Political Risk Latin America Blog @PolRiskLatam

Argentina’s Debt Policies Keep its Reputation Tarnished

Posted in News and Articles by politicalrisklatam on August 2, 2010

by Claudio Loser for Inter-American Dialogue, August 2nd, 2010.

WASHINGTON—The past month has been far from easy for Argentina, even as the authorities have declared victory more often than not. The World Cup is over and against domestic predictions Argentina’s soccer team, and Argentina’s own international reputation, have both remained in the customary second tier of rankings. The Argentine winter is very cold and energy is in short supply due to underinvestment in the sector. Meanwhile, Argentina has accumulated a record level of foreign reserves, and the government has closed the most recent exchange in the country’s debt repayment saga. However, and contrary to upbeat announcements, Argentina continues to have serious problems with its debt in default, despite an obvious capacity to repay. Argentina is the only member of the exclusive G-20 that is in arrears and there are voices demanding that the country be expelled from the group.

Argentina defaulted almost a decade ago after experiencing its worst recession in recent memory. However, the country’s economy recovered well and was able to accumulate massive reserves that now stand at a record level of more than $50 billion. And after two debt exchanges carried out on a unilateral basis, Argentina remains in default on approximately $16 billion of arrears to private creditors, and $7 billion owed to the Paris Club. In addition, Argentina had outstanding obligations subject to arbitration by the International Center for Settlement of Investment Disputes (ICSID) for about $16 billion, of which $5 billion may remain unsettled. Thus the grand total of arrears can easily amount to $28 billion to $30 billion. This is equivalent to 8 percent of GDP, well beyond the amounts observed in other countries after their settlements of outstanding debt. Even as Argentina’s cash flow has greatly improved, the exchange that closed in June did not eliminate the risks associated with its 2001 default and 2005 restructuring, as the country continues to face international lawsuits and seizure of assets.(continue reading… )

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