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Argentina on verge of “collapse” says US senator Marco Rubio

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WASHINGTON, February 7, 2014 (AFP) – Argentine President Cristina Kirchner’s government was accused by a leading Republican senator Friday of risking a credit default given its currency woes and of failing to stand by its democratic promises.

The strains in diplomatic relations were aired during questioning of the next proposed US ambassador to Buenos Aires, Noah Mamet, at the Senate Foreign Relations Committee in Washington.

“It looks like they’re headed for another default, because all the actions they’re taking today seem to be designed to avoid a short-term default, but long term, their structural problems are extraordinary,” said Republican Senator Marco Rubio.

“We have this trend in Latin America of people who get elected but then don’t govern democratically. Argentina is an example of this,” said Rubio, comparing the country to Venezuela, which also is suffering high inflation.

Argentina, Latin America’s third-largest economy, appears powerless in the face of the hemorrhage of the peso. The central bank has said that it burned through $2.1 billion in reserves in January alone.

The government is struggling to beat back a mounting rush into dollars that has stoked 26 percent inflation despite price controls on many items and pressure on businesses to avoid price increases.

Rubio, who has been talked of as a possible US presidential candidate in 2016, told Mamet: “I anticipate, quite frankly, that there is a very high likelihood that if you are confirmed, while you are in that post, you are going to have another similar collapse in Argentina to what you saw economically just a decade ago.”

The Republican senator’s comments, however, were rebuffed for their “arrogance” in Buenos Aires, by Cabinet Chief Jorge Capitanich.

Argentina’s foreign reserves, crucial to service foreign debts and pay for needed imports such as fuel, have tumbled from $52 billion at the beginning of 2011 to $28.5 billion as of January 30, according to Central Bank data.

Seeking to play up more positive aspects of US-Argentine relations, Mamet mentioned American investment, but senators on the committee seemed unconvinced.

“And just the rosy view that we have business there — yes, we have business there. What — we have bondholders who don’t get paid,” said Senator Robert Menendez, a Democrat.

“We have debt to the United States that they keep playing with by saying ‘we’re going to renegotiate’, and never get to a renegotiation,” he added.

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  • Derryl Hermanutz

    As Michael Hudson puts it, Debts that can’t be paid, won’t be.

    Unlike the US, Argentina can’t print US dollars. So unless investors invest $ into Argentina, or US and global consumers buy imports from Argentina and pay with US$, Argentina can’t earn $ to pay its $ debts. If investors in aggregate loaned $1trillion to Argentines at 10% interest, then Argentines in aggregate have to earn $100 billion in export earnings per year just to pay the annual interest. Each individual creditor may have only loaned $1million or $100 million to Argentines, which seems like a manageable debt, but in aggregate the total amount of $ loans is not manageable for Argentina.

    In a free market system, when debtors go broke, creditors lose the money they loaned. Every debtor “promises” to repay, or the creditor wouldn’t lend them money in the first place. But in reality debtors default and creditors lose their money.

    Rubio blames Argentine debtors for not having enough $ to repay their $ debts. But nobody forced creditors to lend $ to Argentines. The lenders took a risk, and the interest rates they charged on the loans made the risk look profitable. Lenders made a decision based on their risk/reward analysis.

    In a free market, people make bad decisions and the market punishes them with losses. Too big to fail bankers lose trillions, and US taxpayers bail them out so the bank executives and bank shareholders are insulated against market punishments for their loser decisions. Now everybody expects the government to protect them against the free market, and bail them out so they never have to suffer losses for their bad decisions.

    Debtors who have no money can’t pay their debts. Debtors who owe money in a foreign currency can’t repay the foreign money unless they have export earnings paid in that currency, or receive investment money paid in that currency. It’s not a political problem or a moral problem. It’s an arithmetic problem. You can’t repay money that you don’t have and can’t earn.

  • expatin paradise

    I don’t get why anyone would quote Marco Rubio as anything other than a joke. This is just more grandstanding from a presidential wannabee, and probably a prelude to another Republican attempt to hold the US economy hostage over the debt ceiling. These comments have no relevance to an ambassador’s confirmation. Whether Argentina defaults or not, the US needs to have an embassy there.

  • Glenn E. Gromann

    Which is why these countries should adopt the American Dollar as their national currency. The Euro props up weaker economies in Europe in the guise of a unified currency. Make the Dollar the currency of the western hemisphere. Won’t happen because too much nationalism.

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