Recent events in Argentina have helped drag quite a few things out into the light that would rather have remained skulking in the shadows.
One of the things that is now clear is that the idea a debtor nation can be ‘too big to be allowed to fail’ is revealed to be a myth. When Ecuador defaulted on $6 billion worth of bonds in 1999, people just shrugged it off as ‘only Ecuador’. Yet now we see Argentina going the same way to the tune of $132 billion.
Another thing has become clear about the IMF. Anne Krueger, the IMF’s deputy managing director, has let it be known that the fund is very keen to get out of the ‘sovereign bailout business’. To this end the IMF has some fantastical plans for ‘harmonising’ international bankruptcy laws which will of course come to nothing. Yet the source of the impetus for restructuring the IMF’s relations with debtor nations is quite revealing and not one you might think. Much of these ‘new’ ideas being floated come in almost whole cloth from Jubilee Plus, a leading anti-globalization pressure group whose very name you would think would be anathema within the hallowed halls of an ostensibly pro-capitalist organisation like the IMF purports to be. In fact what is clear is that Jubilee Plus and the IMF are just different sides of the same pro-stasis coin, profoundly hostile to dynamic free trade networks and in favour of state centred status rather than value based economics.
It says much about the inevitable evolution of the IMF from a supposed facilitator of the global capitalist economic order to being little more than the financial arm of a network of pro-stasis organisations underpinning almost every kleptocratic state on the planet. For as long as the IMF is not just happy to prop up heavily regulated force based value destroying economies of the sort favoured by Jubilee and its ilk, there is little motivation for financial institutions to tailor their lending to the economic realities of a nation’s governance. Yet there is always the fond hope that while the IMF ponders its restructuring, a few really large international lenders will feel some serious pain.
What is really needed is for a few nice large international names to go belly up as there are few things that get the financial world’s attention better than that. I am thinking of people like Citigroup, FleetBoston, Banco Bilbao Vizcaya and Santander Central Hispano, who are all massively exposed to the mess in Argentina… sadly this is probably not going to happen but if it did, what we would have is a clear causal link established between a willingness to lend to kleptocratic governments and disaster. This in turn would impose a real cost in terms of an inability to borrow on governments which pursue anti-economic statist/stasist policies.
Just as companies with bad ideas must be allowed to go broke, so must governments. Sovereign default can be very invigorating to the cause of liberty and advocates of true non-crony capitalism should oppose any institutions which seek to ameliorate the link between government actions and the consequences of those policies. And if those governments, such as in Argentina, are democratic then all the more reason for allowing the voters of that country to reap the bitter consequences of their theft-by-proxy mandates. Let the financial tumbrils roll and lets see whose heads get cut off without the Scarlet Pimpernel of the IMF to come to the rescue.
