In the 2000s, Argentina’s financial system fell into a serious recession. For this reason, the leaders in Argentina took financial loans from International Monetary Funds (IMF) and other agencies. However, the country was not able to pay its debt installments on time due to which Argentina failed to pay around US$93.2 billion of its external debt. In the year 2001, the country defaulted on a total of around $81 billion in bonds.
The issues faced by the financial system of Argentina made the trading sector suffer as well. The foreign investment fled from Argentina and multinational companies also sealed their offices completely during 2000-2003. The exchange rate of the country’s deflated. The decline in the currency exchange rate and high debt pushed consumer product prices up by over 50%. Moreover, the Gross Domestic Product (GDP) of the country also declined significantly in the 2000s, which further disturbed the financial setup of the country.
Extensive debt restructuring was required instantly as Argentina failed to pay back its high-interest bonds. The government officials faced massive challenges while making an effort to refinance Argentina’s debt.
Financial retrieval ultimately permitted Argentina to offer significant debt swaps in the year 2005. At first, it bought around 76.1 % of bonds from the default. On the other hand, 91% of the bonds were bought in the second phase. Nevertheless, many private bondholders found this bond swapping strategy unacceptable and asked the government to give them full repayments.
Throughout the restructuring progression, IMF was considered as an honored creditor and Argentina took around US$15 billion from it. However, in 2005, the President of Argentina planned to return all of the country’s remaining debt to IMF.
Argentina was still under pressure even after paying the debt to IMF as many holders were still filing cases against Argentina to convince the government to make full payment for bonds. For this reason, the 2nd debt swap took place in 2010 for all those bondholders who opposed the bond swap offer in 2005. It is estimated that US$13 billion of the authorized debt was proffered in the exchange in 2010.
Another issue that Argentina had to face in the 2000s was that Paul Singer, NML Capital Elliot, refused to negotiate with Argentina when the country defaulted on its debt. NML Capital bought the bonds for around $48 million. For this reason, NML Capital was not ready to accept the offer of Argentina to pay less than 30 cents per dollar of debt. Elliott prosecuted Argentina for the debt's worth that became a source of challenge for Argentinian government officials.
Elliott efficaciously enticed the case to the Supreme Court of United Kingdom (UK), where the judge announced that Elliot has a right to size Argentine’s property in the UK. The United Stated (US) courts pronounced that Argentina should pay back the remaining debt money to NML Capital. In 2016, Argentina made an agreement with NML Capital. In March 2016, the Justice Department of USA with the assistance of United States Court pressurized the companies that had refused to contribute to the two debt restructuring swaps. Both parties including NML Capital on April 13 2016 approved the bill. The US courts convinced Argentina to pay the value of the bond sale to the bondholders.
Works Cited
Cohen, Michael. Argentina's Economic Growth and Recovery: The Economy in a Time of Default. New York: Routledge Publishers, 2012.
Ilyina, Anna, Anastasia Guscina and Herman Kamil. Does Procyclical Fiscal Policy Reinforce Incentives to Dollarize Sovereign Debt? New York: International Monetary Fund, 2010.
King, Jeff. The Doctrine of Odious Debt in International Law. Cambridge: Cambridge University Press, 2016.
Megliani, Mauro. Sovereign Debt: Genesis - Restructuring - Litigation. New York: Springer Publishers, 2014.
