Hit Argentina where it hurts - in the wallet Argentina, after all, is acting with scant regard for the international community. Over the past decade it has pursued a deliberate strategy of playing games with financial markets. Its default on £51 billion of debt in 2001 turned it into a financial pariah, a status that was not enhanced by two subsequent unilateral debt restructurings. To this day, Argentina remains shut out of the world's capital markets. To make matters worse, it also nationalised private pension funds, thereby providing itself with a captive domestic market into which it could sell its debt. The government has since been sued by creditors around the world as they try to force Argentina to honour its obligations. In the Southern District Court of New York alone, there have been more than 170 bondholder lawsuits, resulting in more than 100 judgments. Today, Argentina still owes more than £15 billion in old debts ranging from Paris Club loans, to bondholders, and to foreign investors holding arbitral awards from the International Centre for the Settlement of Investment Disputes (ICSID). In each case, Argentina has refused to play by the rules. It has demanded a Paris Club restructuring without the mandatory IMF monitoring, it has ignored New York court judgments, and it has insisted, in blatant disregard of its treaty obligations under ICSID, that arbitral awards be brought to Argentina for "approval" by its own courts. President Kirchner's statements regarding the Falkland Islands are clumsy attempts to distract from the country's domestic problems but they do no favours to Argentina's international standing - nor do they help resolve the key issues. The particularly galling thing is that Argentina can perfectly afford to pay its bills. It has £30 billion in foreign reserves. While Britain's public sector debt is 79.5 per cent of GDP, Argentina's is only 42.9 per cent. It has enjoyed several years of steady economic growth; its fundamentals compare favourably with its peers in the region. Yet, instead of negotiating in good faith with its creditors, it rachets up its defiance. To cite one example, the IMF will no longer accept Argentine statistics on inflation, which have been systematically manipulated by the political appointees who have replaced the professionals in the country's statistics bureau. Argentina's behaviour is important for three reasons. First, it damages the future prosperity of the Argentine people. Their country's economy is being shunned by the rest of the world. Economists have estimated a loss of nearly £4 billion in foreign direct investment each year since its 2001 default, and an estimated £6.9 billion was lost in private sector capital flight during 2010, the fifth consecutive year of such losses. Secondly, Argentina's default has been held up by some as a model for debt-ridden European economies such as Greece. In fact, if European nations followed Argentina's example, the continent's financial system could be sentenced to decades of stagnation and isolation. No bail-out would be enough to stem the crisis in European banks, because no investor would put capital where there is no transparency and no legal security. And even Britain would find its exporters and financial services hit by the crisis. Thirdly, the ease with which Argentina has flouted its obligations encourages its government to think it is able to behave however it chooses. But if Britain were to take action and stand up to Argentina financially - by, for example, joining the Obama administration in voting against World Bank loans for the country - it would send a strong message that its G20 partners are no longer willing to overlook irresponsible behaviour. You never know, it might even stop the sabre-rattling over the Falklands as well. Nancy Soderberg was a senior US diplomat, and is co-chair of the American Task Force Argentina