Argentina’s debt restructuring might not get resolved for years because of potential law suits, according to a leading analyst.
“One cannot rule out the possibility that a large portion of Argentina’s creditors will refuse to go along with the deal and will turn the dispute over to their lawyers,” writes Riordan Roett, a professor at Johns Hopkins University, in an exclusive piece for emergingmarkets.org
“The country then faces months or years of protracted litigation that precludes any resolution of the privately held bonds and postpones much needed capital flows – private and multilateral,” he adds.
Adauto Lima of WestLB agrees in another exclusive piece for emergingmarkets.org that further delays of a settlement will put an increased strain on Argentina’s relations with the multilateral agencies. IMF negotiations will only resume after the debt restructuring with private investors and the third review between the Fund and Argentina has been put on hold.
Argentina has US$780 million due to the IMF in December 2004. Without the conclusion of the review, the IMF cannot disburse new loans and the government will have to pay the debt without assistance.
Joyce Chang, head of emerging markets research at JP Morgan, writes Argentina can still salvage a successful transaction but the authorities need to answer two questions: “First, the reason why it cannot be expected to pay investors more than it is currently proposing; and second, the manner in which resources to pay new bonds of participating investors will be effectively isolated from attachment risk represented by potential holdouts.”
Economist David Hale reckons the only way for the crisis to be resolved is if the Argentine authorities relinquish their governing powers and hand them over to a group of technocrats until the country’s financial health is restored.
Hale cites the example of Newfoundland, which underwent a successful debt restructuring in 1933. At the time Newfoundland was a fully self-governing dominion of the British Empire but its authorities agreed to give up democracy and independence in return for a debt rescue by His Majesty’s government in London.
To read more about the analysts’ opinions, please see the features sections for exclusive pieces by Joyce Chang, David Hale, Adauto Lima and Riordan Roett.
Exclusive - Argentina's debt swap crisis: Joyce Chang
Exclusive - Argentina's debt swap crisis: David Hale