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Argentina and Russia: Two Cases of Odious Debt

By Arnaud Zacharie

Original article at

The politico-financial history of the last thirty
years reveals a worrying correlation between financial
crime, indebtedness and poverty. In the four corners
of the world, various agents have put in place a
smoothly running system of decapitalisation resulting
in State bankruptcies and as a consequence the failure
of all public policy guaranteeing the wellbeing of
their peoples. Faced with this scarcely encouraging
situation, the question remains to be answered. Will
the twenty-first century eventually see justice
prevail over the institutionalised accumulating of
fraudulent profits ?

A text-book case: Argentina

Argentina is known for being one of the IMF 's
(International Monetary Fund) favourite pupils. Since
the '80s the country has rigorously applied the
Washington experts' letters of intention. The the
programmes' objective is now well known; freeing the
country from debt and structurally adjusting it to the
global market, in order to break decisively with the
"reactionary" policies of the past, responsible for
the debt crisis at the beginning of the '80s

Following neoliberal theory, state power has
accordingly been diluted, undertakings have been sold
to foreign capital, economic frontiers opened up to
international capital and the multinationals. Today
while 90% of the banks and 40% of industry are in the
hands of international capital, the country has been
in serious recession since July 1988, its external
debt has increased from 43 to 133 billion dollars
between 1983 and 2000, health and education are in
tatters, the average salary is worth half its 1974
value . The collapse is dramatic, both economically
and socially. The reason is clear, though seldom
mentioned; the IMF and successive Argentine
governments have not answered the real problems but,
have , on the contrary , applied measures exacerbating

Evidence now exists , resulting from a judicial
enquiry over 18 years, following a legal process
initiated back in 1982 by a journalist, Alejandro
Olmos.; the Argentine debt crisis has its origin in
wastage and fraudulent misuse of funds featuring the
Argentine government, the IMF, private banks in the
North and the American Federal Reserve. That is why
the Argentine Federal Court has declared the debt
contracted by the Videla regime"unlawful", as being
contrary to the legislation and Constitution of the
country. The court recommends Congress to employ this
judgment to negotiate the cancellation of this
execrable debt.

A smoothly running decapitalisation mechanism

In 1976 Videla's military junta took power and set up
a dictatorship which lasted until 1983.During this
period Argentine external debt was multiplied by five
(increasing from 8 to 43 billion dollars) while the
share of the GNP (gross national product) attributable
to wages sank from 43% to 22%. The dictatorship was to
lead to the debt crisis and the official entry of the
IMF to take financial command of the country, with the
results that are well known.

The verdict of the Argentine Tribunal ,195 pages long,
traces the history of this condition of indebtedness
from its origins. Agents of various types are
featured; on the Argentine side, the principal roles
are occupied by President Videla, Martinez de la Hoz
,the Minister of the Economy sponsored by the Council
of Business Heads, and Domingo Cavallo, Director of
the Central Bank.

Next comes the IMF which since 1976 has been granting
extensive credit to the Argentine providing Western
banks with a guarantee that the country is in a
favoured position for the recycling of their surplus
petrodollars. But the IMF's role does not stop there,
because all through the dictatorship, Dante Simone ,an
IMF staff member, is to be found in the regime's
service. The IMF excuse is that it had granted leave
to M. Simone and that it was he he who put himself at
the disposal of the country's Central Bank (p.27 of
the judgment).The Bank was therfore paying the
expert's board and lodging expenses. It remains to be
discovered who paid his salary and if his leave was
paid by the IMF.

However that may be, Dante Simone produced a written
report addressed to Domingo Cavallo of the Argentine
Central Bank (a copy to the IMF has been found) a
report stating that as regards contracting further
debts there were wide margins before any major
economic danger would arise (p.31 of the judgment). M.
Simone's role was clearly to seek extensive but
discrete external financing

Such external funds were in any case hardlyl difficult
to find, so avid were the Western banks to tap into
new markets, gorged as they were with petrodollars
impossible to invest following the crisis in the rich
countries of the North. The enquiry thus shows that
the Argentine Central Bank was able to make
discretionary investments with American banks, this
without securing the agreement of the Minister of the
Economy, but relying on the generous help of the
American Federal Reserve!

The arrangement between these different lead players
was such that the bank loans granted to Argentina were
never to come under that country's control, but were
to be directly diverted by the banks to tax havens in
the name of front- companies. So the debt did not
benefit the local people but rather the dictatorial
regime and the banks of the North which provided
important technical financial support for the

The rest of the funds were squandered in lavish
subsidies to large groups of Minister Martinez de la
Hoz's personal friends.

In spite of this court judgment, the legislative power
is making no move. It is continuing the country's
liberalisation , pushed to extremes, as this was,
during the '90s ,by the successive governments of
Carlos Menem,who, along with four of his former
ministers, is now being held in custody, for
international arms trafficking during the first part
of his mandate (between 1991 and 1995)!

