OTTAWA – It’s been fourteen many counting, and Argentina still hasn’t shaken off its label as financial market pariah among creditors all over 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 its history, including its memorable sovereign debt default of just about 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 – in addition to earlier bailouts from the International Monetary Fund, have helped Argentina keep its economy afloat.
But now, a rustic whose economy continues to be further compromised by political meddling, could be at risk of another possible crisis point – a choice this week by Argentina’s lawmakers on whether to approve the offer brokered in New York, that was required since 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 take time.
The move might be pushed forward through the election of Mauricio Macri, a right-of-centre, pro-business politician who had become the 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 deal in his country’s Congress means more “austerity or hyperinflation.”
“There is no alternative,” he warned, in front of the vote – likely – on the bill which includes authorization for a US$4.65-billion cash payment to the lead creditors which was ordered through the U.S court.
Argentina’s debt woes might have been overshadowed over the last years by events in Greece, for example, but they have never 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 likely to be a lot of short-term pain,” Beckman said. “They’ve allowed the currency to depreciate sharply, which should generate more foreign exchange reserves, but in the short term it’s going to increase inflation – it is running at Thirty to forty percent, if you’re able to imagine – and better interest rates, subsidies are gong to be cut.”
The global economy is not trying to Argentina’s advantage right now, either.
Argentina, like a number of other Latin American nations, has been hit by the collapse in commodity prices.
“Argentina, in the turn from the last century, had exactly the same GDP per capital as Canada – actually, they should be as rich a country as Canada (now), lots of natural resources, educated population,” Beckman said.
“But, they’re on course now. And that i know they’re anxious to settle this lawsuit. So, hopefully, better days will be ahead for Argentina … but it is going to take some time.”
gisfeld@nationalpost.com
Twitter.com/gisfeld
