By Leslie Elliott Armijo
Images Money / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)
Argentina’s ongoing sovereign debt negotiations provide a different window onto the dollar’s reserve currency status. Like most countries, Argentina has held a large chunk of its government’s savings in the U.S. and hired private U.S. financial institutions as its international bankers. Today it is trying to extricate itself from U.S. markets and do its saving and financial intermediation elsewhere. Iran and Russia are doing the same, but Argentina has no foreign policy quarrel with the Obama Administration – and is not subject to U.S. financial sanctions over nuclear or military adventurism. Buenos Aires is among those who chafe at U.S. power through the dollar, but it is primarily motivated by the U.S. Supreme Court’s decision in July to let stand a lower court judgment in favor of investors holding bonds from Argentina’s $82 billion sovereign debt default in December 2001. Although 92 percent of the original bondholders accepted the Argentine government’s restructured (lower value) bonds in 2005 and 2010, New York Federal District Court Judge Thomas P. Griesa ruled that Argentina’s failure to settle with the holdouts means that any U.S. financial institutions, or their international affiliates, that intermediate funds enabling Argentina to stay current on payments to the majority will themselves be in contempt of court. This has sent Argentina into “technical default.” Argentina is suing the U.S. in the International Court of Justice (whose jurisdiction the U.S. refuses to recognize) and in the court of global public opinion – pushing, for example, a recent proposal for global financial reform before the U.N. General Assembly. It has also welcomed an $11 billion currency swap agreement with China, and Chinese state banks have since pledged $6.8 billion in new infrastructure loans. Some observers speculate that the very first loan of the New Development Bank, newly organized by the BRICS countries, could go to Argentina.
The Argentine bond case harms the perceived fairness and credibility of U.S. financial markets and, by extension, the strength of the U.S. dollar because the recent legal judgments seem capricious to many. Senior figures at the IMF have long supported the routine inclusion in all international sovereign bond issues of a so-called “collective action clause,” which would make any restructuring accepted by two-thirds of bondholders binding on all. The European Union already has ruled that sovereign bonds issued within the EU, including many for troubled Eastern or Southern European governments, must contain such clauses. Moreover, the International Capital Markets Association, representing more than 400 of the world’s largest private investment institutions, has just issued a position paper endorsing obligatory collective action clauses, placing it on the same side of this issue as non-governmental organizations advocating financial architecture reform such as the New Rules for Global Finance and the Jubilee Debt Campaign. This would give taxpayers in emerging economies – the ultimate backstop of the creditworthiness of their governments – the same bankruptcy rights as firms and households. It is not in the interest of Latin American and other emerging economies for U.S. currency and financial dominance to end anytime soon – a tripolar reserve currency system based on the dollar, euro, and reniminbi does not yet appear able to sustain the worldwide growth and prosperity of recent decades and may in fact entail significant risks – but fairer rules for sovereign financing would benefit everyone.
* Leslie Elliott Armijo is a Visiting Scholar at Portland State University and a Research Fellow at CLALS. She is currently co-writing a book about international cooperation in the Western Hemisphere.
Source: Aula Blog
In an interview given to New Yorker editor David Remnick earlier this year, President Obama reflected on his place in history, saying “I think we are born into this world and inherit all the grudges and rivalries and hatreds and sins of the past.”
One measure of any presidency might well be how readily they reevaluate these historic antipathies, dissolve senseless antagonisms whenever possible, and construct more productive international relations for and on behalf of their citizens. This is, of course, easier said than done. Most foreign policy challenges—such as wars in the Middle East, terrorism, and the ongoing crisis in Ukraine—have continued to confound the President and his advisers, and understandably so. They are intractable; pose myriad threats; and require a great deal of time, energy, resources, and political maneuvering to address.
Other foreign policy issues are more straightforward; our interests are clear, and there is widespread domestic and worldwide support for the proposed course of action. U.S. policy toward Cuba is one such issue, and by the measure mentioned above, President Obama is unwittingly falling short.
On September 5, the anachronistic nature of the U.S. embargo against Cuba came into jarring relief as past and present collided. On a sleepy summer Friday afternoon, the White House announced that President Obama had signed a continuation for Cuba falling under the Trading with the Enemy Act, meaning that Cuba will remain on America’s enemies list and be subject to the U.S. embargo for yet another year. The Act, which was originally created to give the president control over trade during wartime, is one of the six statutes on which the embargo rests. By itself, the presidential declaration is unremarkable; it is more likely the result of policy inertia overwhelming an overextended White House than serious policy consideration. What is remarkable—bizarre, even—is the irony of what was unfolding at the very moment that the White House was making the announcement.
It turns out that as the president re-designated Cuba an American enemy, our military was closely cooperating with the Cuban military to monitor an unresponsive aircraft that cruised into Cuban airspace. (The timing of the declaration was so well-designed to go unnoticed that no reporters made mention of this curious case of incongruity in U.S. foreign policy; in fact, the only coverage the presidential determination received this year was in the Costa Rica News.)
Apparently unfazed by the enemy declaration, Cuba allowed the United States to fly a C-130 cargo plane and two F-15 fighter jets in its airspace to investigate the incident and made its own search and rescue resources available in case they were needed.
It is hard to imagine that ISIS or any other genuine enemy of the United States would coordinate so closely with the U.S. military and allow U.S. military aircraft into their airspace. The incident is just another manifestation of the absurdity of extending an old rivalry into an era when simple cooperation is in both countries’ interest.
In fact, for the first time perhaps in decades, this year the Obama administration actually had the domestic political space it needs to take Cuba off the enemies list. In June, former Secretary of State Hillary Clinton aired her recommendation to end the embargo. For months now, increasing numbers of foreign policy thinkers are making public their views that the embargo is outmoded and unworkable.
The political downside to not renewing Cuba’s ignominious designation has all but entirely disappeared. Poll after poll has shown that the American people no longer support travel and trade restrictions on Cuba and would prefer they no longer exist.
There is also a cost to inaction on improving relations with Cuba in the foreign policy sphere. In 2015, for the first time, Cuba will finally be invited to the Summit of the Americas. As policy expert Richard Feinberg assesses in his Americas Quarterly article Cuba and the Summit of the Americas, “In coming months, the United States is going to face a tough choice: either alter its policy toward Cuba or face the virtual collapse of its diplomacy toward Latin America.”
Clearly, not renewing Cuba’s listing would have been good policy and good politics. It would seem that it’s high time for President Obama to reappraise this particular inherited grudge and make a mark in history as a president willing to bury a hatred that belongs in the past.
Marc Hanson is WOLA's Senior Associate for Cuba.