Sovereign debt default, inflation and denial - a long overdue update on Argentina

i've posted extensively on argentina in general and particularly its $95B 2001 bond default (see here)... over seventy percent of the bondholders opted for a 2004 swap deal that offered them 30 cents on the dollar, leaving about $20B outstanding... the remaining bondholders, mostly in the u.s., refused the swap, and continued to hold out past the 25 february 2005 expiration date... they're still trying to get all of their money...

A United States judge granted on Wednesday a request by bondholders suing Argentina to extend a freeze on as much as 16 billion US dollars in sovereign bonds issued by the country and which now held by the Depository Trust Co. in New York.

Argentina claims it no longer has any interest in the bonds and that they are worth only 2 billion US dollars. The order stems from a class-action, or group lawsuit brought by bond holders who claim Argentina wrongly failed to pay interest or principal on its 11 percent global notes due in October 2006. The plaintiffs, who claim the bonds are worth as much 16 billion, are seeking more than a billion US dollars in damages.

[...]


Argentina defaulted on 95 billion in debt in late 2001. In 2005, then-President Nestor Kirchner offered holders of defaulted debt 30 cents on the dollar. Holders of about 20 billion in bonds rejected that deal. Argentina has since refused to re-open negotiations, preventing the country from being able to directly tap international credit markets. The country has also been the subject of lawsuits by individual bondholders.

imho, these primarily u.s. based bondholders are throwing away their attorney fees... argentina, while it would like to get back in the good graces of the international credit markets doesn't feel any great pressure to do so... for one thing, the country's economy has been pushing forward at an amazing 9% since the default... for another, much of latin america, including argentina, has banded together under the financial assistance umbrella of venezuela and hugo chávez (banco del sur) at considerably more favorable, less restrictive and much less ideological terms than offered by the world bank, the imf or the big transnational banks...

besides, argentina has other things to worry about at the moment...

Inflation has become the main concern of a majority of Argentines, leaving aside other issues such as insecurity and poverty according to the latest public opinion polls from Ibarometro and Hugo Haime & Associates, released this week in Buenos Aires and which refers to the second half of April.

According to Ibarometro, 36.9% of respondents consider their main concern “the hike in prices”, while for Haime 50% of Argentines feel that “inflation is what most impacts daily life”. This suggests a radical change from last January.

At the beginning of 2008, for Ibarometro the main issues were insecurity, education, poverty and fourth rated inflation. But in three months inflation climbed to top of the list. Similarly with Haime, the April 50% was only 31% last January.

To make things even more worrisome, last January 37% believed inflation in 2008 was to be higher than in 2007, but in the latest poll the percentage jumped to 71%. That is 71% believe the current Argentine administration is not considered capable of keeping prices at a reasonable level.

Food, clothing and personal hygiene goods were the most volatile according to the opinion polls.

“Inflation, newspaper headlines almost daily and the discredited image of Indec (the office responsible for calculating consumer price indexes) is fueling the negative perception of the economic situation. We also believe that the camp conflict increases that negative perception”, pointed out Ibarometro.

More specifically compared with January “the inflation issue has jumped 200% from 11% to 36.9%, while insecurity falls ten percentage points. Clearly the increase in prices shadows all other concerns. The education issue also virtually has disappeared from the list of ratings”, added Ibarometro.

As to the overall economic situation, a majority of Argentines have a negative view: 56.8% describe it as “bad” or “very bad”. Only 30% considers it “very good” or “reasonably good”. However in spite of these percentages four out of ten respondents considered positive the sacking of the Economy minister Martin Lousteau.

the argentine government officially claims inflation at just under 10%... my finger in the air calculation is closer to 20%, and, if you're a foreign tourist, it's pushing 30%... it's that inflation, not a suit by disgruntled bondholders, that's going to bite cristina in her expensively-clad tush...

S&P said it had downgraded Argentine bonds’ risk rate precisely because the Kirchner administration refuses point blank to apply any cooling policies and insists that inflation is under control. In spite of the fact that the overall consensus is that inflation contrary to the “official” statistics of just below two digits is in the range of 18 to 24%.

as much as i have a very soft spot in my heart for argentina, it's difficult to let the argentine government off the hook when it's still led by those who think denial is a river in egypt...

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