CAMBRIDGE – Argentina recently emerged from nearly 15 years of the most litigious sovereign default in modern times, if not ever. Now it has the opportunity to reenter the global financial system and build a more stable and prosperous future. It is a chance that the country must be careful not to squander.
Argentina’s long absence from international capital markets began in December 2001, when a deep economic crisis brought about the end of the decade-old Convertibility Plan (which fixed the Argentine peso to the US dollar) and ushered in what turned out to be a year-long banking holiday known as the Corralito.
By 2005, a resolution to the debt crisis appeared to be at hand. But a number of factors complicated negotiations. For one thing, the debts were enormous, amounting to over $100 billion (including accrued interest payments); indeed, Argentina’s was the largest external default on record until Greece’s recent restructuring. For another, the debt was highly complex, involving 152 types of bonds, six currencies, and eight jurisdictions.
But the biggest problem Argentina faced was creditors’ unwillingness to accept the proposed debt exchange. With almost a quarter of holdout creditors refusing haircuts – a large share, compared to other sovereign-debt negotiations – Argentina’s options were severely constrained. Unsurprisingly, another debt exchange was needed in 2010.