ANALYSIS/OPINION:
Once rich beyond measure, Argentina now flirts with default and catastrophe yet again.
Somehow, a discredited government led by its increasingly more incoherent President Cristina Fernandez de Kirchner must soon find a way to repay Argentine sovereign debt issued under New York law, or face outright exclusion from global capital markets.
Why should Americans care?
Likely consequences for Argentina’s population (draconian cuts in public spending, soaring inflation, and spreading local bankruptcies), pale in comparison to what lurks over the near-term horizon for Americans.
Obama must stop channeling Evita
Listen to these words from a famed and deeply flawed Argentinian populist: “keeping books on social aid is capitalistic nonsense. I just use the money for the poor. I can’t stop to count it.”
Sound familiar?
Decades ago, when foreign lenders were only too eager to advance sums, politicians including Eva Peron and her husband Juan mortgaged Argentina’s future to pay for dreams they sold as reality to incurious masses.
Inside America, President Obama has been compounding mistakes once made by Peron, with a population that today is much more expensive to sustain.
In 2014 Argentina’s population is 43 million, 39 percent of whom are 25 to 54 years old and more actively involved producing goods and services, while just 20 percent are over 54 years old. In contrast, America has a population of 319 million that has grown accustomed to a much higher standard of living — 40 percent of these are active, while 27 percent are seniors.
In America, best estimates suggest that this senior-laden population mix will accentuate and grow ever more costly from a social services perspective for many decades.
The policies that brought a resource-rich country like Argentina into structural destitution following decades of waste, cronyism and corruption are policies the Obama administration embraces even now with unchecked and unwise abandon.
Looking back, the Perons’ disdain for fiscal and economic reality explain Argentina’s current plight and presage America’s fate once foreign lenders concoct a viable replacement for the ever-shrinking American dollar.
A financial wake-up call
Argentina struggles in 2014 in part because it recently defaulted on its debt in 2002, suffering since then much-constrained access to needed financing from external sources.
For all its troubles now, Argentina is actually much less reliant on foreign capital than America is today.
According to statistics from the CIA World Factbook, Argentina’s external debt stood at $111.5 billion at the end of 2013. Subtracting foreign exchange reserves of $33.7 billion, Argentina’s net external debt was $77.8 billion or just 16.1 percent of that country’s economic output.
In contrast, America’s net external debt at year-end 2012 (the most recent period for which comparable figures are available) reached $15.5 trillion or a far higher 92.7 percent of economic output.
How much longer can America carry such a large external debt?
Rumblings grow in volume threatening the role of the U.S. dollar as the pre-eminent reserve currency, while rivals such as China and Russia stoke concern among remaining states that are financially solvent about the direction of America’s finances under President Obama.
Another geopolitical zone of concern?
Buenos Aires is far removed from Washington, D.C. and from global flashpoints in the Middle East, Central Europe and Asia, so financial contagion in Argentina need not necessarily inflame a troubled world more. But pressed financially, Argentina is also ripe for the picking by powers whose strategic interests do not align with those of the U.S.
China has already stated that it backs Argentina’s claims against Britain over the Falkland Islands, which sit atop energy reserves that are rumored to be substantial in size.
Russia has not yet sought Argentina out publicly as a promising alliance partner, but Vladimir Putin certainly is following a muscular foreign policy challenging the United States.
Americans now watch as a vise clamps down upon the long suffering people of Argentina, ignoring the much larger implements that will diminish our own futures.
• Charles Ortel serves as managing director of Newport Value Partners (NewportValue.com), which provides economic research to executives and to investment firms.
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