy law for countries, no orderly way for a nation to figure out how to pay the bills when they have no money. So Argentina just said enough we need to feed our own people, so we’re not going to pay back all the foreigners who lent us money, which brings us to lesson number two. When it comes to owing money, you can run, but you cannot hide. Economist Juan Cruces says that a lot of people around the world wanted their money back.

JUAN CRUCES: Many university endowments, insurance companies, mutual funds purchased our bond, also institutional investors like TIAA-CREF in the United States.

SMITH: Wait a minute. TIAA-CREF is my retirement fund. Does that mean that I lent money to Argentina?

CRUCES: You did, indeed.

SMITH: In all, Argentina had defaulted on around a hundred billion dollars’ worth of loans. Now, what normally happens is the people who hold the bonds, the moneylenders – they start to negotiate with a country. But Hans Humes of Greylock Capital says Argentina wouldn’t return his calls.

HANS HUMES: I actually did a quiet trip down to Buenos Aires to talk to the debt negotiator and say, hey, listen; you know, what do we have in common? What’s the middle ground? The guy kicked me out of his office. He’s like, you have to leave right now.

SMITH: Argentina’s government had decided to play hardball – take-it-or-leave-it offer. They would give their lenders only around 30 cents on the dollar. For years, everyone fought and fought over this number. Most of the bondholders like Hans Humes eventually gave in.

HUMES: Just fatigue, I think a lot of people took it. It was just like, you know, I mean, what’s the point of fighting?

SMITH: Oh, but the final lesson of the Argentine story is that sometimes the scrappiest fighters win. A small percentage of the bondholders decided to hang in there, to keep up the battle. They were the hedge funds who had bought the debt cheap. They were called the holdouts, although, in Argentina, they had a different name for them.

CRUCES: Fundois Vitures – the vulture funds.

SMITH: And for the last seven years, they have circled Argentina and not given up. They have sued and sued. They finally found a New York City judge that was willing to stop Argentina from using New York banks to make payments, and economist Juan Cruces says this tipped the balance.

CRUCES: The judge’s decision gave the holdouts essentially an atomic bomb to put under their arm against the debtor.

SMITH: It may not be the lesson that you want to teaching to your children, but wielding an atomic bomb is effective. Today, lawmakers in Argentina are poised to approve a settlement for the hedge funds that wouldn’t give up. One fund, Elliot Management, is expected to get $2.4 billion on the deal. It was expensive, but after 14 years, Argentina can finally say they are out of the hole. Robert Smith, NPR News.

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8. ARGENTINA NOW SEEKS 600MW FROM BOLIVIA (Business News Americas)
17 March 2016

Argentina has submitted a counterproposal to Bolivia for the supply of 600MW versus the 160MW the latter country offered earlier this month.

“The surprise is that they want much more volume and have made a counterproposal that arrived two days ago,” Bolivia’s state news agency ABI quoted the landlocked nation’s hydrocarbons and energy minister (MHE) Luis Alberto Sánchez as saying.

Sánchez said an agreement is expected to be reached in the coming weeks to export power to Argentina.

Latest data from Argentina’s wholesale power market administrator Cammesa reveals that power use in February grew 10.2% year on year to 11,751GWh amid above average summer temperatures.

The minister’s comments followed the signing (pictured) of loan agreements between Bolivia’s central bank (BCB), MHE and state power company Ende for transmission projects, including a link with Argentina.

One loan for 483mn bolivianos (US$71mn) is for the 110km Juana Azurduy de Padilla project which will run from Yaguacua in Yacuiba to Tartagal in Argentina, and will be Bolivia’s first 500kV line. Construction is due to take 18 months.

The other loan, for 663mn bolivianos, is for the 230kV 329km Anillo Energético del Sur project that will stretch from Las Carreras in Tarija to Potosí.

Anillo aims to dispatch power from hydroelectric plants such as Carrizal and Molineros, as well as the Laguna Colorada geothermal complex and solar parks. Planned offtakers include the San Cristóbal mine and Bolivia’s lithium project.

Also from Bolivia, lawmakers approved cooperation agreements that MHE inked with Russia’s state atomic energy corporation Rosatom.

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By Paul Blustein
March 17, 2016

Rich investors are winning big, but the case sets an awful precedent.

As a personification of “the rich getting richer,” Kenneth Dart is in a class by himself. A member of a reclusive, strife-ridden Michigan family that made its fortune from the manufacture of Styrofoam cups, Dart now controls a multinational empire—his net worth was estimated a couple of years ago at $6.6 billion—from a base in the Cayman Islands. According to one of his brothers, from whom he became estranged, he once considered making his home on his 220-foot yacht, which was armored to withstand torpedo fire. He escaped federal tax liability by renouncing his U.S. citizenship and becoming a citizen of Belize; he gained notoriety in the 1990s when he sought to become a Belizean consul based in Sarasota, Florida, where his parents, wife, and children lived.

The latest of Dart’s many windfalls is about to materialize in one of his specialties—squeezing profits from countries that have essentially gone bust. He made a tidy sum in 2012 on Greek government bonds, and now he stands to earn another packet on Argentina, a decade and a half after its catastrophic collapse and default on its debt. The newly-elected Argentine president, Mauricio Macri, has struck a generous settlement with Dart and other investors who put the country in a severe financial bind by filing lawsuits over its default.

This is no mere iniquity. The implications are global—and disquieting. The way Argentina’s debt saga is ending bodes ill for future cases of countries that fall into financial distress, because investors now have a clear incentive to pursue aggressive strategies similar to the approach taken by Dart. Not that Macri should be blamed; he is rightly drawing praise for taking action that is necessary for his country’s economic revival. But the difficulties for other countries that need debt relief will be all the greater. The case for reform of international rules governing such crises has never been stronger.

A look at what Dart did in Argentina explains why he is often called a “vulture investor”—and why the success of vulture investors has convinced economists at the International Monetary Fund, among others, that a better system is needed for countries that get over their heads in debt. Unsurprisingly, a major part in the Argentine drama was also played by the most famously litigious vulture of all, billionaire Paul Singer, who heads a New York hedge fund. Like Dart, Singer reaped hundreds of millions of dollars in profits on bonds of countries stricken by debt crises in the 1990s; their targets included countries such as Peru, Brazil, Nicaragua and Congo.

Recall that in 2001, Argentina was hurtling toward one of the worst financial and political crises in history. The country had once been the darling of Wall Street, which happily helped Buenos Aires borrow tens of billions of dollars. But the Argentine economy was mired in recession with no easy escape, and the burden of repaying principal and interest on $100 billion in debt was proving too heavy.

For the vultures, this was an opportunity to make a killing. They bought loads of Argentine bonds, which were then trading at pennies on the dollar. Even though the economy crashed at the end of 2001, and the government declared a halt to payments on its bonds, the vultures had a plan; indeed, some of their bond purchases came after the default. They were going to make Argentina pay as close to the full face amount of their bonds, plus interest, as possible—and they had a hunch that the law might eventually work in their favor. Boy, were they right.

The vultures rejected a deal that Argentina gave to its bondholders in 2005, which provided about 33 cents on the dollar. (In U.S. dollar terms, the Argentine economy had shrunk by about two-thirds, so this wasn’t quite as unreasonable as it may sound.) Even though more than 90% of the bondholders ended up accepting Argentina’s terms (after a second offer in 2010), the vultures held out for more—lots more.

Since Argentina had sold many of its bonds in New York to big financial institutions, disputes were subject to U.S. law, and the vultures could take advantage of the American legal system to press their claims. Sure enough, the federal judge overseeing the litigation, Thomas Griesa, ruled that they should be paid. Not that anyone could force Argentina to hand over money; a sovereign government is pretty well protected against foreign legal judgments that it deems invalid, and most of its assets abroad (embassies, for example) are immune from seizure. But the vultures’ lawyers skillfully used the courts to harass Buenos Aires — filing claims against overseas accounts belonging to the Argentine central bank, for example, and even seizing money from a Science Ministry account at a U.S. bank that was intended to pay for telescopes. In addition to making it risky for Argentine government-related entities to operate internationally, this litigation made it impossible for the Argentine government to raise new funds in international bond markets. Nonetheless, the Argentines remained steadfast in refusing to bow to the vultures’ demands or the U.S. court judgments.

