Argentina’s default : In which world?
Contrary to the idea conveyed by the financial media, it’s Argentina, not the vulture funds, which refused the deal, i.e. to refund their debt in total to them.
Indeed in 2010, 93% of Argentina’s creditors agreed on a 65% loss on the bonds issued by the country in the course of its first default in 2001, bonds which were bought cheaply by risk-seeking investors. Since then, Argentina regularly honoured its agreed debt-refund.
However 7% of the creditors, those « vulture-funds » refused any loss (negating the risk they took) and entered into a row with Argentina, backed by the US justice, in order to be fully reimbursed.
But Argentina refused, prefering to be declared in default…
By the way, one of the consequences is that the 93% of creditors who had agreed to the deal will no longer see their refund ; neither will Elliott Management, the main fund involved on the court action. How do you compell a country to pay what it considers it doesn’t owe you? War?
Supposedly default is a nuclear bomb for a country which instantly loses any investment attractivity; thus everything should be done to avoid it. So thought Elliott. But times change.
In May Russia invited Argentina to join their BRICS summit. This invitation in the end turned into a UNASUR-BRICS Summit held on the morrow of the BRICS Summit.
Two weeks ago, China and Argentina signed a multi-billion investment deal, signalling clearly that, for China, Argentina was no risk1.
Today Dagong, the China-based global rating agency, decided to downgrade Argentina’s foreign currency sovereign credit rating from CC to D but to maintain the country’s local currency sovereign credit rating at CCC: « Since the foreign currency debt default was caused by third-party factors which has not fundamentally jeopardized Argentina’s local currency solvency, Dagong maintains the local currency sovereign credit rating of Argentina at CCC »2.
Seen from the West, Argentina becomes a risky and unreliable investment country. Seen from the BRICS, Argentina is now a free country with no more debt, the third economic power in South America, a land of opportunity.
Two worlds : a sanctioning and fining one; an investing and cooperating other.
By Masha Loyak
And now Mr Bush lets talk about Abu Ghraib and Guantanamo
