| Argy-Bargy |
29 September 2003
|
Argentina Offers 25 Cents on the Dollar
Argentina has its creditors in an uproar. A congenital debtor, it owes the outside world about $94 billion denominated in 7 different currencies. The country suspended repayment almost two years ago, and it has proposed a 75% cut in the nominal value of the debt. Argentine officials have called it a "haircut," but it's more of a scalping -- and creditors are rightly thinking about suing for Argentine assets.
Argentina should be a rich country. Instead, it is the only first world country (1920s) to revert to third world status (1970s to the present). The casual observer cannot appreciate the magnitude of the mismanagement until one considers that the prize on the most popular TV game show is not a car, nor a vacation nor cash -- it's a job for a year.
Sovereign debt defaults used to be nonexistent. After the second world war, there were none -- until Russia hit its debt crisis in the 1990s. One could argue that overcoming its communist legacy entitled Russia to a default, and it has certainly recovered from the disaster while investors accepted a 35% debt reduction. Ecuador also defaulted in 2000 and its 40.6% debt discount helped some. Argentina, though, wants far more relief than these.
A judge in New York has given a stay of 45 days on lawsuits seeking to recover assets. Japanese creditors have already tried to take land in Patagonia. European debtholders are trying to get their share. As the wreckage is cleared away, the question arises "How did this happen?" The answer is "It's a long story." But having brought inflation down from 5,000% to less than 1%, the government might start by asking if the cure hasn't been just a bit too effective.
Home