The transformative event was a 2012 ruling by Judge Griesa that was the legal equivalent of putting Argentina at the mercy of gunboat diplomacy. (The term refers to the practice, common during the age of imperialism, of dispatching militaries to enforce financial claims.) Invoking certain legal wording in bond contracts, the judge decreed that as long as Argentina continued to deny the vultures payment on their claims, it would be forbidden to continue paying principal and interest to the bondholders who had accepted the earlier deals. Not only that, the judge put teeth into his ruling, by issuing an injunction prohibiting banks and other financial institutions from taking any action that would violate it.

Many legal experts expressed perplexity at the reasoning in Griesa’s ruling, not least because it threatened the rights of bondholders who had accepted Argentina’s earlier deals to collect what they were owed. What sane bondholder would go along with a debt restructuring offer in the future, given the risk that a single holdout might be able to block payments under the new terms? At the IMF, anguish was profound, enough so that Fund officials planned to enter an Amicus Curiae (friend of the court) brief urging the Supreme Court to overturn the decision. But the High Court declined to even consider the appeal. The mutually destructive stalemate continued, with former president Christina Kirchner vowing never to surrender to “financial terrorism.”

Enter Macri, whose victory last November marked a sea change in Argentine policy from strident, nationalistic leftism to an approach favoring re-integration with the global economy. In recognition of the benefits Buenos Aires would reap by folding its losing hand in the legal battle, the new president promptly negotiated deals with the vultures and other holdouts, giving them much—though not all—of what they were demanding. To Judge Griesa’s credit, he helped nudge these deals along, by threatening to lift his injunction if the holdouts failed to negotiate in good faith.

However much the settlements may help Argentina, the rewards for the vultures are gobsmacking. It is impossible to say with precision how much each is making, because the depressed prices at which they bought the bonds are not publicly disclosed. But Singer, he vulture-in-chief (his firm was lead plaintiff in the case), stands to collect $2.4 billion—a gain of about 10 to 15 times his firm’s original investment, according to the Wall Street Journal. Even for those who are ending up with less, the returns are hardly shabby.

It’s all well and good to celebrate this outcome as Argentina finally closing a sorry episode in its history, and dismiss the vultures’ bonanza as a bitter pill that Buenos Aires must swallow for the sake of improving its economic fortunes. But an appalling precedent has been set.

The next time a country needs to ask private creditors for a significant amount of debt relief, market participants will remember how spectacularly lucrative it was for Singer et al to hold out against Argentina’s original deal. They will ask themselves why anybody should settle for some write-down of their claims rather than pursue litigation for full payment. And they will feel emboldened by the knowledge that a court ruling in a very important jurisdiction could be used to enforce their demands. As Anna Gelpern, a Georgetown Law School professor who specializes in sovereign debt issues, wrote last week, “the [Argentine] case has produced and tested an immensely potent weapon that a small minority of creditors can now use to hold countries and the rest of their creditors hostage.”

The upshot is a worsening of a system that was already deeply flawed. Countries sometimes find themselves owing more to creditors than they can reasonably afford to pay—perhaps because of their own irresponsibility, perhaps because of bad luck, perhaps because of a combination of the two. Yet at the international level, there is no equivalent to the domestic bankruptcy laws that apply to individuals and companies. Whereas those domestic laws properly recognize the necessity of forcing all creditors to accept less than the full amount of their contractual rights, so that debtors can get a second chance while creditors receive equitable treatment, countries operate in a much wilder and woollier legal environment. Argentina’s tale shows how unjust, and inimical to public interest, the system is becoming.

The vultures and their apologists insist that the hard-nosed tactics of creditors like Singer and Dart are broadly beneficial—a classic case of greed being good. According to this view, the vultures help force countries to abide by the rule of law and honor debt obligations in accord with contractual terms. That in turn leads to more capital flowing where it is needed, and discourages the recipients from using that capital irresponsibly.

This argument is valid up to a point, but it is based on the same pro-creditor fundamentalism as the case for debtors’ prisons. As important as contractual rights are, they shouldn’t be sacrosanct in sovereign debt situations any more than they are in cases of individuals or companies. Moreover, there is no evidence that officials of debtor countries are disposed to renege on their obligations; if anything, the biggest problem with such countries is that they are too reluctant to seek debt relief. It is a well-established financial truth that serious debt problems, left unaddressed, almost invariably burgeon, so if losses are inevitable it is better to take them sooner rather than later. As a 2013 IMF paper noted, policymakers typically wait too long to face the reality that a country’s debt is unsustainable, and when they finally do, they don’t go far enough in addressing it. The result is that “debt restructurings have often been too little and too late.” This was one of the lessons of Argentina, where the impact of default was all the worse because of costly efforts to stave it off—and it was also one of the lessons of the Greek crisis.

Perhaps, as some argue, the Argentine case will turn out to be an isolated example of a country that got its just deserts in court for the way it stiffed creditors after its default. It’s true that the bondholder representatives who tried negotiating a settlement with Buenos Aires in the wake of the country’s collapse felt they were treated rudely, and the Argentine offer in 2005 was a take-it-or-leave it deal—with the explicit threat that holdouts would get nothing. So one possible consequence of this whole episode is that debtor countries will adopt more reasonable, less intransigent stances with their creditors, and mutually-satisfactory compromises will result.

But it would be Pollyannish to bet that events will take such a benign turn. After all, the most litigious bondholders cashed in big-time on Argentina, while non-litigious ones understandably feel they were played for suckers. Professional investors are not known for blithely forgoing chances to rake in enormous payoffs; this is why the odds have greatly increased that future Argentine and Greek-style crises will be even harder to resolve and more prolonged than they are already.

To anyone who isn’t 1) a wild-eyed zealot for bondholder rights, 2) a nostalgia buff for debtors’ prisons, or 3) an investor in a vulture fund, it should be clear that the international framework for sovereign debt is imbalanced way too far in favor of the Darts and Singers of the world, and against countries that genuinely need debt restructuring. The only question is the extent to which power should be rebalanced.

One heartening development is a 2014 initiative among financial industry leaders, governments and the IMF to promote the use of new types of bonds, called “Super CACs,” (the acronym stands for “collective action clause”). These bonds are legally fortified to force all of a country’s creditors into a restructuring if a heavy majority goes along. But Super CACs are no panacea, because global markets are still full of old-style, vulture-prone bonds.

Economists and legal experts have proposed an abundance of good ideas, ranging from the sensibly practical to the daringly ambitious. My favorite is the creation of a new type of IMF lending instrument called a “Sovereign Debt Adjustment Facility.” (SDAF), which would have some of the features of an international bankruptcy regime, and would deal with both the holdout problem and the “too little too late” problem. The IMF itself proposed a more far-reaching scheme in 2001, but it went nowhere.

Alas, the prospects for major reform of the SDAF type are bleak, not least because financial interests will marshall powerful opposition. So there may be no more need to cry for Argentina, but the shedding of tears may well be in order before long for a country in similarly dire straits.

Paul Blustein, a journalist and author, is a Senior Fellow at the Centre for International Governance Innovation. He spent most of his career at the Washington Post and Wall Street Journal. His books include And the Money Kept Rolling In (And Out): Wall Street, the IMF, and the Bankrupting of Argentina.

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March 16, 2016

When it Comes to the Economy, Not All Advice is Good Advice

In a world where high inflation is no longer a problem, Argentina’s inflation is still the population’s main concern. Only Spain and Venezuela show inflation rates above 20%, with the principle concern being that this trend has continued for more than ten years.

For this reason, and in parallel with the completion of the new government’s first three months, the Buenos Aires economic newspaper El Cronista Comercial asked expert analysts to offer their opinion and advice on how to lower inflation.

While among this analysts we can find accurate points of view related to budgetary imbalance and uncontrolled monetary emissions that deteriorate the currency’s purchasing power, the fact remains that among their “advice” are lots of misdiagnoses, followed by absurd proposals.

Economist Augustine D’Atellis, a member of the “GraN MaKro” group (N and K are capitalized in honor of former Argentine President Nestor Kirchner), suggested that:

“… Market freedom in price formation leads to increasing inflationary dynamics, to the detriment of the wages’ purchasing power.”

