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In a tight spot

Marc Koch, Buenos Aires/ ng/uheJuly 28, 2014

Once again, Argentina is facing default. But instead of negotiating with its creditors, the government portrays itself as a victim, which makes the country's precarious economic situation even worse.

Argentinien Armut Müllsammler cartoneros in Buenos Aires
Image: picture-alliance/dpa

Every night, Argentines are reminded of the big default. At nightfall, people can be spotted pulling heavy carts through the streets of Buenos Aires and other big cities. They collect paper and cardboard boxes, fold them neatly and pile them up on their carts.

After several hours of hard work, the so-called "cartoneros" take the cart to a meeting point, where a wholesaler is waiting with a big truck. He pays 6 pesos (60 eurocents, 80 cents) per 10 kilograms of paper.

All defaults not created equal

The cartoneros are part of a booming recycling industry. They have started to also collect glass and plastic packaging. They were first spotted in the streets in 2002 - after the first national default.

That's when even well-off, middle class families slid into poverty. Many of them started collecting their rubbish and selling it on. They became a symbol of the nation's financial collapse. Thirteen years on, the same could happen again.

This time, however, the country has not racked up anywhere near as much debt - at 46 percent, the liabilities are manageable. Rather, it is a bizarre row with the hedge funds holding the national debt.

A US court has ruled that these hedge funds have to be paid - $1.3 billion is the figure, which normally would not be a problem.

But the government in Buenos Aires is not having it - instead painting a doomsday scenario. It argues that if Buenos Aires paid up, all the creditors that accepted debt relief in the previous crisis and therefore kissed good-bye to a lot of money, would come out of the woodworks and change their minds. And that would mean coughing up $120 million, which would no doubt bankrupt Argentina.

Cristina Fernandez de Kirchner beim BRICS UNASUR Treffen in Brasilia 16.07.2014
Kirchner is losing credibilityImage: Reuters

Vicious circle

Whatever the outcome, it is bad news for the ailing Argentine economy. "It's different from 2011," Fausto Spotorno, an analyst at OJF & Asociados. "This time, we won't slip into recession at breakneck speed, the effects will need a while to manifest themselves."

The foundations for these effects, however, were laid years ago. The economy, choked by absurd import rules and foreign exchange controls, has not expanded since 2011.

The government has not managed to control inflation, but freely spends millions on projects it hopes will impress voters. It is that vicious circle that will pick up even more speed, says Luis Palma Cané from consultants "Fimades."

"Then, we'll have even fewer US dollars coming into the country. Then people will notice that you're not protected by the law here, which will isolate us further. We'll import even less, which will have a negative impact on industry and our gross domestic product," Luis Palma Cané told DW.

Comspiracy theories and incorrect data

But instead of introducing long overdue reforms, President Cristina Fernandez de Kirchner blames an imaginary external enemy threatening Argentina's sovereignty and social development.

The hedge funds are public enemy number one at the moment, along with the International Monetary Fund or "the West" in general.

To corroborate this world view, the government is happy to calculate statistics in highly questionable ways or falsify them. Inflation and poverty rates are, for example, always significantly below independent analysts' figures.

The government blames the big supermarket chains and the farmers for ever higher prices, claiming that they are greedy and holding back their harvests. The government has launched campaigns such as "Precios Cuidados" ("Protected Prices") that freeze prices for certain products. Nevermind the fact that these products are often not in stock and the alternatives more expensive as a result.

Hardly trustworthy

Meanwhile, industrial production suffers, and hardly anyone has enough money to buy a car, which leads to job losses as there is not enough to do in the factories.

The unemployed get state support and are expected to vote for their benefactors. Investors are holding back, especially those from abroad. "The problem is that Argentina hasn't exactly been a trustworthy debtor, it hasn't behaved like someone you'd trust," Spotorno says.

But instead of building up that trust, Kirchner's government is busy singing its own praises. Kirchner likes to call the last 10 years that she and her late husband, Nestor, have been in power the "decada ganada" ("a decade gained").

And with the official poverty line standing at 1,780 pesos (180 euros), it means a family of four earning 4,800 pesos (480 euros) - like that of a cartonero - is considered middle class. Well, that's one way of looking at it.