Bargaining and Sustainability: The Argentine Debt Swap of 2005

37 Pages Posted: 24 Oct 2005

See all articles by Amrita Dhillon

Amrita Dhillon

University of Warwick - Department of Economics

Javier Garcia-Fronti

University of Buenos Aires (UBA) - Centro de Investigación en Métodos Cuantitativos Aplicados a la Economía y la Gestión

Sayantan Ghosal

University of Glasgow - Adam Smith Business School

Marcus H. Miller

University of Warwick - Department of Economics; Institute for International Economics; Centre for Economic Policy Research (CEPR)

Date Written: September 2005

Abstract

When Argentine sovereign default in December 2001 led to a collapse of the peso, the burden of dollar debt became demonstrably unsustainable. But it was not clear what restructuring was feasible, nor when. Eventually, in 2005 after a delay of more than three years, a supermajority of creditors accepted a swap implying a recovery rate of around 37 cents in the dollar. In this paper, a bargaining approach is used to explain both the settlement and the delay. We conclude that the agreed swap broadly corresponds to a bargaining outcome where the Argentine government had 'first mover' advantage, and that a substantial delay occurred as negotiators seeking a sustainable settlement waited for economic recovery. Factors not explicit in the formal framework are also considered - heterogeneity of creditors, for example, and the role of third parties in promoting 'good faith' bargaining.

Keywords: Bargaining, sustainability, efficiency delay, debt restructuring

JEL Classification: C7, F3, F33, F34, K4

Suggested Citation

Dhillon, Amrita and García Fronti, Javier and Ghosal, Sayantan and Miller, Marcus H., Bargaining and Sustainability: The Argentine Debt Swap of 2005 (September 2005). CEPR Discussion Paper No. 5236. Available at SSRN: https://ssrn.com/abstract=833206

Amrita Dhillon

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 1 20 352 3032 (Phone)

Javier García Fronti

University of Buenos Aires (UBA) - Centro de Investigación en Métodos Cuantitativos Aplicados a la Economía y la Gestión ( email )

cma@econ.uba.ar
Buenos Aires, Buenos Aires 1120
Argentina

Sayantan Ghosal

University of Glasgow - Adam Smith Business School ( email )

Glasgow, Scotland
United Kingdom

Marcus H. Miller (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 24 7652 3048/9 (Phone)
+44 24 7652 3032 (Fax)

Institute for International Economics

1750 Massachusetts Avenue, NW
Washington, DC 20036-1903
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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