Munich Personal RePEc Archive

Political Economy of Argentine Sovereign Debt and the Holdouts Problem

Swamy, Vighneswara (2014): Political Economy of Argentine Sovereign Debt and the Holdouts Problem.

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Abstract

There seems to be no end to the sovereign debt woes of Argentina in the near future, as the ‘holdouts’ are accused of turning out to be vultures and are hell bent on their pound of flesh. The crisis has resurfaced as the Argentine President Cristina Fernandez de Kirchner, having been advised by her country’s lawyers, to intentionally default on dollars of its sovereign debt in order to force a renegotiation of the debt and to take the case away from American judges. This is the second such default by Argentine in the last thirteen years. Expert analysts term this a bad advice, and Argentina continues to follow it. Even if Argentina nudges ahead to restructure all its sovereign debt outside US to avoid the jurisdiction of the US courts, it might further deepen its status as a pariah country. The debt crisis has indeed compounded the problems for Argentina as it is already imbued with an array of macroeconomic woes caused by the artificially overvalued currency leading to stubbornly high inflation, state subsidies that are sapping resources, and an abysmal business climate that has seen investment all but dry up. If the crisis is not resolved adequately, there is every danger of driving the Argentine economy into structural economic mess.

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