On Argentine debt restructuring proposal (in Spanish)

Short interview for an Argentinean radio show, in Spanish.

On the Argentinean debt renegotiation (in Spanish)

My interview on Led.fm with María Iglesia and Cecília Camarano for the program Reperfiladas (in Spanish, obviously) on the Argentinean debt restructuring.

Restructuring Argentina’s Private Debt is Essential

JOSEPH E. STIGLITZ, EDMUND S. PHELPS, CARMEN M. REINHART

Argentina's creditors are being asked to accept a proposal that would reduce their revenue stream but make it sustainable. A responsible resolution will set a positive precedent, not only for Argentina, but for the international financial system as a whole.

Read rest and list of signatures here.

Default resolution in historical perspective

If Argentina finalizes an agreement with the holdouts, the so-called Vultures, it will close a long process that started with default in 2002, and was followed by renegotiations with about 93% of bondholders in 2005 and 2010. How fast has this process been when compared to other debt rescheduling processes? Figure below by Christian Suter (subscription required) looks at the average duration of defaults on foreign bonds in three different periods. Even though it misses the debt crisis of the 1980s, since that one was related to bank loans rather than bonds, the numbers might be pretty good for the whole period.

The average for the whole period is about 9 years, which makes the Argentine situation rather long, and comparable to the 1821 to 1870 period. The table also shows what he refers to as the durability of debt settlements, or time period between the conclusion of the debt settlement and the outbreak of the next debt default or rescheduling. Let's hope Argentina does better on this one, but given Macri's policies I wouldn't be too confident.

PS: Table 1 in Borensztein and Panizza also show the average periods of defaults, and they tend to be longer in the early periods too.

Stiglitz (and others) on the Vulture Funds

From yesterday's panel on "Reforming the Future: Lessons from Sovereign Debt Restructuring" held at the Atlantic Council. Close to the 11 minute mark Stiglitz says that Griesa's decision on Argentina and the Vulture Funds was "very peculiar" and that it made restructuring almost impossible.

The vulture passes

Yep, not the condor. So it's my short note in Página/12 (in Spanish), the Argentine newspaper, on the future of the external debt negotiations. Note that the short summary on top suggests, since this is a debate, that the return of a neoliberal project would lead to increasing external debt. And that might be true, yet, as I note in my piece it is not true that external debt is always bad, since one can use it for diversifying exports (and reducing structural heterogeneity), reducing imports (the old import substituting industrialization strategy) and making the balance of payments more sustainable in the long run.

I might add then that the use of foreign debt, with caution, is not necessarily neoliberal. At any rate, neoliberal is a complicated term, often used to refer to things one does not like. Unlike neoclassical economics (or marginalism more properly) it does not have a precise meaning. I would imagine that in this context is used to refer to pro-business, pro-liberalization, laissez-faire policies that characterized the Washington Consensus and the 1990s in Argentina. And yes that would be a terrible model to go back to.

Even the IMF thinks Vulture Funds are a problem

Since I criticized recently the IMF on its timid changes on macroeconomic policy advice, and the persistence of austerity based programs, it is worthwhile noticing that on the question of debt restructuring they have come clearly on the side limiting the power of Vulture Funds. In a new report on Sovereign Debt Restructurings the IMF suggests that:

The recent litigation involving Argentina has generated significant concerns regarding the impact that the New York court decisions may have on the overall restructuring process. In light of these concerns, there has been considerable progress in both the design and use of a modified pari passu clause that explicitly excludes the obligation to pay creditors on a ratable basis. It is recommended that the Fund support the widespread use of such a modified pari passu clause in international sovereign bonds.

Note that this might have an impact on future debt renegotiations, but is of little help for Argentina right now. But if the IMF is doing this, it means that the US Treasury is not particularly happy with judge Griesa's decisions.

PS: Here and here two parts of an interview for the radio program Debates Económicos of the Universidad Nacional de Colombia (in Spanish).