Rather than employing the judgment to repudiate the
unlawful debt which is keeping his people and his
economy in an unsustainable position, President De la
Rua has urgently recalled Domingo Cavallo to the head
of the Ministry of the Economy, the very man who was
governor of the Central Bank in the time of Videla and
subsequently Carlos Menem's "Super-Minister" of the
Economy during the nineties before getting himself
swept away in the clean-up after the 1998 presidential
elections faced with De la Rua!

A well established culture

While a judgment like this has the capacity to show up
the unlawful character of the Argentinian debt, the
fact that the enquiry lasted 18 years means that those
responsible will remain immume, protected by
prescription covering the facts. The removal of
prescription from economic crimes is a major juridical
objective of the new century But it is not the only

The mechanism brought to light in Argentina is
unfortunately not an exception. Mobutu in Zaire,
Suharto in Indonesia, Houphouet-Boigny in Ivory Coast,
Moussa Traore in Mali, Marcos in the Philippines ,
Pinochet in Chile and others are well known examples
of Chiefs of State at the head of a financial empire
constructed with the aid of the banks by the twisted
course of tax havens. All these countries are burdened
today by unsustainable debt and have been in the
neoliberal hands of the IMF for almost two decades. As
for their peoples, most of them have lost even the
will to go on hoping, to such an extent has an already
well established culture been reinforced by the total
opening up of economic frontiers and the abolition of

One of the most striking examples of this is Russia
which inside a decade has passed from the hope of
democratic emancipation to institutionalised

The facts underlying neoliberal Russia

When the Soviet Union finally collapsed, the local
peoples entertained an amazing hope of liberation and
democratic freedom. Ten years later they have passed
cruelly from bureaucratic rationing to a dramatic drop
in their living standards. Once again a band of
influential agents have united to ceaselessly pillage
a state in course of disintegration.

The former Vice President of the World Bank, Joseph
Stiglitz, , summarises this transition, as follows:
concerning the reforms applied in Russia;

"Following the fall of the Berlin Wall, two schools of
thought emerged concerning Russia's transition to a
market economy. One of them stressed the importance of
institutional infrastructures in a market economy and
recommended a more gradual transition towards market
economy. The second school of thought was composed of
macro-economists whose faith in the market was
absolute. These economists had no knowledge of history
or of the details of the Russian economy nor did they
believe that they needed any.The great strength, and
the ultimate weakness of the economic doctrines relied
on, lies in the fact that that they were - or were
supposed to be - universal. This universal truth is
that shock therapy works for all countries on their
way to the market economy; the stronger the dose (and
the more painful the reaction), the more quickly the
change is effected. Such is their argument. Those who
opposed this course were not consulted for long. By
December 1993 Russia had experienced ' too many shocks
and too little therapy'.And all these shocks had
completely failed to bring Russia to a genuine market
economy. The rapid privatisation imposed on Moscow by
the IMF and the US Treasury had allowed a small group
of oligarchs to take control of the country's assets.
when the government began to run short of money for
paying pensions, the oligarchs diverted important
national resources to Swiss or Cypriot bank accounts.
The United states were implicated in these obnoxious
transactions. In mid-1998 Larry Summers replaced
Robert Rubin in the post of US Finance Secretary, He
appeared by the side of Anatoly Chubais, the chief
architect of the Russian privatisations. In acting
thus the United States appeared to be allying
themselves with the forces responsible for the
impoverishment of Russia. The US Treasury and the IMF
continued to insist that the problem did not result
from too much therapy but from too few shocks. But
during the course of the '90s, the Russian economy
continued to collapse. Whereas only 2% of the
population were living in poverty at the end of the
Soviet period, the 'reforms' saw the rate of poverty
climb as far as 50%, with more than half of Russian
children living beneath the poverty threshold. Today
Russia is eaten away by enormous inequalities and the
majority of Russians have lost faith in the market

The fraudulent diversion of funds operated by the
Russian oligarchs since 1993 are estimated at some 130
billion dollars! Meanwhile the country's external debt
has risen from 60 to 155 billion dollars between 1990
and 1999, whereas the country's GNP in 1999 is only
59% of what it was in 1989. While the people have been
plunged into dire poverty, a handful of oligarchs have
accumulated a fortune ,entirely tax free, with the
complicity of the Yeltsin government, Russian and
Western banks and tax havens.

One of the most striking examples is that of Menatep,
during the Kremlin-gate scandal which erupted in
August 1999. This Russian bank , now in liquidation,
was, with the collaboration of the Bank of New York,
to have diverted to tax havens, some 10 billion
dollars, partly derived from IMF loans.

