Argentina still drags the burden of debt after 20 years of the colossal “default”

The colossal cessation of payments that Argentina declared 20 years ago it will be remembered as one of the most resonant events in the country’s dramatic history as a “serial debtor”, a drastic measure, adopted in the midst of an unprecedented crisis, and the consequences of which have not yet been resolved.

“We are going to take the bull by the antlers. In the first place, I announce that the Argentine State will suspend the payment of the foreign debt ”, said on December 23, 2001 the Peronist Adolfo Rodríguez Saá when assuming a provisional Presidency of the country that lasted just a week and whose main government measure was to declare the “default” of debts for US $ 102,000. millions.

The largest cessation of payments in Argentine history was declared after the outbreak of the economic and social crisis that erupted after the creation of the banking “corralito” in early December 2001 and the political upheaval that ended three weeks later with the resignation from the radical Fernando de la Rúa to the Argentine Presidency.

After the “default” came the exit from the “one-to-one” convertibility between the US dollar and the Argentine peso, a resounding economic collapse and the virtual expulsion of Argentina from the international debt placement markets.

“We were never able to recover from the default because Argentina always looks like a country that can go into default again,” economist Pablo Tigani, director of the consulting firm Make, told Efe.

The country’s bad reputation as a debt issuer currently makes it impossible for it to finance itself in international markets.

Restructuring and “vultures”

In 2005, Argentina achieved a 76.15% adhesion for its offer to restructure past due bonds since 2001, which implied a nominal reduction of 65.4%.

The exchange was reopened in 2010 and Argentina managed to raise the level of adherence to 92.4%.

But the creditors that did not adhere to the restructuring to a large extent went to international courts to demand that Argentina pay their debts.

The most fierce battles were fought by speculative investment funds – the “vulture funds” as they are called in Argentina – in New York courts, where the country suffered several judicial setbacks.

In 2014, New York District Judge Thomas Griesa ruled in favor of the plaintiffs.

But, in addition, as Argentina refused to comply with the ruling, Griesa blocked the country’s payments to the creditors that had accepted the 2005 and 2010 swaps and thus the country fell into cessation of selective payments.

More debt and new restructuring

It was the government of conservative Mauricio Macri (2015-2019) who, in 2016, as soon as the Executive took office, reached an agreement with the litigating creditors to regularize the debt.

“In 2016, bonds for US $ 16,000 million were issued and the vulture funds were paid in order to regain international confidence and return to the debt markets. Between 2016 and 2018, a lot of debt was issued, ”said Ignacio Marutian, a member of the Museum of External Debt, a unique space at the University of Buenos Aires that travels the two centuries of Argentina taking frequently unpayable loans.

The debt raid included an unprecedented placement in 2017 of a hundred-year bond and the signing in 2018 of a financial aid agreement with the IMF for which the agency transferred the unprecedented sum of US $ 44,200 million to the country, a loan that failed to prevent the economic collapse.

With an accelerated flight of capital, the economy in recession since 2018 and increasingly high financing costs, Macri ended up unilaterally deferring the payment of short-term debt in local currency and admitting the urgency of negotiating an extension of payment terms of all external debt.

It was his successor, the Peronist Alberto Fernández, who, after months of tough negotiations with investment funds, managed in September 2020 to restructure titles in the hands of private creditors for US $ 105,000 million.

But the country still has pending to close an agreement with the IMF to refinance the debts with that organism, a challenge against the clock since Argentina is not in a position to face the heavy maturities with the Fund in the next three years.

“Debt continues to be one of the main problems of the country and we continue to renegotiate, despite having had a successful restructuring in the midst of the pandemic,” Marutian observed.