EVEN when Argentina defaulted on July 30th, for the second time in 13 years, some nonetheless hoped for a negotiated settlement between the government of Cristina Fernández de Kirchner and its “hold-out” creditors. Those hopes are fading. Ms Fernández seems to be calculating that the political benefits of recalcitrance outweigh its economic costs.
The default was prompted by a ruling in a New York court in 2012 which barred Argentina from paying bondholders who accepted the country’s 2005 and 2010 debt restructurings without fully remunerating those hold-outs (Argentina prefers to call them “vultures”) who rejected the deals. Argentina ended up paying neither, tipping it into default. Ms Fernández has now proposed allowing holders of the restructured bonds to swap to new bonds governed under local law. The Senate will begin to debate a bill to that effect on September 3rd.
Even if the country’s legislators sign off on the idea, as they are likely to, the plan will be hard to execute because it would require the co-operation of financial intermediaries that might thereby run afoul of America’s courts. But Ms...Continue reading
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