In his first few years in power, Menem launched an ambitious effort to strip away all financial regulation, privatize nearly all state-owned industries, and rebrand Argentina to the international investment community. With IMF cheerleaders often just offstage, foreign investors, shuttled in from New York and London for glitzy tours of the countryside, were eager to believe. Over the course of the ’90s, U.S. and European banks, investors, hedge funds, and corporations snapped up $186.7 billion in Argentine bonds and purchased the country’s oil fields, its airline, and its water, electricity, sewage, telephone, and gas utilities.
The boom was driven in part by Menem’s embrace of what’s known as the convertibility law, which established a fixed exchange rate with the U.S. dollar—one Argentine peso converted to one U.S. dollar. It was also driven by Menem’s willingness to commit to sweetheart contracts and powerful investment treaties that bound Argentina to a narrow set of acceptable future actions. Many contracts, for example, included the promise that Argentina would maintain a “stable investment climate”—a line designed to assuage investors’ skepticism that a country with a 150-year history of financial fecklessness had indeed reformed. If the country failed to maintain that “stable investment climate,” foreign investors could sue it outside of its own courts.
Throughout the ’90s, Menem’s plan seemed to be working. The Argentine economy grew at an average rate of 6 percent a year, with almost no inflation, blocks of Buenos Aires’s beaux arts buildings were cleaned and refurbished, and street cafés were filled with young women who had money to spend on leather coats. In 1998, at the annual IMF and World Bank meeting in Washington, President Bill Clinton and IMF chief Michel Camdessus congratulated Menem for his accomplishments. “Capitalism was the religion,” recalled Guglielmino. “Adam Smith was the high priest.”
But the flush times wouldn’t last. Just a few months after the IMF celebration, Argentina’s exports began to slump, tax revenue declined, debt piled up, and the country slipped into a four-year-long recession. As financial crises rippled through the Asian and Russian markets and tipped into Brazil, Argentina’s balance sheets began to bleed. Under normal circumstances, Argentina might have weakened the peso to make its exports cheaper and to lessen the burden of its loans, but, bound to the dollar by the convertibility law, it was stuck. In an attempt to keep enough cash around to pay its debts, the government instituted extreme austerity measures, begged international bondholders to cut the country some slack on repayment, and asked the IMF for help. Nothing worked.
In 2001, when Menem’s second term ended and the opposition candidate from the Radical Party, Fernando de la Rúa, took power, the economy continued its relentless decline. Argentines, familiar with the signs of impending ruin, began withdrawing their money from the banks. Over the course of one month in the summer of 2001, they withdrew $5 billion, 7 percent of the total deposits in the country, and in the final days of November 2001, they pulled out $3.6 billion more. Panicked, the ministry of finance imposed a cap on the amount that people could withdraw from their accounts, but the move instead sparked fury. On December 19, a warm, austral summer day, crowds of men and women, angry that they could not access the money in their own bank accounts, swamped the streets, banged pots and pans and defied a federal curfew to cries of que se vayan todos—kick them all out! That night, the protests turned violent and 16 people died in clashes with police. The next day, de la Rúa resigned.
In the following weeks, the National Congress, abiding by the line of succession, appointed a series of new presidents, each of whom clattered through Casa Rosada, the Argentine White House, like balls through a pinball machine. After de la Rúa, there was Ramón Puerta. Then Adolfo Rodríguez Saá. Then Eduardo Camaño. Meanwhile, the lawlessness continued. A mob broke into Congress, destroyed furniture, and lit the curtains on fire. Protesters broke into supermarkets, scaled walls, and police stopped showing up for work. Families moved their beds away from the windows. Fathers slept with guns in their hands. By the end of the month, 30 people had died in violence in the streets. Guglielmino remembers those two weeks as an existential crisis. He recalls the German sociologist Max Weber defining a state by its monopoly on power, and by those terms the Argentine government had collapsed. “The streets of Buenos Aires had no police,” he said. “The state didn’t exist.”
On January 2, 2002, Congress appointed Eduardo Duhalde to become the fifth president of Argentina in less than two weeks. Unlike the others, he held on to power. Within days of taking office, it was clear to him and other lawmakers that they didn’t have much of a choice. The convertibility law seemed unsustainable. The debt was crushing. If they didn’t do something about it, they worried they would condemn their society to slow-motion collapse. On January 6, Duhalde pushed through what became known as the emergency law “[i]n order to guarantee the operation of the National State in accordance with available resources.” The law dropped an economic bomb: It suspended the convertibility law, halted all utility price hikes, and put a moratorium on the enforcement of contracts until further notice. The consequences were immediate.
By unhitching the Argentine economy from the U.S. dollar, the law triggered a sovereign default on $81 billion in financial paper. The peso plummeted in value by nearly 40 percent overnight. The GDP shrank by 11 percent, banks teetered on the edge of insolvency, and the average income, which had peaked at $8,500 in the 1990s, withered to $2,800. More than half the population fell below the poverty line, and an estimated 1.2 million people moved onto the streets, where they earned the name cartoneros after the cardboard boxes they slept in. A 59-year-old woman who could not get her dollars out of her account set herself on fire in the lobby of her bank. On a highway a few hours north of Buenos Aires, a mob of hungry men and women with kitchen knives descended on a cattle truck that had overturned on the highway, slaughtering 22 Angus steers. Blood coated the asphalt.
A year later, in May 2003, the economy was still in tatters when a new president, the Peronist Néstor Kirchner, succeeded Duhalde. Kirchner passed more political reforms in an effort, as he put it, to buttress economic recovery “with its republican form of government intact.” By 2004, the peso began to stabilize. Unemployment ticked down. The economy was rebounding at last.
That’s when the lawsuits started to roll in.
Four U.S. energy corporations were among the first to file ISDS claims against Argentina. CMS, Enron, Sempra, and LG&E had bought into the Argentine gas sector in the 1990s, at the height of Menem’s privatization craze. All four had signed contracts with the government that, among other things, allowed them to calculate their Argentine customers’ gas bills in U.S. dollars, and to adjust them twice a year to keep pace with the U.S. price index. That meant that the amount they could collect in bills each month from their customers would not only remain stable, but also likely increase. It also meant that they didn’t have to worry about the Argentine peso fluctuating or devaluing. On its face, it seemed like a pretty sweet deal. And, for years, it was.
But Argentina’s slow descent into economic chaos in the late ’90s and early 2000s changed everything. With unemployment rising and its debts ballooning, the government moved to suspend the gas companies’ automatic tariff increases. (In 2002, those earlier moves were institutionalized when President Duhalde’s emergency law not only unpegged the peso from the dollar, but froze utility rates at their January 2002 levels, and forbid the companies from keeping up with the U.S. price index). In 2003, when President Kirchner attempted to raise gas and electricity rates to abide by the original contracts, his efforts were blocked by court injunctions and protests. Argentines who’d lost their jobs and incomes in the economic crisis were in no mood to pay more for gas. At that point, unemployment was still topping 20 percent.
To some Argentine lawmakers, the government’s action was clearly