But this statement is clearly false. In the table below you can see the world’s economically freest countries. That is, those where D’Atellis said the free market “forms prices.”

What his “analysis” recommended is the opposite of true. Where there is a free market, inflation is not high, but considerably reduced — with an annual average of 1.8 percent. That is, no less than 94 percent lower than what Argentina had in the same year.

Therefore, inflation has nothing to do with the free market.

Another person who gave his opinion was public accountant, congressman and former Economic Policy Secretary Roberto Feletti.

“The effective anti-inflationary policy is one that combines market regulation, essentially in those monopolistic supplied goods and rigid demand, and with price and wage agreements,” he said.

The problem with this analysis is that it confuses inflation with the high prices placed by a company. That is, if a monopoly sets a price of US $100 for its product, but that price is kept for 10 years, does it really have to do with inflation? Since it is a monopoly, we can probably agree the price will be high, but high prices are not the same as inflation, so price control over monopolies is by no means an “anti-inflationary policy.”

Mercedes Marco del Pont, former President of the Argentina Central Bank between 2010 and 2013, said “the Central Bank’s decision to minimize interventions [in the foreign exchange market] in order to promote the free float does not seem consistent with its objective of controlling inflation.”

According to this view, a type of free trade and market defined by the Central Bank with inflation-targeting is a bad idea. However, it is what a lot of countries in the region such as Peru, Colombia, Chile and even Brazil have done.

In all these countries, the monetary authority left the exchange rate float. And to the surprise of Marco del Pont, they hold a free exchange rate with very low inflation compared to that of Argentina or Venezuela, who opted for exchange control as an anti-inflationary strategy.

Misdiagnoses as to the inflationary phenomenon abound in our country. The fault falls on business traders, the free market or the the dollar. Elements such as an overwhelming public spending or frenzied monetary emission should never be part of these specialist analyses.

No wonder, then, that, in providing answers, they advise to do everything that has already failed on multiple occasions in the past.

That leaves us with one thing to make clear: if we follow their prescriptions, we will repeat past mistakes and, even worse, not lower inflation. The best thing the new government can do is turn a deaf ear to such recommendations.

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By James M. Roberts and George A. Margulies
March 17, 2016

Argentina ranked 169th of 178 countries in the 2016 Index of Economic Freedom, one of the worst performances in the world. That is a tragedy for the hard-working Argentine population. Steep declines have been registered in all of the country’s economic freedom indicators, including control of government spending, labor freedom, and business freedom. Argentina is mired in a climate of corruption and economic repression.

Severely hampered by state interference, the formal economy has grown increasingly stagnant as informal economic activity expands. Monetary stability is particularly weak and, despite extensive price controls on almost all goods and services, actual rates of inflation have surged. Argentina’s investment profile has been badly damaged by monetary and fiscal mismanagement, rising protectionism, and expropriations during the Kirchner years. The 2001 sovereign debt default remains unresolved, economic growth has weakened, and poverty has increased. Capital controls have spurred capital flight.

Argentina’s new president, Mauricio Macri from the pro-free-market political opposition, took office on December 10, 2015. This Heritage Foundation Special Report explains how Argentina lost so much economic freedom—and what the new government can do to restore it. A good start will be to correct the many mistakes made by the previous government.

Argentina’s economic freedom score in the 2016 Index of Economic Freedom—43.8 out of 100, its lowest score ever—placed it in 169th place of 178 countries measured.[1] Argentina also ranks near the bottom (27th) of the 29 countries in the South and Central America/Caribbean region. That is a stunning decline from its highest score of 74.7, which was recorded in the second edition of the Index in 1996.[2]

Since then, it has been downhill for Argentina. Steep declines have been registered in all 10 of the country’s economic freedom indicators, including control of government spending, labor freedom, and business freedom. Argentina continues to be mired in a climate of corruption and economic repression. Severely hampered by state interference, the formal economy has grown increasingly stagnant as informal economic activity expands. Monetary stability is particularly weak and, despite extensive price controls on almost all goods and services, the Economist Intelligence Unit reported that inflation surged to 40 percent in 2014[3] (although the Kirchner administration repeatedly underreported it via the official Argentine statistics agency INDEC— El Instituto Nacional de Estadística y Censos de la República). Government interference in the financial sector further distorts price levels. In the past decade alone, Argentina’s economic freedom score has dropped by nearly 10 points, plunging the economy into the lowest—“repressed”—category of the Index.

President Cristina Fernández de Kirchner of the Peronist Party, elected in 2007, re-elected in 2011, and preceded in office by her late husband Néstor, was constitutionally barred from seeking a third term. Argentina’s investment profile was badly damaged by monetary and fiscal mismanagement, rising protectionism, and expropriations during the Kirchner years. The 2001 sovereign debt default remains unresolved, and a U.S. court decision in favor of “holdouts” who did not accept previous restructuring offers sent the country into default again in 2014. Economic growth weakened, and the poverty rate increased. Capital controls spurred capital flight.

Formerly the mayor of Buenos Aires, Mauricio Macri of the pro-free-market Cambiemos opposition coalition, won the 2015 presidential election because the Argentine public was fed up with the populism and poor performance of the Kirchner government. This Special Report explains how Argentina lost so much economic freedom—and what the Macri government can do to restore it. A good start will be to correct the many mistakes made by the Kirchners.

A History of Political Instability

Between 1880 and 1930, Argentina was one of the wealthiest nations in the world. Today, despite having the world’s 23rd-largest economy as ranked in 2014 by gross domestic product (GDP),[4] Argentina is confronted with many challenges, including the continuing rise in inflation that creates difficulty in attracting investors, a history of corruption, political uncertainty, debt defaults, and the nationalization of companies.

Argentina has vast natural resources, with over 375,000 square kilometers of arable land,[5] significant gas and petroleum reserves, as well as sizable mineral deposits.[6] Literacy is nearly universal.[7] The United Nations Human Development Index, which measures education, life expectancy, and wealth, ranks Argentina 49th of 187 countries in the world.[8] These advantages, coupled with Argentina’s youthful demographic (see Chart 2), would seem to make it an optimal destination for foreign direct investment (FDI).

Yet, Argentina’s economic performance has been inconsistent. (See Chart 3.)[9] Argentina’s political history has swung between periods of constitutional democracy and military dictatorships. In 1943, a military coup led by Colonel Juan Domingo Perón ousted the constitutionally elected government.

Perón, an early admirer of fascism, was elected president in 1946 based on his promises of higher wages and social benefits. Under Perón, presidential powers were increased and news media were suppressed.[10] Ironically, in September 1955, another military coup forced him into exile. In subsequent years, multiple administrations attempted to deal with a deteriorating economy and social upheaval. In 1973, Perón was again elected president, but he died the following year. He was succeeded by his third wife, Isabel, who was subsequently ousted in 1976 by a military coup led by Jorge Rafael Videla, who ruled until 1981 and was succeeded by other military dictators until 1983. Videla’s reign was marked by serious abuses during the so-called Dirty War, including disappearances and torture.

