Bondholders.
It is not just economically foolish to prioritise the debts owed to foreign bondholders over those to domestic workers and pensioners. It is politically unsustainable and socially unjust. Foreign bondholders - investment banks, mutual funds, rich individuals and vulture funds, which buy distressed debt in the hope of making a quick killing - were well aware of the risks when they bought Argentine debt. Indeed, anyone who bought Argentine bonds in the past year, as spreads soared, knew that default was not just a theoretical possibility but also a substantial probability. After all, a 30 per cent spread implies that these bondholders are obtaining six times what they would get by holding US Treasury bonds. Only a big risk of default could justify this.
John, as you said, this 'default' was telegraphed.
I think a basic psych student could point out that the Argentine government was in denial not to accept this. The riots are a disaster for the country. I appreciate that international capital markets may not like it, but how the hell did a country like this get 130Bn USD of debts. Is it ethical to force debt to entities that cannot pay.
All this restructuring takes place due to politics. Pakistan has been offered re-scheduling/re-packaging of its debts. What would happen if that becomes like Argentina? The IMF has to stop throwing good money after bad, it creates a worse problem for later, as it prevents real reform from happening.
Oh well, plus ca change!
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- macavity |
