Buenos Aires - Bond payoffs are supposed to be boring, but
Argentina's president is celebrating Friday's final $2.3bn payment on a bond
given to people whose savings were confiscated a decade ago, calling it a
lesson for European countries now mired in foreign debt.
The nation's economic disaster left thousands with a grim
choice after the government seized their dollar-denominated deposits to stop
bank runs in 2002. They could switch to devalued pesos and regain access to
what was left of their savings, or accept a piece of paper promising to repay
the money in dollars over the next 10 years.
Few had any faith in the government's promises back then.
Argentina had just defaulted on more than $100bn in foreign debt, banks were
shuttered, the economy was in ruins and streets were filled with pot-banging
protesters whose chants of "throw them all out" would send five
But Argentina has mostly paid up after all, making good on
92.4% of that defaulted debt so far, including $19.6bn in US currency over the
years to cancel the Boden 2012 bond. Most of the hard-luck account-holders
later sold the bonds at a loss, but as the government makes its last $2.3bn
payment on Friday, the few stalwarts who kept the faith have been made whole,
while earning a modest 28% profit over the years.
"It was good business" for anyone who got the
bonds early and held them, said Jorge Oteiza, a bond trader with Banco Comafi
in Argentina. "To have the same buying power you had back then isn't
President Cristina Fernandez praised her government for meeting
its commitments and blamed multinational financial institutions for the debt
crises that afflicted Argentina back then and threaten Europe today.
"This is the money that the banks should have returned
to the Argentine citizens," she said during a national address from the
Buenos Aires stock exchange Thursday night. Showing charts and rattling off
numbers, she argued that her government has shown the world how to emerge from
default without imposing austerity measures, growing its economy and strengthening
the social safety net.
This debt relief "has given us an immense independence
from the activity of the market," she said to applause from the hundreds
of guests she had invited onto the exchange floor.
Argentina's foreign-currency debt has dropped from a
daunting 166% of GDP at the end of 2002 to a more manageable 42% of GDP at the
end of 2011, said Ramiro Castineira of the Econometrica consulting firm.
"If before it was a burden to shoulder, now it's just a handbag. It
doesn't restrict the economy as it did in the past," he said.
However, the debt has grown in nominal terms during the same
period, from $137bn to $179bn.
Many economists suggest the official story is misleading at
best, since the government has refused to pay billions of dollars in other bad
debts while borrowing freely within Argentina, taking money from pension funds,
provinces, state-owned banks and the central reserve to stimulate the economy
and reduce its foreign debt exposure.
In her determination to make Argentina financially
independent, critics say Fernandez has only shifted the debt burden onto her
citizens, imposing terms that could stunt the country's future growth. For
example, the government promised to pay negative 0.25% interest over ten years
for the $27.9bn it took from the treasury for debt relief, the central bank
"It's wonderful to see Argentina pay down debt, but for
every dollar they're paying down, they're borrowing two or three through the
other window, and increasingly from their own people," said Arturo
Porzecanski, an expert on emerging markets at American University in
Economy Minister Hernan Lorenzino proudly described the
Argentine recipe in a column Wednesday published by Telam, the government news
agency: Spurn the requirements of the International Monetary Fund and World
Bank. Strong-arm the so-called "vulture funds" into accepting lower
returns on their risky bets. Nationalise private pension plans, the airline and
now the YPF oil company, putting their assets to use creating jobs. And tap
central bank reserves to pay down international debts.
Frozen out of international markets as a consequence of the
2002 default, this government made breaking their rules a point of pride,
"At first, they called us heretics and the
international community turned its back on us," he recalled. But
"this government makes policies today without conceding to international
pressure, thinking first of those on the inside, and later on those
Lorenzino has said this government will not take on more
international debts. Not that it could: Friday's payoff still doesn't resolve
nearly $7.5bn it owes the US and other Paris Club nations, or the $11.2bn
claimed in US courts by bond holdouts.
Argentina also owes millions in court judgments to US
companies, and Spain's Repsol Group wants $10.5bn for its shares in YPF that
Fernandez expropriated this year. Many of these investors would try to seize
any newly borrowed money before it reaches Buenos Aires.
Lorenzino suggested that Argentina's renegade approach makes
it better prepared to confront global crises because the portion of its debt
held by the private sector has dropped from 124% of GDP a decade ago to 14%
last year. "This was possible only under the concept of economic
independence, political sovereignty and social justice," Lorenzino wrote.
But this shift from private to public debt means that the
government is essentially borrowing from Argentine taxpayers and bank account
holders to stimulate its economy, at rates far below inflation, which is
estimated at 25% a year or more. Unless this changes soon, the money could run
out and there will be few other places to turn for help.
"This is no longer an 'us-versus-them' problem,"
Porzecanski said. "At first they went after the big multinationals, then
the 'filthy-rich bondholders,' then powerful institutions like the IMF. Now it
has become a fight for financial resources within Argentina. That's why I think
the end is coming."