In a desperate attempt to survive politically, the military junta launched an ill-advised war in 1982 against Great Britain over control of the Falkland Islands. After a decisive victory for the British, then-President Leopoldo Galtieri was removed from power, setting the stage for a transition to democracy.[12]

The election of Raúl Alfonsín, who succeeded Galtieri in 1983, marked the first time that Peronism was defeated in a free election. Alfonsín put the former dictators on trial and set up a commission to look into the violence and repression of the 1970s. These trials were halted, however, after several coup attempts. Hyperinflation related to ongoing political instability soon followed, and Alfonsín was ejected from office just five months shy of completing his term.[13] In fact, neither of the non-Peronist elected presidents of Argentina has been permitted to serve a full term in office.[14]

Stunted Economic Development

Alfonsín was succeeded by a Peronist—Carlos Menem—who implemented a neo-liberal and market-friendly reform program. When he entered office in 1989, Menem initiated a program to privatize many state enterprises and to liberalize trade. In 1990, the economy experienced inflationary episodes. Menem responded with the Convertibility Plan of 1991. This plan simplified the tax code, enforced it better, and established an independent central bank; it also liberalized markets and encouraged privatization. Later, these reforms expanded to include pension reform, privatization of some provincial banks, and the creation of greater flexibility of the labor market.[15]

The most dramatic and consequential of Menem’s reforms, the Convertibility Law, fixed the exchange rate between the Argentine peso and the U.S. dollar at one-to-one. Initially, the peg was tremendously successful, greatly reducing Argentina’s very high inflation rate and stimulating growth. However, as budget deficits and sovereign debt rose, Argentina also began running a trade deficit. Eventually these factors, combined with an over-valued and steadily appreciating dollar-pegged peso, resulted in a severe decline in exports that were no longer priced competitively for global markets. Meanwhile, neighboring Brazil had devalued its “real” currency in response to the Asian financial crisis of 1997.[16 ]That had the effect of increasing Brazilian exports, including to Argentina.[17]

After Menem’s relatively successful tenure, there followed a series of presidents who had to navigate these increasingly choppy financial waters. The economic storm crested in late 2001, when President Adolfo Rodríguez Saá announced that Argentina would default on its debt. Saá was forced to resign and his successor, Eduardo Duhalde, ended the peso–dollar parity. In 2003, Néstor Kirchner was elected president with just 22 percent of the popular vote.[18] Term limited, Néstor was succeeded in 2007 by his wife, Cristina, who dominated Argentine politics after Néstor’s early death from a heart attack.

Growing Hostility to Western Values and Neoliberal Economics

Under President Cristina Fernández de Kirchner, Argentina strengthened ties to governments in the region that are hostile to Western values and again challenged the right to self-determination of citizens of the Falkland Islands. The government’s seizure of nearly $30 billion in private pension funds in 2008, its failure to settle with a small group of “hold-out” creditors from the 2001 default, and its 2012 expropriation of Yacimientos Petrolíferos Fiscales (YPF), a subsidiary of Spanish oil company Repsol, all severely damaged Argentina’s investment profile. In addition, Kirchner’s centrally planned economic policies removed the independence of the central bank.[19]

A Lack of Economic Freedom. Argentina today is mired in a climate of economic repression. Severely hampered by state interference, the formal economy has stagnated and informal economic activity has expanded. Monetary stability has been particularly weak, and extensive price controls have been imposed on almost all goods and services. Government interference in the financial sector has further distorted price levels.

Weak Rule of Law

Argentina’s scores on the Index of Economic Freedom’s Rule of Law indicators have been in a steady decline for more than a decade due to the increasing levels of corruption and attacks on private property rights that have accompanied growing state interference in the economy.

Transparency International ranked Argentina 107th of 175 countries in its 2014 Corruption Perception Index (see Chart 4),[20] which reported that the country’s judicial system is increasingly vulnerable to political interference and that corruption is prevalent.

Not surprisingly, public confidence in the government and the judiciary reached record lows during the Kirchner years. Endemic corruption in Argentina’s government and business climates became a major concern for the Argentine people and foreign investors, and figured large in the Macri victory. Between 1995 and 2013, polls indicate a 40 percent increase in perceived corruption. (See Chart 5.)[22]

It is not hard to understand why the public became so jaded. While instances of corruption abound, here are some of the most notorious recent examples: In January 2015, Argentine federal prosecutor Alberto Nisman was found dead the day before he was to testify about official corruption.[23] According to press reports, businessman Lázaro Báez and others were allegedly involved in a scheme with President Néstor Kirchner to funnel money out of Argentina.[24] Fashion designer Ralph Lauren admitted to paying bribes to Argentine officials between 2005 and 2009 to expedite the importation and customs clearance of his products.[25] Aerolíneas Argentinas, the national airline, paid $4.3 million over list price for each of the 20 Embraer E-190 aircraft it purchased. The airline claimed that the price included spare parts and pilot training,[26] but suspicions of bribery abound because airlines typically pay below list price for aircraft.[27]

External influences, such as narco-trafficking, have also negatively affected economic freedom. Argentina’s porous borders make it an attractive waystation for criminals transporting drugs to Europe. The fact that Argentines enjoy the right to visa-free travel to the European Union and many hold European passports facilitates these crimes, which are on the rise. Narco-traffickers even “infiltrated law enforcement agencies, politics and the judiciary,”[28] and the Kirchner government’s response was feeble.[29]

Instead of taking steps to strengthen the rule of law, in 2013 the Kirchner government rammed legislation through the Argentine congress that weakened the judiciary, which was already vulnerable to corruption. While supreme court justices are appointed by the president with the consent of the senate,[30] under the 2013 law, the executive branch gained more influence through a new provision to mandate election of provincial judges.

Protection of intellectual property rights—copyrights, trademarks, and patents—has also been problematic. Since 1996, for example, Argentina has been on the U.S. Trade Representative’s intellectual property rights (IPR) “Special 301” Sanctions Priority Watch List, which is an annual review of the state of IPR protection and enforcement among U.S. trading partners worldwide.[31]

Government Too Big

According to International Monetary Fund (IMF) data, annual government spending consumes more than 40 percent of GDP,[32] and public debt currently also amounts to nearly 40 percent of the economy.[53] To pay for this spending the government gobbled up more than one-third of GDP. Taxation in Argentina is high and is biased against private business and the poor. The top individual and corporate tax rates are 35 percent. Other taxes include a value-added tax, a wealth tax, and a tax on financial transactions.

While Argentina ostensibly has a progressive tax structure, distortions within the tax code ultimately create a regressive tax system due to a mismatch in deductions and marginal tax rates, aggravated by the government’s intentionally false consumer price index statistics.[34]

There are a number of ways the next government can reform the tax system but, perhaps the best, would be to adopt a flat tax. While multiple variations of the flat tax have been proposed, each recommends the following: a single, low rate on personal and business income, no taxation on death or savings, immediate expensing of business investments, and the removal of unwarranted credits, deductions, and exemptions.

Doing Business: Increasing Difficulty

Regulatory encroachment on private businesses increased under the Kirchners, with government interference discouraging entrepreneurship and raising regulatory uncertainty. The government regulates the prices of electricity, water, and gasoline, and brings pressure to bear on private companies to fix prices and wages.

It takes 14 bureaucratic procedures and 25 days to open a business in Argentina.[35] Next door in Chile, the comparable figures are seven procedures, and five and a half days.[36] Not coincidentally, Chile has the highest level of economic freedom in Latin America.[37]

Rigid and ineffective bureaucracy complicates the task of starting a business. The necessary steps and time frame for approval, illustrated by Table 1, are greater than the Organization for Economic Cooperation and Development (OECD) average. Obtaining construction permits can take a year; obtaining electricity service can take 30 days. These state-imposed burdens add additional costs to doing business in Argentina that can deter a potential entrepreneur.[38]

Closing a business is even harder, given the complex Argentine bankruptcy procedures. According to the World Bank’s “Ease of Doing Business in Argentina” report, it takes an average of nearly three years to navigate the country’s bankruptcy proceedings, and typically costs 12 percent of the value of the estate to do so. The average recovery rate for the typical failed business in Argentina is only about 29 percent of pre-bankruptcy asset levels.[39] As if the labyrinthine bankruptcy laws were not difficult enough, the problem is aggravated by the absence of specifically designated courts for bankruptcy and reorganization hearings.[40]

Rocky Labor Relation and Crippling Strikes

The labor market lacks flexibility, and a rising mandated minimum wage has driven more economic activity into the informal sector.

Notwithstanding the crucial role of organized labor in the Peronist coalition, since 2011 (when wage caps were imposed to try to control inflation), the Kirchner government’s relationship with labor became increasingly strained. In 2012, trade unions opposing Kirchner’s economic policies called strikes that created transportation bottlenecks and hindered grain exports.[41] In April 2014, a general strike crippled the economy, shutting down all transportation, many businesses, schools, some hospitals, and sanitation.[42] Strikes have continued: June 2015 saw a 24-hour walkout by its transport unions. The second such strike in three months,[43] it affected the entire transport sector, as well as solid waste collection, forcing many schools and businesses to close.

Flawed Monetary Policies

Another area of concern, and one where the rule of law has palpably weakened in Argentina, was exemplified by the Kirchner government’s decision in 2012 to take direct control of the formerly independent central bank.[44] It is vitally important for the health of any country’s financial system that the central bank be immune from interventions by self-serving politicians who have their own short-term interests in mind, not the long-term needs of the country.

