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OTTAWA – It’s been fourteen years and counting, and Argentina still hasn’t shaken off its label as financial market pariah among creditors around the world.
It’s unlikely the South American country will totally resolve its ongoing debt saga – and recast its international profile – despite a U.S.-court-approved debt agreement with remaining international investors.
After all, Argentina has tried this before – it’s defaulted numerous times in the history, including its memorable sovereign debt default of almost US$100 billion in 2001, if this fell victim to political and economic instability, and also the lingering impact from the late-1990s Asian currency contagion.
Two debt restructuring efforts – in 2005 and 2010 – as well as earlier bailouts from the International Monetary Fund, have helped Argentina keep its economy afloat.
But now, a rustic whose economy has been further compromised by political meddling, could be heading for yet another possible crisis point – a decision this week by Argentina’s lawmakers on whether or not to approve the deal brokered in Ny, that was required because the bonds under consideration were issued under U.S.-written law.
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The vote should help finally resolve Argentina’s decades-long financial malaise and clear the method for new financing and, it’s hoped, attract foreign investment to the nation.
Will this legal deal finally function as the start of the end for Argentina’s crisis? The simply response is perhaps, however it will require time.
The move might be pushed forward through the election of Mauricio Macri, a right-of-centre, pro-business politician who took over as president in December following a departure of Cristina Fernandez de Kirchner.
During a U.S. television interview on Sunday, Macri said the stakes for change are high, and defeat from the debt offer his country’s Congress would mean more “austerity or hyperinflation.”
“There isn’t any alternative,” he warned, in front of the vote – likely – on the bill that includes authorization for any US$4.65-billion cash payment to its lead creditors which was ordered by the U.S court.
Argentina’s debt woes may have been overshadowed in more recent years by events in Greece, for example, but they haven’t gone away.
Kip Beckman, principal global economist at the Conference Board of Canada, said “the new government is anxious to solve the (debt) problem.”
“But there’s going to be lots of short-term pain,” Beckman said. “They’ve allowed the currency to depreciate sharply, which should bring in more foreign currency reserves, however in short term it is going to increase inflation – it is running at Thirty to forty per cent, if you’re able to imagine – and higher rates of interest, subsidies are gong to be cut.”
The global economy is not working to Argentina’s advantage right now, either.
Argentina, like a number of other Latin American nations, continues to be hit through the collapse in commodity prices.
“Argentina, at the turn from the 20th century, had the same GDP per capital as Canada – in fact, they should be as rich a rustic as Canada (now), plenty of natural resources, educated population,” Beckman said.
“But, they’re on the right track now. And I know they’re anxious to settle this court case. So, hopefully, better days is going to be ahead for Argentina … but it is going to take time.”
gisfeld@nationalpost.com
Twitter.com/gisfeld
