Argentine Government Restructuring Debt
The Argentine Economic Crisis
The Argentine economic freefall of 1999 to 2002 was marked by rampant inflation, peso devaluation, the collapse of retirement accounts and, in 2002, the default on some foreign debt held by the government.
The "Argentine Crisis" shocked investors worldwide and led to economic tension with foreign trading partners. Argentina's then-President Fernando de la Rua presided over the depegging of the peso to the U.S. dollar, draconian spending cutbacks, and civil unrest as economic collapse poured millions of citizens into unexpected poverty.
Default, Foreign Debt, and the Argentine Crisis
Triggered by foreign divestment starting in 1999 as GDP dropped 4%, the Argentine Crisis was worsened by domestic withdrawal of capital from banks and markets. Fearing the worst, by 2001 Argentinians began a run on the banks as the average person emptied savings accounts, retirement accounts, and liquidated stock investments in an effort to salvage capital.
President de la Rua froze withdrawals from bank accounts (with few exceptions) with a series of measures called the corralito. Popular protests and demonstrations resulted, injuring hundreds and leading to property destruction in Buenos Aires. de la Rua was forced to resign in December 2001.The Argentine Crisis formally ended in 2005 when GDP growth resumed.
The IMF and Argentine Government Debt Restructuring
The debt was the largest default in international finance history at $132 billion U.S. dollars. Argentina had no funds to allocate to debt repayment and struggled to prevent internal economic collapse with the few remaining dollars it controlled. Central bank currency was nearly wiped out during the Argentine Crisis.
Argentine government debt restructuring for privately-held debt was offered at approximately 34% of value, leaving foreign investors furious and Argentina out of international markets. One fifth of foreign investors holding Argentine bonds refused the restructuring deal. With foreign investment stripped out of its economy, Argentina entered into an economic malaise. Although the crisis technically ended in 2005, Argentina limped along economically, wounded by the collapse.
Debt to the International Monetary Fund (IMF), however, was restructured in 2005 for pennies on the dollar. President Nestor Kirchner announced in December 2005 Argentina's intention to pay off all debt to the IMF, a part of Argentine government debt restructuring that involved a policy of "disindebtment."
Disindebtment, however, had its disadvantages, chief among them the withdrawal of debt restructuring funds from other areas of Argentina's budget such as social services, military expenditures, and infrastructure development. Kirchner's goal was to end dependence on the IMF and to eliminate nearly $1 billion in interest payments.
The final payment went through on January 3, 2006. $20 billion in private foreign investment dollars remained in default.
Private Investors and Argentine Government Debt Restructuring
From 2003 to 2007 Argentina's GDP grew by an average of 8%, an appealing growth rate for international investors. The default of private debt from the Argentine Crisis is a dark financial cloud over Argentina, preventing borrowing and bond release in private capital markets.
In October 2009 the Argentine government announced its intention to restructure the$20 billion in defaulted debt to private investors. In 2005, in an effort to force private investors to accept one third of the face value of Argentine bonds, the Congress passed a law preventing the reopening of debt restructuring discussions. The government sent a bill to Congress on Oct. 25, 2009 to reverse that law to allow the Argentine government debt restructuring to resume for the remaining $20 billion.
Litigation from investors in the United States, Italy, Japan, Germany, and Spain has been ongoing since the original collapse, with investors winning lawsuits but stymied by Argentine efforts to prevent collections. The reopening of government debt restructuring is an effort to regain access to international credit markets and to close this chapter in Argentine economic history.
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Argentine Government Debt restructuring in 2009
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