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Bargaining and Sustainability: The Argentine Debt Swap of 2005

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

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5236.

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Date of creation: Sep 2005
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Handle: RePEc:cpr:ceprdp:5236
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  1. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2003. "Sudden Stops, the Real Exchange Rate, and Fiscal Sustainability: Argentina's Lessons," NBER Working Papers 9828, National Bureau of Economic Research, Inc.
  2. Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
  3. Jeromin Zettelmeyer & Federico Sturzenegger, 2005. "Haircuts; Estimating Investor Losses in Sovereign Debt Restructurings, 1998-2005," IMF Working Papers 05/137, International Monetary Fund.
  4. Mario DAMİLL & Martin RAPETTİ & Roberto FRENKEL, 2005. "The Argentinean debt: History, default and restructuring," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 20(236), pages 5-26.
  5. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  6. Favero, Carlo A. & Giavazzi, Francesco, 2004. "Inflation Targeting and Debt: Lessons from Brazil," CEPR Discussion Papers 4376, C.E.P.R. Discussion Papers.
  7. Bhattacharya, Sudipto & Detragiache, Enrica, 1994. " The Role of Multilateral Institutions in the Market for Sovereign Debt," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(4), pages 515-29.
  8. repec:cup:cbooks:9780521576475 is not listed on IDEAS
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