The mixed fortunes of Argentina’s 2005 and 2010 debt restructurings

28 June by Eric Toussaint , Maud Bailly

In June 2018, Argentina signed a loan agreement with the IMF. We therefore republish a useful excerpt of an interview given by Eric Toussaint to Maud Bailly in 2014, which focuses on the process of the Argentine debt restructuring in the wake of the country’s suspension of debt payments between the end of 2001 and 2005.

And Argentina? After the biggest suspension of payments in history, in 2001 the Argentine government renegotiated its sovereign debt Sovereign debt Government debts or debts guaranteed by the government. . What were the conditions?

Yes! In 2005 and in 2010 Argentina’s debt was restructured through an exchange of bonds: old bonds were exchanged against new ones. This was the situation: in December 2001, the Argentine authorities, under the interim President Adolfo Rodríguez Saá, unilaterally suspended debt repayments amounting to $80 billion to private creditors and the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

($6.5 billion). Notice that they did not suspend payments to multilateral organisms such as the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
and others.

This action came about in a situation of economic crisis and popular revolt against the policies that had been followed for years by successive neoliberal governments, of which Fernando de la Ruas was the most recent. It was thus under pressure from the street at a time when the treasury was empty that the Argentine authorities suspended debt repayments.

Argentina’s suspension of payments of sovereign debt bonds lasted from December 2001 to March 2005. This was beneficial for the Argentine economy and population. Between 2003 and 2009, Argentina’s economic growth was between 7% and 9%. Some economists claim that this growth was due to the rise in the prices of Argentina’s raw materials exports, but it is clear that if Argentina had continued paying off its debt, the increased exports income (in other words, the taxes levied on the exporting companies) would have been used for the debt repayments.

Between 2002 and 2005 the Argentine authorities negotiated with their creditors to convince a majority of them to agree to exchange the bonds they held for new ones, written down by 60%, but with a stronger guarantee and a favourable interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. -rate indexed on Argentine GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
growth. This was debt restructuring by exchange of bonds: by March 2005, 76% of outstanding bonds had been exchanged, a majority that was considered sufficient protection against the 24% who refused the exchange. The authorities announced, at the time, that those who refused the exchange would have no further occasion to negotiate.

So why did Argentina restructure its debt again, in 2010?

Indeed, in contradiction with previous declarations and despite the protests of Roberto Lavagna, the minister of economic affairs who had taken part in the 2005 negotiations, the government of Argentina did open a new round of negotiations with the remaining 24% of the creditors. A new agreement was reached with 67% of that 24% in 2010. In all, 8% of all the bonds whose payment had been suspended since 2001 “held out” against both agreements. Both agreements contained clauses stipulating that in case of litigation involving the new issues, US courts would be the competent jurisdiction.

In the end, can this restructuring be considered a success? Can other governments follow the Argentine strategy?

The Argentine authorities claim success because of the 50% to 60% reduction of debt stock Debt stock The total amount of debt . But, in return, big concessions were made: high interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
; indexation to Argentina’s GDP growth, which means that the country actually agreed to hand over a share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of its growth profits to the creditors; renouncing sovereignty in case of litigation.

In fact, Argentina’s example is not the one to follow, but it is a source of inspiration. It shows the interest of suspending payments and the limits of a negotiated deal that makes big concessions to the creditors. The current situation is evidence enough:

  1. Firstly, the amounts in fact reimbursed to creditors are considerable; Argentina itself acknowledges that it has reimbursed $190 billion since 2003.
  2. Secondly, although Argentina’s debt was certainly lower between 2005 and 2010, today the amount of Argentine debt is higher than it was in 2001.
  3. Thirdly, Argentina is under heavy and unwarranted pressure to reimburse the Vulture funds Vulture funds
    Vulture fund
    Investment funds who buy, on the secondary markets and at a significant discount, bonds once emitted by countries that are having repayment difficulties, from investors who prefer to cut their losses and take what price they can get in order to unload the risk from their books. The Vulture Funds then pursue the issuing country for the full amount of the debt they have purchased, not hesitating to seek decisions before, usually, British or US courts where the law is favourable to creditors.
    that refused to accept the exchange offers, after not only a New York judge but the US Supreme Court ruled in favour of the Vulture funds.

Eventually, Mauricio Macri, who became president of the republic in December 2015, decided in 2016 to fully compensate the vulture funds, thus humiliating Argentina and provoking a strong increase in the country’s public debt (see and

Full interview available here:,11723

Also available in Dutch:

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. Since the 4th April 2015 he is the scientific coordinator of the Greek Truth Commission on Public Debt.

Maud Bailly

Co-secrétaire générale du CADTM Belgique




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