The Kirchner monetary policies created rampant inflation. The labor problems noted above are a direct result of this inflation. Unrelenting inflation threatens to consign many workers to the impoverished life of the “working poor.” An economy constantly under threat of wildcat strikes does not operate efficiently nor does it bode well for attracting FDI. The issue of wages not keeping pace with inflation must be addressed by the new president, because the inflation that has caused the value of the after-tax wages to lose purchasing power is a direct result of Kirchner’s erroneous policies.

Historically proudly independent, the Banco Central de la República Argentina’s (BCRA—Argentina’s central bank) primary mission had been to preserve the value of the country’s currency. Under Cristina Kirchner that changed in 2012, when its mission was restated “to promote, to the extent of its ability and in the framework of policies established by the national government, monetary stability, financial stability, jobs and economic growth with social fairness.”[45 ] Translated into Kirchnerista realpolitik that meant for all practical purposes that a political component was added to the BCRA’s mission allowing the government to establish direct access to central bank funds.

False Official Figures on the True Inflation Rate. Under Kirchner the official Argentine government statistics agency, the Instituto Nacional de Estadística y Censos (INDEC), deliberately and repeatedly underreported inflation, despite numerous warnings by the IMF not to do so. From 2007 to 2014, for example, private-sector economists estimated the actual inflation rate in Argentina as double or even triple the rate reported by the INDEC. (See Chart 6).[46] In February 2014, the INDEC attempted to obfuscate this under-reporting by announcing a new, “more credible” consumer price index.[47]

By manipulating official inflation statistics, the government significantly reduced the amount of coupon interest paid to its domestic bondholders, many of whom were forced to accept the new bonds as part of the debt-restructuring “haircut” imposed by the government in 2005.

Under the Kirchner governments, relations with the IMF, the world’s “lender of last resort,” became increasingly tense, with Argentina blaming the IMF for bad advice that led to the 2001 debt default (not entirely true),[48] and the IMF (accurately) accusing Argentina of misrepresenting economic and inflation data.[49]

Currency Controls, Black Markets, and Capital Flight. After decades of inflation, hyperinflation, and more inflation, Argentines have understandably become reluctant to hold pesos. When the government stopped pegging the peso to the dollar in January 2002, the peso’s purchasing power fell dramatically,[50] going from parity (one-to-one) to more than three-to-one within a year. In the years since, the peso has kept falling and now is at more than nine-to-one.

In an attempt to prop up the peso and prevent additional foreign currency from leaving the country, Kirchner imposed a series of controls on foreign currency transactions, enacting more than 30 regulations since 2011. These included curtailing most foreign currency purchases, taxing Argentines on the estimated value of their foreign vacations and on Internet purchases, preventing foreign companies operating in Argentina from paying out dividends, and restricting imports[51] (which have meant higher input costs for import-dependent local companies). By 2013, facing a deteriorating balance of payments, the government imposed truly draconian bans on foreign-currency transactions to protect dwindling dollar reserves.

Despite these measures, capital flight accelerated. A recent and telling example has been the purchase of U.S. real estate by Argentines to circumvent capital controls. Millie Sanchez, executive vice president for real estate developer Douglas Elliman Florida, reports that almost 50 percent of all new condominiums built in Miami are sold to Argentines.[52]

Trade Distortions. As the world’s third-largest producer of soybeans,[53] Argentina’s trade surplus was its sole positive economic indicator during the Kirchner years. Predictably, since it was cut off from global capital markets, the government tried to exploit the soybean windfall by imposing high export tariffs (taxes) on soybeans and other agricultural commodities to rebuild the country’s foreign exchange reserves. Soy and its derivatives bear the largest taxes, at rates around 35 percent, whereas wheat and corn are taxed at around 20 percent.[54] Additionally, limits were imposed on wheat exports to contain domestic prices,[55] and exporters were permitted to exchange dollars for pesos only at the official exchange rate.

Another flawed and trade-distorting policy the Kirchner administration imposed with the goal of preserving central bank reserves for its own political use was a government regulation requiring automobile importers to match the value of their imports with an equal value of exports. The importers were forced to adhere to the regulation by exporting agricultural products, which diverted them from their main business expertise.[56]

Argentina’s average weighted tariff rate of 5.6 percent is not particularly high, but the government’s 21st-century version of the old “import-substitution” policy from the 1950s—a failed attempt to stimulate the economy by forcing the substitution of domestically manufactured products for similar imported products—has created onerous non-tariff barriers. Kirchner used the import-substitution policy periodically to ban imports on such products as French cheese, iPhones, Apple computers, BMW cars, and Barbie dolls. The government also used the policy to coerce companies to produce goods in Argentina. Some companies gave in, such as Research in Motion (now Blackberry) which, in July 2011, announced that it was partnering with Bright Star Corp. to assemble some of its devices in the Tierra del Fuego region (the Kirchners’ home area).[57]

Argentina’s most important trading partners are Brazil, China, and the United States. (See Chart 8.)[58 ]Its most important trade agreement, the Mercado Común del Cono Sur (Mercosur) of Argentina, Brazil, Paraguay, Uruguay, and Venezuela, was designed to promote the free movement of people, goods, and services between the member states, but has largely failed in that goal.[59] Mercosur has never fulfilled its potential because its two biggest members (Argentina and Brazil) clung stubbornly to the protectionist policies that MERCOSUR was supposed to mitigate. Nevertheless, Mercosur represents a potentially large market for Argentina, but it should be re-shaped along the lines of the more successful Pacific Alliance.[60] President Macri took an excellent first step to revitalize and reform Mercosur when he said on November 23, 2015, that he “would seek Venezuela’s suspension from regional Mercosur trade bloc over rights abuses committed by President Nicolás Maduro’s administration.”[61]

Hostile Investment Climate

Given Argentina’s track record, businesses and investors have developed well-grounded and rational fears of nationalization and loss of investment capital. Néstor Kirchner re-nationalized the postal service, and also nationalized a shipyard, the railways, a water company, and a mobile phone operator.[62] In 2008, $30 billion in private pensions were seized by the Cristina Kirchner government.[63] She also nationalized Aerolíneas Argentinas. Perhaps the most infamous re-nationalization in recent years was that of YPF, a formerly state-owned entity that had been privatized during President Menem’s liberalization reforms in the 1990s.

Argentina’s long history of nationalizations has hurt its climate for FDI. A common practice that countries with spotty track records have used to improve their FDI reputations has been to sign bilateral investment agreements (BIAs). These agreements provide a legal basis setting the terms by which nationalizations can occur and allow equal treatment of companies both inside and outside the country. Argentina has 58 BIAs, the majority having been signed in the 1990s under Menem.[64] Renegotiating them and seeking new ones may help improve Argentina’s reputation and attract more FDI.

The Way Forward

President Macri takes office in a country that has lost much of its economic freedom over the past decade by squandering its immense resources. His task, for the good of the people of Argentina, the region, and the world, will be to restore it. The following steps would help:
•Improve Argentina’s investment climate by re-establishing the rule of law through an aggressive campaign to root out corruption and re-establish an independent judiciary.
•Control inflation by implementing a coherent policy to limit the printing of money.
•Restore the independence of the central bank so that the new government can execute effective monetary policy.
•Resolve remaining issues connected to the 2001 default. With such a poor credit history, it might be advantageous for the next government of Argentina to issue short-term maturity debt and denominate it in U.S. dollars, a strategy that could allay investor fears.
•Streamline the regulatory structure to encourage private business formation and overhaul antiquated bankruptcy laws.
•Institute a flat tax and lower the 35 percent flat tax on businesses.
•Eliminate export taxes on soybeans and other agricultural commodities to generate increased exports of more competitively priced products.


Argentina’s new president inherits a system of political instability and restrictive policies that has hindered economic growth. The downfall of Argentina, once a great and wealthy country, began under Juan Perón; the Kirchners merely perfected the damage.

