Posted on 10/14/2012 1:24:40 PM PDT by blam
Argentina's Debt Picture Looks Increasingly Disastrous
The Economist
Oct. 14, 2012, 8:08 AM
WHEN Argentina proposed a brutal 65% haircut to holders of its defaulted sovereign bonds in a 2005 restructuring, one argument the country’s officials used to justify the offer was that the country could not take on more debt than it could reasonably expect to pay. As painful as the loss might be, the argument went, at least the new bonds the government would issue would be creditworthy.
Just seven years later, that claim now looks harder to support. This month the impoverished northern province of Chaco was unable to pay $263,000 of interest, after Argentina’s Central Bank refused to sell it the necessary dollars. That forced the province to announce it would compensate its creditors in pesos, converting the amount owed at the official exchange rate, which is roughly 25% less than the currency’s value on the black market. It was the first time an arm of the Argentine government had failed to deliver a debt payment in full since the country’s massive 2001 default.
Is Chaco's technical default a canary in the coal mine for Argentine debt in general, or merely an isolated nuisance? In the short run, most bondholders can stay calm. Although the Chaco paper is denominated in dollars, it is governed by Argentine law, which allows borrowers to settle their obligations in local currency. Ever since the Central Bank clamped down on the foreign-exchange market last year in an effort to slow capital flight, its official policy has been that local issuers can only buy dollars to fund infrastructure projects.
But just $191m of provincial debt is governed by local law and thus subject to this requirement. Only two other provinces have Argentine-law bonds outstanding, and one of them, Tucumán,
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(Excerpt) Read more at businessinsider.com ...
So, socialism doesn’t work? Imagine that.
You would think investors would have learned their lessons by now on buying Argentinian sovereign debt...
Fiat money doesn’t work. Even if Romney is elected, buy gold. If Obozo is elected, buy sooner.
Yup..now they’re buying Greek debt..
Fiat money doesn’t work. Even if Romney is elected, buy gold. If Obozo is elected, buy more ammo."
Reinhart and Rogoff's book "This Time is Different" discussed this. Countries that experience frequent bankruptcies behave financially just long enough to convince investors "that this time is different" to suck in money and keep down borrowing rates until the next default.
Trust me, I'm on a first name basis with the guy who works the morning shift and stocks the ammo case at walmart.
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