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Sovereign defaults: a thought exercise

Breathless reporting of the details of the Argentine government’s offer to bondholders tends to presuppose there is doubt in the outcome.


I’ve been reading the day-by-day progress reports about Argentina’s debt renegotiations with bemusement.

Breathless reporting of the details of the Argentine government’s offer to bondholders – and their non-attributed expressions of disappointment in response –tend to presuppose there is doubt in the outcome.

I just don’t see it.

For months I’ve been assuming that the negotiations will be a bust and ultimately Argentina will default. As I’ve stated previously, the main reasons are that Argentina knows it has little prospect of re-accessing international markets during this administration, even with a deal.

I have some sympathy with the belief that it would be better to spend the interest payments on an economy that is in deep recession and has huge investment needs to address large social problems rather than pay money to financiers, whose view that lending their money to a nine-times-defaulting sovereign was a good bet.

I also believe, and as I set out in February, that any – however unlikely – agreement would simply contain the seeds of the next default.

Argentina’s economy is just too broken to become sustainable with any level of debt repayments that bondholders would accept – an issue that is horribly exacerbated by the administration’s economic policies.

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