Acts have consequences. After partially renationalizing Yacimientos Petrolíferos Fiscales (YPF), Argentina is feeling the pressure. But ideas also have consequences. After being put on the table by the Washington Post, The Economist and The Wall Street Journal, the proposal to suspend Argentina from the G20 acquired some teeth.

On May 11, Sen. Richard Lugar, R-Ind., introduced a resolution expressing the sense of Congress that Argentina’s membership in the G20 should be made dependent on its “adherence to international norms of economic relations and commitment to the rule of law.”

As the G20, the “steering committee of the world economy,” gears up for its next summit, to be held in Los Cabos, Mexico, on June 18-19, the timing of this could not be worse.

Instead of focusing, as it should, on the deep crisis of the Eurozone and on kick-starting higher growth in the world economy, the G20 is now distracted by this sideshow.

The fact that this is the first time that the G20 is meeting in Latin America, an occasion that should have given rise to some concrete global governance proposals emanating from the region, makes this especially unfortunate.

After the fiasco of the Cartagena Summit because of the Secret Service scandal last month, the last thing the region needs is another diplomatic debacle.

Lugar has a point. Argentina has been somewhat cavalier in the handling of its international obligations.

Lugar’s Res. 457 cites not just the nationalization of YPF, but the evasion of judgments of U.S. courts. It also takes note, in particular, of the disregard of claims brought before the International Center for Settlement of Investment Disputes (ICSID), run by the World Bank, and the failure to submit to an IMF review.

Much of this is fallout from Argentina’s 2001 default, which brought the country to its knees.

More than 10 years later, why does Argentina refuse to submit to the strictures of the international financial institutions?

The answer is not difficult.

Many would argue that the very reason Argentina went into the biggest sovereign default in history — up to $100 billion, and causing enormous economic, social and political dislocation — was not because it failed to follow the advice of the World Bank and the IMF, but because it did so.

In the 1990’s, under President Carlos Menem and Minister Domingo Cavallo, Argentina was Washington’s and the international financial community’s darling, and it could do no wrong.

Yet, when the music stopped, they all looked away, refusing any kind of rescue package, letting Argentina twist slowly, slowly in the wind.

Over the past decade, Argentina drove a hard bargain with its creditors (bond holders had to take a 70 percent “haircut”), cleaned up some (though not all) of the debris left behind, and embarked on a vigorous program to stimulate the economy back on track.

The approach is unorthodox and perhaps even unsustainable in the long run, but it has not done too badly, growing up to 8-9 percent in some years.

Quite understandably, it has stayed away from the advice proffered by international financial organizations.

The very reason Argentina was invited to join the G20 (then at finance ministers’ level) in the late 1990’s was because it was a debtor, and a “problem country.”

To open up the issue of G20 membership is to open up a Pandora’s box.

The proposal, by The Washington Post, to replace Argentina with Chile, is a mirage.

The last thing Chile needs is to enter such groups through the back door.

Spain, whose company, Repsol, was the main owner of YPF, after some shrill initial outbursts, is taking a more cautious line, in search of a compromise solution.

It would look a bit odd if the U.S. Congress were to take a “holier than thou” attitude on Argentina on this matter and in so doing cast a shadow over the first G20 meeting held in Latin America.

Jorge Heine is CIGI Professor of Global Governance at the Balsillie School of International Affairs, Wilfrid Laurier University, in Waterloo, Ontario. He is the co-author, with Andrew Cooper, of Which Way Latin America? Hemispheric Politics Meets Globalization.

Instead of focusing, as it should, on the deep crisis of the Eurozone and on kick-starting higher growth in the world economy, the G20 is now distracted by this sideshow.
The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.