As noted economist and Argentina native Dr. Alejandro Chafuen has written, it was Perón who put Argentina on “the road to decay” by implementing fascism, “one of the most powerful collectivist doctrines of the 20th century,” which was based on “government-based economic management” that “devastated the economic culture and rule of law.”[65]

President Macri must bury Perónism once and for all, and announce the advent of a new day for Argentina, a day when everyone can get back on the road to market-based democratic principles, economic freedom, and prosperity.

—James M. Roberts is Research Fellow for Economic Freedom and Growth in the Center for Trade and Economics, of the Institute for Economic Freedom and Opportunity, at The Heritage Foundation. George A. Margulies, a former member of the Young Leaders program at The Heritage Foundation, is a student at New York University’s Leonard N. Stern School of Business. Theodore Ellis and Nicholas Hoffman, current members of the Young Leaders program, made valuable contributions to this paper.

By Staff

Newly-elected Argentine President Mauricio Macri said that his government is determined to “make headway” into the investigation of the 1994 AMIA Jewish center bombing in Buenos Aires, the Jewish Telegraphic Agency reported on Wednesday.

“We are fully committed to contribute in any way we can to make headway with this investigation,” Macri declared. “Here, we suffer the ravaging consequences of two bomb attacks. We are still in the dark of what happened.” The second attack Macri referred to was the 1992 bombing of the Israeli embassy in Buenos Aires. The Argentine president also pointed out that his government abandoned an agreement signed by the previous administration to jointly investigate the AMIA bombing with Iran, the main suspect in the case. A court found the accord to be unconstitutional.

Macri, whose election last year was considered a setback to Iranian ambitions in Latin America, made the comments at the Plenary Assembly of the World Jewish Congress (WJC), which is being held this year in Argentina. He further spoke of the historic ties between Israel and Argentina, noting that he met with Israeli Prime Minister Benjamin Netanyahu at the World Economic Forum in January. On that occasion, Macri said he told Netanyahu that “we want to boost our relationship in order for us to work closer than ever in order to defend peace throughout the world.”

Delegates from the WJC are to participate in a commemoration marking the 24th anniversary of the Israeli embassy bombing on Thursday.

Argentine prosecutor Alberto Nisman, who had investigated the ties between Iran and the AMIA bombing, as well as a cover up by the previous Argentine government of Iran’s role in the attack, was found dead with a bullet wound to the head last January. His death came hours before he was scheduled to present his findings to a closed session of the Argentine Congress. Prosecutor Ricardo Sáenz concluded late last month that Nisman was murdered and recommended that the investigation into his death be referred to a federal court. A three judge panel is to rule on his recommendation Friday.

Eamonn MacDonagh, contributing editor to The Tower, has written extensively on the Nisman case. In Alberto Nisman’s Secret Recordings, Revealed, which was published in the July 2015 issue of The Tower Magazine, MacDonagh exposed some of the back channel dealings between the Argentine government’s representatives and Iranian interlocutors.

By Manuel Tufró and Paula Litvachky
18 March 2016

One of the dangers of the new government’s anti-drugs measures is that they enable military intervention in matters of domestic security, a path that once taken, is hard to reverse.

December 2015 brought a change of government to Argentina. Since the election campaign, the new authorities have declared drug trafficking to be the most severe problem affecting the country. They have stirred up arguments rooted in fear – the dangers of becoming another ‘Colombia’ or ‘Mexico’ – but without offering any definite diagnosis as to the forms of drug trafficking or the magnitude of its impact on Argentine society.

Upon taking power, the current government carried on with its escalating discourse, referring to a ‘paradigm shift’ in drug policy. The measures announced show a realignment of the country on the map of world debate with regard to drug-related problems and drug trafficking. The previous government had implemented vacillating policies, which combined support for progressive-minded positions in international arenas with erratic measures on the domestic front. The new administration seems to have begun to address these inconsistencies in the worst way, marking Argentina’s entry into the ‘war on drugs’.

Internationally, the economic, institutional and humanitarian consequences of this ‘war’ have mobilised an increasingly important bloc of actors who assert the need to abandon this paradigm and explore new forms of state regulation of these markets, along with policies that apply the perspective of harm reduction when it comes to problems of violence, instead of inciting yet more of it through the criminal justice system and militarisation.

In regional and international debates before 2015, Argentina stood by the countries that advocated further discussion of the effectiveness of the ‘war on drugs’ paradigm. The new government has begun to abandon that position, through regulatory decisions and an ever more explicit rapprochement with the United States, the main proponent of the war-like approach to drugs. At the same time, domestically, a fear campaign built around the growing problem of drug trafficking over the past two years has silenced incipient debates on the decriminalisation of consumption.

Argentine academics and experts on drugs, members of the “Grupo Convergencia”, published a document in 2015, “Drogas: una initiative para el debate” (Drugs: a debate initiative), in which they point out: “At present, Argentina does not have a comprehensive diagnosis of the drug phenomenon. By comprehensive diagnosis, we mean the existence and availability at all state levels of exhaustive, systematic and updated institutional knowledge of the drug phenomenon. This is not the case in our country where, unfortunately, presumption, intuition and improvisation have prevailed.”

But what is known for certain is that in recent years, the policies deployed against drug trafficking, by way of action or omission, have conspired to strengthen two of the most negative aspects associated with criminal networks, and not exclusively in the case of drug trafficking: institutional penetration, or the collusion or involvement of public, judicial and police officials in these networks; and the cycle of violence in poor neighbourhoods. The new authorities have not included these issues among their priorities.

‘New threats’ as justification for military intervention

One of the main risks of the new approach being adopted in Argentina is that it opens the door to military intervention in matters of domestic security, a path that once taken, is hard to reverse.

The examples of Mexico and Colombia are extreme cases that nevertheless highlight the fact that direct intervention by the armed forces in actions against drug trafficking or other forms of crime has grave consequences in terms of increased violence, massive human rights violations, and the de-professionalisation and corruption of military structures. At the same time, progress toward the dismantling of markets and criminal organisations has been little to none.

In contrast to various other countries in the region, in Argentina, the distinction between domestic security and foreign defence has been upheld since the return of democracy in 1983, although during the 1990s there were attempts to involve the armed forces in the fight against drug trafficking. Military resources were mobilised as of 2013 to provide logistical support to border control, with the ‘advance of drug trafficking’ as the underlying argument.

The new government took a qualitative leap in this same direction: on 22 January 2016, a presidential decree declared a “security emergency” for the entire country. Among other things, the decree characterises drug trafficking as a “threat to national sovereignty” in that it is a crime that may have transnational connections, even when other transnational crimes do not receive the same treatment. Characterising drug trafficking as a “threat to national sovereignty” places it in a grey area somewhere between domestic security (the field of action of police and security forces) and defence (within the scope of the armed forces). The decree thus brings about a substantive change in that it authorises direct intervention by the military – in this case the air force – to shoot down planes that resist identification (or cannot be identified).

The measure also implies explicit alignment with the doctrine of ‘new threats’ and, more generally, with the areas of work envisioned by different US agencies that advocate the armed forces’ participation in internal security. This approach can be observed, for example, in the appointment of a former head of the Buenos Aires Provincial Police’s Drug Division as the new chief for the entire provincial police force (which is the largest in the country); according to news reports, he was recommended by the US Drug Enforcement Administration (DEA). It can also be seen in the trip that security minister Patricia Bullrich made, along with other officials, to the United States at the end of February, where they met with officials from the US Department of State, the DEA and FBI, among others, for technical advice on interventions and weapons.

Other forms of militarization

Another regional trend indicates that the fight against organised crime has served as an alibi for other forms of militarisation of domestic security. For instance, the adoption by police and other security forces of military equipment and tactics. This phenomenon has reached the United States, where the federal government equipped police with weapons, vehicles and other items used by the military in the wars in Iraq and Afghanistan, and trained their security forces in military tactics. All of this has been used in the context of the war on drugs, essentially against the black population, according to a report by the American Civil Liberties Union (ACLU), “War Comes Home: The Excessive Militarization of American Policing”.

This militarisation of the police exceeds the matter of the war on drugs and has consequences for fundamental aspects of democratic life, such as the right to protest. The episodes in Ferguson, Missouri showed the world how military uniforms, weapons and vehicles are used as part of extremely aggressive tactics to control and repress public protests.

