Moody's Investor's Services thinks your money is safer in Cuba or Pakistan than it would be in Argentina. Now that is a vote of no confidence in Argentina and in the policies of Economy Minister Domingo Cavallo.
On Friday, Moody's reduced Argentina's debt rating to Caa3 from Caa1. Standard & Poor's downgraded Argentina earlier in the week.
Explaining the downgrade, Moody's analyst Mauro Leos said: "It is clear that Argentina is thinking outside of the box." Outside of the box presumably means Argentina is considering either defaulting on or restructuring its US$132 billion debt.
A prime example is that Argentina is now demanding that local banks and pension fund swap US$14 billion of bonds for new debt securities that pay greatly reduced interest.
What a total rip-off.
And though it will cost bondholders US$1.2 billion in lost interest, it is not clear that the government will benefit at all from this act of confiscation. The proposed debt swap is an example of what Moody's calls Argentina resorting to "unorthodox solutions" to its debt problems.
This is the death spiral in which Argentina has put itself: The more Argentina resorts to dirty tricks, the more desperate it looks and then down goes its ratings. Lower ratings mean a rise in Argentina's cost of borrowing. And that, in turn, makes the predicament even worse.
With that as background, you can imagine the government's anguish before yesterday's elections for half the lower house and all the Senate. It would be hard to imagine worse timing for President Fernando de la Rua. In a practical sense this is a referendum on de la Rua and Cavallo's economic policies.
People are fed up. They see the government operating its treasury on a cash basis. Salaries of government employees have been cut. Pension funds have been looted courtesy of bond swaps and the relative few who dutifully pay their taxes feel they're being bled out of existence.
All thumbs are pointing down -- the polls indicate de la Rua's alliance will lose its majority in the lower house.
It's not just the opposition that is badmouthing de la Rua.
Here is what senatorial candidate Rodolfo Terragno had to say: "De la Rua would be committing suicide by continuing with this economic model, which has collapsed and must be changed immediately." Terragno accuses the government of having committed numerous internal defaults under cover of the "lying strategy camouflaged by the name `zero deficit.'" These statements are all the more amazing because Terragno is a leading member of de la Rua's own Radical Party and his former Cabinet chief.
But when Terragno talks about de la Rua, he is really speaking about Cavallo and his radical economic policies.
Cavallo is in the unenviable position of having forced most of the adjustment for Argentina's predicament on to the local population. At least that is the way many people see it. He is caught on the wrong side of an "us," meaning Argentina, versus "them," meaning international investors, debate.
Not that the international bondholders have had it so good.
True, no default has occurred. But the value of Argentine bonds is shot to pieces.
If the results of today's elections are as awful for de la Rua as the polls suggest, he will have to make a decision quickly about keeping Cavallo. Yet if he gives Cavallo the axe, then what does he do?
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