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Debt Restructuring and Economic Recovery: Analysing the Argentine Swap

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  • Amrita Dhillon
  • Javier García-Fronti
  • Sayantan Ghosal
  • Marcus Miller

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. Copyright 2006 The Authors Journal compilation 2006 Blackwell Publishing Ltd .

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Bibliographic Info

Article provided by Wiley Blackwell in its journal World Economy.

Volume (Year): 29 (2006)
Issue (Month): 4 (04)
Pages: 377-398

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Handle: RePEc:bla:worlde:v:29:y:2006:i:4:p:377-398

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  1. Bulow, Jeremy & Rogoff, Kenneth, 1989. "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 155-78, February.
  2. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  3. Alejandro Izquierdo, 2002. "Sudden Stops, the Real Exchange Rate and Fiscal Sustainability in Argentina," The World Economy, Wiley Blackwell, vol. 25(7), pages 903-923, 07.
  4. Emanuel Kohlscheen & Stephen A O'Connell, 2006. "A Sovereign Debt Model with Trade Credit and Reserves," WEF Working Papers 0004, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  5. Paolo Mauro & Yishay Yafeh, 2003. "The Corporation of Foreign Bondholders," IMF Working Papers 03/107, International Monetary Fund.
  6. Katherina Fernández & Roque B. Fernández, 2007. "Willingness to pay and the sovereign debt contract," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 43-76, May.
  7. Emanuel Kohlscheen, 2006. "Sovereign Risk: Constitutions Rule," 2006 Meeting Papers 25, Society for Economic Dynamics.
  8. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  9. Mario Damill, 2005. "The Argentinean Debt: History, Default and Restructuring," Economia, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 6(3), pages 29-90.
  10. Manzini, Paola & Mariotti, Marco, 2001. "Perfect Equilibria in a Model of Bargaining with Arbitration," Games and Economic Behavior, Elsevier, vol. 37(1), pages 170-195, October.
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Cited by:
  1. Sayantan Ghosal & Marcus Miller & Kannika Thampanishvong, 2010. "Delay and Haircuts in Sovereign Debt: Recovery and Sustainability," Discussion Paper Series, Department of Economics 201004, Department of Economics, University of St. Andrews.
  2. Miller, Marcus & Thomas, Dania, 2006. "Sovereign debt restructuring : the Judge, the vultures and creditor rights," The Warwick Economics Research Paper Series (TWERPS) 757, University of Warwick, Department of Economics.
  3. Rohan Pitchford & Mark L. J. Wright, 2013. "On the contribution of game theory to the study of sovereign debt and default," Oxford Review of Economic Policy, Oxford University Press, vol. 29(4), pages 649-667, WINTER.
  4. Dhillon Amrita, & García-Fronti Javier & Zhang Lei, 2009. "Sovereign Debt Default : The Impact of Creditor Composition," The Warwick Economics Research Paper Series (TWERPS) 901, University of Warwick, Department of Economics.

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