In Latin America, this phenomenon builds on historic patterns of police militarisation, inherited mainly from the dictatorships, but also combined with seemingly contradictory trends, such as neighbourhood or community policing. These forces, at least on paper, should adopt methods of action that insert police into communities and move away from militarised models of territorial control. A clear example of these opposing trends are the Police Pacification Units (UPP) used in Rio de Janeiro since 2008, a policy aimed at regaining control of some favelas, or shantytowns. The neighbourhoods are invaded by heavily armed elite corps or, in some cases, by the armed forces, to then install police forces supposedly trained in community techniques. The apparent initial success of the programme has been tainted, however, by the serious claims of police violence toward shantytown inhabitants in recent months.

In Argentina, although levels of police militarisation are lower, the trend in recent years has not been wholly absent. The province of Córdoba has a heavily armed police force called the Department of Territorial Occupation that, since its creation, has used deployment tactics that reflect a military indoctrination which envisions poor neighbourhoods as enemy territory to be occupied and controlled. During the previous government, this trend gained ground through the use of the national gendarmerie, an intermediate militarised force, to patrol zones of urban conflict. And while interventions by the gendarmerie have proven less lethal than those of the actual police forces, this highlights other problematic aspects of the use of militarised forces in urban settings, such as the difficulties of coexisting with the inhabitants of these neighbourhoods, especially the young men, who the gendarmerie see as subjects to be disciplined.

Lack of oversight of police and judicial institutions

In the case of Argentina, the militarisation of domestic security in any aspect is an ineffective and disproportionate recipe for taking on the key problems associated with the activities of criminal networks, foremost of which is collusion on the part of different state agencies.

Institutional penetration is far below the levels seen in so-called ‘narco-states’; however, it is a phenomenon that allows different criminal networks to persist. Recent cases confirm this, such as the lawsuits brought against judicial officials or the scandals caused by police and politicians’ involvement in drug-trafficking networks.

The measures taken to date by the new government suggest that the official position is that the weaknesses in prosecuting criminal networks are quantitative rather than qualitative. Therefore, more resources have been announced for the judicial branch, and new tribunals opened to alleviate the work of courts clogged with minor cases, but there has been no assessment of the structural problems in the justice system or the police forces that impede effective prosecution of the big players in drug trafficking and other illegal businesses.

The justice ministry recently announced a legislative package intended to facilitate the fight against organised crime. It is still too soon to know if these bills will be passed and implemented, or what impact they might have. Some seem to be aimed at intervention in the complex structures of criminality. However, there were no announcements as to underlying reforms to deal with the problem of police and judicial powers that function as key mechanisms in illegal markets.

At the same time, other troubling measures have been taken that cast doubt on the true intentions of the government’s fight against drug trafficking, such as the appointment to key positions in the anti-money laundering office (Financial Information Unit, or UIF) of lawyers who defend companies and banks accused of laundering funds.

Dangers of the new direction

Since the previous administration, drug policy and the pursuit of drug traffickers have been erratic, with a pronounced toughening of the criminal justice system in the last years of president Cristina Fernández’s second term (2011 to 2015). The new government has announced its alignment with the ‘war on drugs’ paradigm, the inefficacy of which has been demonstrated in several other countries. If this new direction gains strength, adverse effects can be expected in terms of violence, human rights violations and institutional functioning.

In the same way that prohibition leaves the market in the hands of drug traffickers, the war on drugs leaves the problem fundamentally in the hands of violent and corrupt police forces, and opens the possibility of military intervention. While criminal networks have an impact on institutional quality and on the quality of life of the poorest people, so do the anti-trafficking policies adopted and announced, because they are not aimed at the core of institutional collusion that allows these networks to exist. The real problems of violence in some areas thus remain hidden under the guise of an indefinite threat.

In this context, the prohibitionist paradigm is not being discussed, leaving debates to focus rather on how much to intensify punitive interventions against the narcos, minor dealers, traffickers, micro-traffickers and even consumers. This type of focus has proven to be ineffective in its objectives – which are the reduction of consumption and trafficking – whereas its negative impact on the spread of violence and on human rights has been documented throughout the region, as can be seen in this report compiled by 17 organizations, “The Impact of Drug Policy on Human Rights: The Experience in the Americas.”

Under a state of emergency and in a climate of fear-mongering, the problems associated with drug trafficking and drugs get muddled. They end up outside of the political debate, as part of a seemingly indisputable consensus that dictates the toughening of the criminal justice system, bolstering of police and, eventually, military intervention. The spaces for other voices to be heard are narrowing, voices that contend that there cannot be effective policies against organised crime without deep reforms of the police and security systems, and that the ‘drug problem’ should be approached from a standpoint of harm and violence reduction that tackles the mafia-like ways of regulating these markets that prohibition merely foments.

This article is published as part of an editorial partnership between openDemocracy and CELS, an Argentine human rights organisation with a broad agenda that includes advocating for drug policies respectful of human rights. The partnership coincides with the United Nations General Assembly Special Session (UNGASS) on drugs.

18 March 2016

”The Clan,” Pablo Trapero’s wrenching, exciting new film, could be described as an examination of the banality of evil. It’s the story, closely based on actual events, of an ostentatiously normal family involved in crimes enabled by a climate of political violence and repression.

But the patriarch, Arquímedes Puccio, played with regal sang-froid and deadpan perversity by Guillermo Francella, is also a study in the evil of banality. His steadfast attachment to conformity and respectability is inseparable from his coldblooded, self-serving sadism. In his own mind, everything he does — the kidnappings, the beatings, the occasional murder — is an expression of his essential rectitude. He’s a good father, a good businessman, a paragon of petit-bourgeois virtue who happens to keep hostages tied up in the basement.

The pathology is not his alone. ”The Clan” takes place in Buenos Aires in the early 1980s, when Argentina was ruled by a military dictatorship that specialized in ”disappearing” its suspected political opponents. Arquímedes, though he is proud of his government connections (and adept at exploiting them), has neither an official position nor any particular ideological commitment. He’s in it for the money, selecting his prey based on the ransom he can collect. Rather than targeting supposed leftists, he and his accomplices — principally his son Alejandro (Peter Lanzani) — focus on members of their own class and social circle, including a young man who belongs to Alejandro’s rugby club.

One of Alejandro’s brothers leaves Argentina to escape the family business. Another, returning from a year abroad, is initiated into it. Their sisters and their mother are not expected to participate, and one of the questions Mr. Trapero raises is how much they know, or permit themselves to know, about what is happening under their noses. Mostly, they regard Arquímedes with deference and adoration, helping to fashion an image of the perfect traditional family. He helps his daughters with their homework, addresses his wife with chivalrous courtesy and strives to embody a Latin American version of a ”Leave It to Beaver” fatherly ideal. He’s a provider and a protector — stern, kind, capable and patient.

There is an element of grisly, grotesque comedy in the gap between who the Puccios — Arquímedes, above all — really are and who they pretend to be, and Mr. Trapero, whose other features include the intense prison drama ”Lion’s Den,” choreographs the contradictions of their domestic life with ferocious wit. ”The Clan” is partly a dark satire of the authoritarian personality, an appalling CT scan of male entitlement and middle-class vanity.

It is also a terrifically entertaining movie, which I don’t entirely mean as praise. Mr. Trapero’s energetic style, his almost gleeful juxtapositions of sex and violence and his exuberantly Scorsesean musical cues often pull against the gravity of the story. The period details are meticulous, and the shifting décor of the Puccio home provides a catalog of strenuously tasteful ’80s bad taste that may touch a nostalgic chord in middle-aged viewers. The kidnappings and ransom negotiations provide jolts of suspense, as does the larger narrative of Arquímedes’s unraveling ambitions. As Argentina inches toward democracy, he becomes more desperate and reckless; Alejandro’s doubts about his father grow; and an inevitable reckoning approaches, for the family and the nation alike.

Argentina awoke from the nightmare of dictatorship in 1983, and in the years since, in the midst of economic and political turmoil, its writers and filmmakers have grappled with the legacy of the ”dirty war.” Mr. Trapero has set out to examine the period from the perspective of the guilty, to explore the psychology of both the active collaborators with a brutal system and its passive beneficiaries. The cleverest and most troubling aspect of the film is its empathy.

