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Argentina has re-written the rule book
on sovereign debt by refusing to pay
back its bondholders.
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Argentina has changed the rules of the debt workout game by refusing to make good-faith efforts to pay its bondholders.
And it is easy to understand the logic behind this move. A country that defaults on its external debt pays a huge price both politically and economically. Once that price is paid, however, it starts to recover. The cost of curing the default is large; the benefits are vague, and far in the future ? certainly at least one election cycle away.
One veteran observer of sovereign behaviour puts it this way: "For 22 years, we've all assumed that a sovereign debtor in trouble wishes to preserve its market reputation, and wants to impose as small a haircut as possible on its creditors. But after a certain...
