Debt Restructuring and Economic Recovery: Analysing the Argentine Swap

22 Pages Posted: 8 May 2006

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)

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 super-majority of creditors accepted a swap that essentially involved the 'pesification' of dollar liabilities. With the IMF not playing its customary role in arranging a swap, we consider whether a bilateral bargaining approach can help explain the final settlement and the delay in achieving it. We find that the swap broadly corresponds to a bargaining outcome where substantial delay occurred for both political and economic reasons. Even after political legitimacy was assured by general elections, negotiators seeking a sustainable outcome - at a time of deep recession, profound currency under-valuation and high sovereign spreads - realised it was better to wait before settling. Other factors discussed include the definition of sustainability criteria, the effect of inter-creditor conflict and the role of third parties in promoting 'good faith' bargaining. We suggest that, while these issues need further investigation, there are institutional changes that could make them less problematic.

Suggested Citation

Dhillon, Amrita and García Fronti, Javier and Ghosal, Sayantan and Miller, Marcus H., Debt Restructuring and Economic Recovery: Analysing the Argentine Swap. World Economy, Vol. 29, pp. 377-398, April 2006. Available at SSRN: https://ssrn.com/abstract=889821 or http://dx.doi.org/10.1111/j.1467-9701.2006.00789.x

Amrita Dhillon (Contact Author)

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

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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