Wall Street's role in Argentina collapse

[Louis Proyect <lnp3@xxxxxxxxx>]

Argentina Didn't Fall on Its Own
Wall Street Pushed Debt Till the Last
By Paul Blustein
Washington Post Staff Writer
Sunday, August 3, 2003; Page A01

BUENOS AIRES -- Ah, the memories: Feasting on slabs of tender Argentine
steak. Skiing at a resort overlooking a shimmering lake in the Andes. And
late-night outings to a "gentlemen's club" in a posh Buenos Aires
neighborhood.

Such diversions awaited the investment bankers, brokers and money managers
who flocked to Argentina in the late 1990s. In those days, Wall Street
firms touted Argentina as one of the world's hottest economies as they
raked in fat fees for marketing the country's stocks and bonds.

Thus were sown the seeds of one of the most spectacular economic collapses
in modern history, a debacle in which Wall Street played a major role.

The fantasyland that Argentina represented for foreign financiers came to a
catastrophic end early last year, when the government defaulted on most of
its $141 billion debt and devalued the nation's currency. A wrenching
recession left well over a fifth of the labor force jobless and threw
millions into poverty.

An extensive review of the conduct of financial market players in Argentina
reveals Wall Street's complicity in those events. Investment bankers,
analysts and bond traders served their own interests when they pumped up
euphoria about the country's prospects, with disastrous results.

Big securities firms reaped nearly $1 billion in fees from underwriting
Argentine government bonds during the decade 1991-2001, and those firms'
analysts were generally the ones producing the most bullish and influential
reports on the country. Similar conflicts of interest involving analysts'
research have come to light in other flameouts of the "bubble" era, such as
Enron Corp. and WorldCom Inc. In Argentina's case, though, the injured
party was not a group of stockholders or 401(k) owners, it was South
America's second-largest country.

Other factors besides optimistic analyses impelled foreigners to pour funds
into Argentina with such reckless abandon as to make the eventual crash
more likely and more devastating. One was Wall Street's system for rating
the performance of mutual fund and pension fund managers, who were major
buyers of Argentine bonds. Bizarrely, the system rewarded investing in
emerging markets with the biggest debts -- and Argentina was often No. 1 on
that list during the 1990s.

Within the financial fraternity, some acknowledge that this behavior was a
major contributor to the downfall of a country that prided itself on
following free-market tenets. That is because the optimism emanating from
Wall Street, combined with the heavy inflow of money, made the Argentine
government comfortable issuing more and more bonds, driving its debt to
levels that would ultimately prove ruinous.

"The time has come to do our mea culpa," Hans-Joerg Rudloff, chairman of
the executive committee at Barclays Capital, said at a conference of bank
and brokerage executives in London a few months ago. "Argentina obviously
stands as much as Enron" in showing that "things have been done and said by
our industry which were realized at the time to be wrong, to be self-serving."

full: http://www.washingtonpost.com/wp-dyn/articles/A15438-2003Aug2.html


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