Can Argentina lecture Europe about the economic crisis?

The repayments bond is probably one of the most boring pieces of finance. Nobody wants to deal with them. Unless it is the solemn final repayment of bonds that were given to the Argentinians who lost their savings, a decade ago. The country’s president, Cristina Fernandez de Kirchner, turned the event into a real fiesta and did not waste the opportunity to characterize it as a “lesson” for European countries, now sinking to the debt crisis.

In 2002, when the Argentine government proceeded to seize all deposits in dollars in an effort to stop the banking panic and mass withdrawals, the country’s citizens had to choose between two rather bad choices. They could convert their savings into pesos and get their hands on what was left of them after the devaluation, or accept a bond, an adhesive paper, telling them that they would get their money back, in dollars, in ten years.

Argentina crisis

Argentina crisis

Of course, few were those who trust a bankrupt government. Argentina had just defaulted on debt payments in excess of $ 100 billion, the banks were closed, the economy had collapsed and Argentines marched through the streets, banging pots and chanting rhythmically “throw them all out.” Five presidents saw the exit door. And yet, a decade later, Argentina has repaid 92.4 % of the debt which now had defaulted on payments. Among these repayments were the 19.6 billion dollars of so called bond Boden, due in 2012. Those who had given the most optimistic depositors. The payment of $ 2.3 billion, was the last.

The truth is that most of the depositors who had received these bonds, had already sold long ago, with damage. However, when the Argentine government made ​​the last payment of the few who had entrusted the bonds to end, resulted in a relatively good profit of around 28%. It was a good deal for those who acquired the bonds early and kept it until the end, explains Jorge Oteiza, trader bond Banco Comafi, in Argentina. “For someone to have the same purchasing power that was given then, isn’t so ugly”.

The President Kirchner, took the opportunity to compliment the government that kept its commitments, and blame the international financial institutions causing crises, then Argentina today in Europe.

“This is money that the banks should have been returned to Argentine citizens,” he said during the national proclaimers, at the stock market in Buenos Aires. Displaying graphs and numbers, claimed that the government showed the world how a country can emerge from bankruptcy without imposing austerity measures through the development and a social safety net. The exemption from the Argentine debt, gave the country a huge independence from the mood of the markets, he said, as hundreds were clapping from the stock room.



Indeed, Argentina’s debt in foreign currency fell from the scary 166% of GDP in late 2002, absolutely manageable 42% of GDP at the end of 2011.

At the same time, many economists argue that only the numbers do not tell the whole truth about Argentina. The government can reduce foreign debt, however, borrows heavily in the country. Taking money from pension funds, by regions, by state banks and reserves to not display foreign borrowing and stimulate economic activity.

Critics say that in trying to make the economically independent Argentina, the Kirchner simply carrying the financial burden on citizens, imposing conditions that could undermine the country’s future development. For example, the government took 27.9 billion dollars by the central bank to repay debts, giving negative rate, -0.25 % for the next 10 years.

Finance Minister assures that Argentina will not take more external debts. Despite the debt payments, the country still owes 7.5 billion dollars in the Paris Club, other 11.2 billion dollars in various bondholders refused the haircut and many U.S. businesses that turned against her in court. If the government tried to borrow money through the international bond markets would risk seeing these amounts seized by creditors, before they even arrive in Buenos Aires.

By Nicole P.

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