Alejandro is such an appealing young man that we can’t help rooting for him. His father, though despicable, is also intriguing and charismatic, partly because of Mr. Francella’s commanding, disarmingly dignified performance. As fans of recent antihero-driven cable dramas know, it’s hard not to identify with a complicated protagonist, and Mr. Trapero exploits this habit of identification, ensnaring the audience, and maybe also the film itself, in an ethical trap. The violence is exciting, and its perpetrators are more interesting, more vivid and more real than the victims.

When I first saw ”The Clan,” at the Venice Film Festival last September, I was impressed by its insight and bothered by what I took as a certain glibness, a too-easy accommodation of moral horror to the imperatives of the thriller genre. On subsequent viewings, I’ve come to appreciate this ambiguity as part of what Mr. Trapero is trying to address, and as an essential aspect of what his film reveals about the nature of authoritarianism. Fascism is seductive not only because it feeds fantasies of power and greatness, but also because, at a primal, visceral, libidinal level, it can be a lot of fun.

”The Clan” is rated R (Under 17 requires accompanying parent or adult guardian). Civilization and barbarism. In Spanish with English subtitles. Running time: 1 hour 50 minutes.

15. ARGENTINIAN CRIME STORY (The Wall Street Journal)
By Tobias Grey
18 March 2016

The Notorious Case Behind A Hit Film

A movie about one of Argentina’s most notorious criminal cases — a seemingly upstanding Buenos Aires family with a clandestine sideline in kidnapping — has become a box-office phenomenon in the country.

“The Clan,” by director Pablo Trapero, which opens in the U.S. on March 18, has sold more than 2.6 million tickets in Argentina since August.

Set during the early-to-mid 1980s, when Argentina was moving from dictatorship to democracy, “The Clan” is about the affluent Puccio family, whose criminal double life shocked Argentines when it was exposed in 1985. The family kidnapped prosperous victims — usually the sons of prosperous local businessmen — and used the ransom money to build businesses such as a surf shop run by one Puccio son, Alejandro.

The 44-year-old director says “The Clan” is about “people looking the other way.”

The star is Argentine actor Guillermo Francella, best known in his homeland for comic roles and as a television performer. Mr. Francella, 61, plays Arquimedes Puccio, the silver-haired patriarch who died in 2013 on parole from a life prison sentence. Alejandro is played by Argentine actor Peter Lanzani.

“One of the reasons I cast Guillermo was because I wanted to play with the audience’s perception of him as an actor who is respected and loved for what he does by having him portray a monster,” Mr. Trapero said.

Both men decided to use Mr. Francella’s distinctive blue eyes to maximum effect by having him stare and pause before speaking. “I tried to search for ways of expressing the way the character’s mood could suddenly change from moments of pent-up anger to moments when he could be very sociable and charming,” Mr. Francella said.

The actor lived in the same Buenos Aires suburb of San Isidro as the Puccio family and often saw them around the neighborhood. “When the family was arrested [in 1985] I like many others thought that they were not guilty,” Mr. Francella said. “The father seemed like a nice person, the mother was a teacher, the children were of school age and very sports-driven with some of the boys playing rugby. So when they were found guilty it came as a shock.”

Mr. Francella’s view of the man he played has changed considerably since that time. “Now I don’t think Puccio had any moral scruples at all,” he said. “He used to go out shopping in the same car that he used for the kidnappings. He was extremely intelligent — like a jackal.”

Mr. Trapero’s screenplay, written with Julian Loyola and Esteban Student, focuses on the relationship between Arquimedes and his eldest son, Alejandro, who died of pneumonia in 2008 while on parole from a life prison sentence. Before his conviction, both in the film and in real life, Alejandro was hailed as a local hero because he played for the national rugby team.

In 2007, Mr. Trapero began to think about making a movie about the “Puccio clan,” as they came to be known in Argentina. But it wasn’t until 2014 that he managed to raise the movie’s roughly $5.5 million budget, after lining up a production partnership between an Argentine filmmaking company, Kramer & Sigman, and Spanish filmmaker Pedro Almodovar and his brother Agustin’s production company El Deseo.

“The Clan” is the eighth feature directed by Mr. Trapero, who was taken aback by the ghoulish sideshow his film inspired.

“I couldn’t believe that in the first few weeks after its release people were queuing up in front of the Puccio house in San Isidro to take selfies,” he said.

The director is preparing to shoot his first English-language movie this year — an adaptation of Mark Seal’s 2011 nonfiction book “The Man in the Rockefeller Suit” about a German who conned his way into working on Wall Street by posing as a scion of the famous American family. Again, it is a true story about a false facade of respectability. “Above all I’m interested not so much in the behavior of impostors themselves,” Mr. Trapero said, “but the people around them who have convinced themselves to believe something because it comforts them to believe it.”

By Jenelle Riley
17 March 2016

Filmmaker Pablo Trapero was a young boy in Argentina when he first heard the story of the Puccios, a seemingly normal family in Buenos Aires whom no one suspected had kidnapped and murdered several people during the 1980s. Now, 30 years later, Trapero has brought their story to the big screen with “The Clan,” starring Guillermo Francella as patriarch Arquímedes and Peter Lanzani as his son and reluctant collaborator, Alejandro. Trapero, whose previous films include the acclaimed “White Elephant,” won the Silver Lion for best director at last year’s Venice Film Festival for “The Clan.” The film went on to break box office records on its opening weekend in Argentina and opens this week in New York and Los Angeles after a worldwide festival run.

You were very young when the events in the movie took place; at what point did you start to think about telling the story onscreen? The first time I heard of it, I was only 13. But as you can imagine, it was not easy to forget. In 2007, I was finishing my movie “Lion’s Den” and started to think about making a movie based on the case. It stayed with me all this time.

Is the story still famous to people in Argentina? Yes and no. People from my generation, yes it was very famous. But when we started working on it, I realized that younger people were not that familiar with it. That was a big surprise.

What sort of research did you undertake for the movie? We spent a lot of time it the neighborhood, we talked with Alejandro’s friends, with all the people who had been around. We talked to the lawyers, the relatives of the family, the judges. We had to do all this to get the feel of what it was like inside that house.

How do the relatives feel about what happened? The son changed his last name and has nothing to do with them. We tried to reach out to (the immediate family) through friends, but they never wanted to talk to us. We talked with the families of the victims, which was exactly the opposite: they needed to talk to us, they needed to share what happened. They were very supportive.

I assume the families of the victims have seen the movie? Yes. Some came to the premiere in Argentina and it was really moving. Guillermo was present and it was very strange because they were hugging him, saying how great his performance was and how close it was to the real person.

Speaking of Guillermo, he’s so chilling in this film, but I understand he’s actually known for his comedic work back home? Yes. Not only a comedian, but a huge star in comedies. He can’t even walk down the street because people are shouting at him and wanting to take pictures. So it was a big challenge for both of us. I knew he was a great actor, but we wanted to see if he could be a villain. The first question I asked when we first met was, “Are you comfortable playing someone who’s such a real villain?” And he was very committed from the beginning. He actually said yes before we even had the final draft of the script done.

How did you know he could do it? I don’t know. I loved the idea of taking advantage of his popularity because it was similar to Arquímedes. He was respected and loved, and most of the people around their house were very skeptical about the news. They thought it was a mistake. So we tried to do that, have this nice, charming guy playing him. He was very cast against type. It was the same with Peter, who played Alejandro. He was cast after a long, long process. He used to be a teenage star on TV. This is his first movie.

This is one of those films that shows how truth is stranger than fiction; was there anything you had to leave out you would have liked to have included? So many things. Actually the criminal life of Arquímedes Puccio began in the late ’60s. He has a very long record and an amazing one. There were many things I had to leave out in order to focus on these four cases. We chose to focus on that one period which already had so much story in it.

What’s up next for you? Sleep. I’ve been promoting the movie. But next I’m supposed to do a movie here called “The Man in the Rockefeller Suit,” about this man (Christian Karl) Gerhartsreiter, who posed as a member of the Rockefeller family. It’s an amazing case and I’m really happy to be part of it. We’re working on a new draft and if things go right, I think we will be in production by the end of the year. It’s such an exciting project.

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