Late in 1997, Menatep opened an account with Cedel
(now renamed Clearstream), the international clearance
room offering the facility of opening unpublished
accounts (read "Revelation", Denis Robert and Ernest
Black,2000, Les Arenes). Alongside the Bank of New
York are the Vice President,in charge of relations
with Russia, and her husband, the former president of
Menatep and representative of Russia on the IMF
between 1992 and 1995. The agents are in play, with
the complicity of the Yeltsin administration as
back-up, so decapitalisation can be put into

On December 31, Boris Yeltsin resigned in favour of
Vladimir Putin. elected President three months later,
after instigating an investigation for abuse of power
against Procurator Skuratov who was holding an inquiry
into the diversion of funds connected with the Yeltsin

Convergent diagnoses

The globalisation of liberalised financial markets and
the proliferation of tax havens have facilitated the
means for decapitalising States worldwide.. Thousands
of billions of dollars are thus diverted and laundered
with total impunity, all at the expense of the men and
women citizens of the world who have to suffer the
onslaughts of budgetary austerity.To counter such a
state of affairs is no easy matter and this for
various reasons;

The complicity of the banks; - the diversion
operations call for complicated technical financial
resources which only the banks possess; front-
companies; off-shore companies, changes of fiscal and
legal identity, diversification of investments in
complex financial products etc. Thus while corrupt
elites build a fraudulent financial empire , they can
only do it thanks to the logistic support of banks
well remunerated for their services.

The speed of carrying out enquiries: - the period of
sequestration being public and limited to a few
months, justice is constrained to act with urgency
which allows white collar criminals to respond when
they are sufficiently organised. This was especially
so in the case of Moussa Traore in Mali ,who at the
beginning of the nineties was able to alert an
ambassador accomplice in Geneva who armed with a power
of attorney contacted the cantonal bank in Vaud.The
latter was quick to transfer the funds to other safe
places (read "Africa;Cancel the Debt to Liberate
Development" edited by Arnaud Zacharie and Eric
Toussaint, 2001,p.235)

The powerlessness of justice; - whereas only a few
days are needed to divert funds along the crooked
route to the tax havens, it takes an average of two
and a half years for a judge to track down an
operation. In view of this disparity it seems
difficult for justice to respond effectively to this
globalised mechanism for decapitalisation.

The virtual secrecy surrounding the information; -
while it is easy for a banker to discover who is the
titular owner of an account and with what front
company or financial set-up etc., he is usually silent
when an enquiry is under way. The reason for this is
simple. Diverting funds is an extremely well
remunerated operation for banks and very real
competition has developed. Moreover, a bank
cooperating with justice will see its fraudulent
clients turning their backs on it to the benefit of
more "understanding" banks.

The complexity of the procedures; - the fact that a
procedure is traditionally long and complex (1st
instance, 2nd instance, etc.) often enables financial
criminals to be protected by prescription covering the

Roads to international financial justice ;

The establishment of international financial justice
has become essential for States to exist.This involves
juridico-economic changes at national and
international levels. Some roads should be tried even
though, given the current political situation , they
may seem problematic.

The execrable and unlawful debt; it has been seen in
the case of the Argentine that national enquiries can
be made to determine the unlawfulness of a country's
external debt. Under international law, a debt is
unlawful when it has been contracted by a
non-democratic regime, without benefit to the local
population and with the collaboration of the
creditors. Although the impact of such enquiries
remains limited for the reasons explained above, they
may well increase citizen awareness thus motivating
the legislative powers to respond eventually..

The Convention of Rome (1998); when the Rome
Convention has been ratified by enough States the
international penal court will have a panel of judges
(parquet) at its disposal and one State will be able
to bring a case against another. Since March 1991,
ECOSOC (Economic and Social Council) has considered
the diversion of public assets to be a violation of
the Rights of Man. Also, it will be possible to
prosecute decapitalisation as an international crime,
even if such prosecutions can be brought only by
States and give no right to civil law damages ( simply
the criminal penalty)

Making clearance companies subject to international
supervision; it was seen in the Menatep case that the
use of unpublished accounts offered by an
international clearance room such as Clearstream makes
any diversionary operations even more opaque As was
emphasised in' The Appeal for International Financial
Justice' launched on 30 May 2001 by ATTAC in Belgium :

"While the eruption of financial exchanges might lead
one to believe there was chaos among the financial
floods, in reality no trace of the circulation of
capital sums, whether legal or not, has been allowed
to go astray. All the operations are registered on
micro-fiches or optic disks and kept in the heart of
the clearance rooms and in the archives of Swift. Thus
the movements of funds from banking and tax havens can
easily be reconstituted a fact which offers the
necessary instruments for the struggle against
financial crime and the proliferation of tax havens.
On the other hand, left without any real control, or
controlled by the banks alone, these supranational
bodies can become purveyers of corruption, financial
frauds and laundering.. This is why we are asking the
national political institutions to put Swift,
Euroclear and Clearstream under the democratic control
of a supervisory organisation".

The taxation of international financial transactions;
- the imposition of a Tobin type tax, a recommendation
common to numerous organisations, has advantages
seldom mentioned . Such a tax would in fact entail the
transparency and "traceability" of transactions thus
faciltating their control by public authorities and by

Finally, taking a more global view, economic rights
must be defended in the same way as civil and
political rights, especially through the (1966) Pact
relating to economic, social and cultural rights. This
requires firstly the adoption of a Protocol as
requested in 1993 by the Vienna Conference and then
the ability to try economic crimes as crimes against
Humanity - by their nature not subject to


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