Almost two centuries of defaults: the long history of Argentina’s defaults when it comes to paying its debts

The default that became epic

The government’s decision not to pay a due date to the International Monetary Fund (IMF) tomorrow would become the beginning of a new default in Argentine history. The defaults began a few years after the formation of the Argentine state itself in the 19th century and have transformed the country into a “serial defaulter.”

Some caused international legal conflicts and other long negotiations with official and private creditors, but all ended up in the same alley of major problems for the Argentine economy.

The country’s list of sovereign defaults began in 1827:

1. 1827 – Argentina had had an active presence in international capital markets after Independence in 1816. In the midst of a lending boom caused by the end of the Napoleonic wars, Argentina and other Latin American countries managed to issue bonds in London to finance their wars of independence from Spain.

Bernardino Rivadavia
Bernardino Rivadavia

The analyst recalled that this credit boom ended in 1825 when the Bank of England raised its discount rate to stop its fall in reserves. That monetary adjustment led to a stock market crash, banking problems and recession in England and Continental Europe. “In a few months, the crisis spread to Latin America. Argentina went into default in 1827 and only resumed its payments in 1857,” he explained.

2. 1890 – The “Panic of 1890”. The main reason was the bankruptcy to which the Baring Brothers bank in London almost reached due to the excess of credit that it had granted to Argentina.. The objective of the credit, taken mainly at the time of the former president Julio Argentinian Rock, was for the construction of railways and the modernization of Buenos Aires to transform it into the “Paris of South America”, building wide avenues, parks and a modern port.

Julio Argentinian Rock
Julio Argentinian Rock

3. 1951. Occurred during the first presidency of Juan Domingo Perón. Both World War I and the Great Depression of 1930 hit the Argentine economy hard, like many other nations. In the middle of that decade, a process of import substitution began with military governments, which was consolidated during the first Peronist government, which, however, could not avoid a debt crisis at the end of its first term. According to the book “The economy of Perón”, on average the fiscal imbalance of the period 1946-1944 was 4.4% of the GDP…the lack of moderation in the macroeconomic administration and the absence of controls in the evolution of the public budget they refer, without a doubt, to the notorious weakness of the institutional framework that governed decision-making”, indicated Federico Grillo, Sebastián Katz and José Luis Machinea.

4. 1956 – After the coup against Perón. The military overthrew Perón’s second government in 1955 for reasons unrelated to the economy, but a crisis broke out that forced the military junta to reach an agreement with the Paris Club of creditor countries to avoid an even greater default.

Juan Domingo Peron
Juan Domingo Peron

5. 1982 – When the regional crisis began due to the rise in interest rates in the United States during the government of Ronald Reagan, Mexico began with a declaration of default that was later extended to most of the nations of the continent, whose main creditors were the banks; Argentina stopped paying during the Falklands War in 1982, first to Great Britain and then to other creditors, in the midst of the acute economic crisis that the dictatorship was going through after the failure of Martínez de Hoz’s plan.

In October 1983, there were 27 countries that owed USD 239,000 million and were in the process of restructuring. Of those States, 16 were from Latin America, and among them were Mexico, Brazil, Venezuela and Argentina, which accounted for 74% of the debt under restructuring. About $37 billion was owed to the eight largest US banks, representing 147% of their capital reserves at the time.

Despite some initiatives to alleviate this problem, such as the Baker Plan, the problem was only solved at the beginning of the following decade, with the Brady Plan, which Argentina signed in 1982 and meant a haircut and a change of creditors, since the private bondholders took over from the banks.

Raul Alfonsin and Carlos Menem
Raul Alfonsin and Carlos Menem

6. 1989 – A series of failed attempts in the late 1980s -after the failure of the Austral Plan and the Primavera Plan- to curb inflation, which rose above 3,000%, caused another default in 1989 and led to Carlos Menem to power, who, after a bad start, since 1992 managed to reduce inflation, privatized state companies and attracted foreign direct investment. In any event, Argentina’s external debt rose to more than US$100 billion, as a result of Menem’s lack of control over public spending.

7. 2001 – Then President Adolfo Rodríguez Saá announced in December 2001 that Argentina would suspend its foreign debt payments and was applauded in the National Congress. In reality, since the end of 1998 the Argentine government had closed the voluntary debt market and had subsisted thanks to the support of the IMF in the “shielding” of 2000 and then with the “mega-swap” of 2001, which attempted the inevitable: the cessation of payments in the midst of the terminal convertibility crisis.

8. 2014 – After two swaps with bondholders affected by the 2001 default, which were carried out in 2005 and 2010, Argentina had achieved the acceptance of 93% of its creditors, but could not get out of default because the legal clauses of the bonds issued in the 90s prevented it. Therefore, after almost 10 years of litigation in New York and 4 years of unfavorable sentences from the various instances of the North American justice system, the country went into default, for not agreeing to pay the litigating funds, despite the fact that the banks Argentines and the Central Bank had devised a credit to avoid this negative sentence in 2014.

It was only in 2016 that the country began to lift this legal situation, with the arrangement reached by the first economic team of the government of Mauricio Macri with the bondholders in New York, which implied a haircut of approximately 30 percent. In 2019, after the legislative defeat, the Macri government decided to “reshape” the payment of the debt in pesos, since the alternative was, according to the economic authorities, to issue and generate a dangerous situation with inflation and, in addition, enable a “corralito”. For this reason, it was decided to change the term of payment of debts in national currency, after the program agreed with the IMF in 2018 did not allow the market to get out of the crisis situation, as the economic authorities and the IMF .

Mauricio Macri and Cristina Kirchner
Mauricio Macri and Cristina Kirchner

9. 2020 – The government of Alberto Fernández stopped paying a maturity of USD 503 million that fell on May 22, for being in the middle of the negotiation with the private bondholders, with a hard fight between the minister Martin Guzman and the three committees of private creditors, which ended at the end of August of that year with an offer that was close to the market’s expectations and resulted in an acceptance close to 99 percent, so the ephemeral default was left behind.

Argentina should pay USD 731 million to the IMF today. If you decide to postpone the engagement because you do not have a signed agreement “it would confirm the country’s difficulty in being normal”, according to Fernando Baer about how much. It would be a new unilateral breach of the country, the tenth.

“Stumbling block after stumbling block, in a dynamic that destroys value and generates more and more poverty; this Friday happens to be anecdotal. At this point, the mere fact of having allowed more than two years to pass to reach an agreement and the difficulties in closing a negotiation explains much more why the event of non-payment occurred”, concluded Baer.


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