Should Argentina Default On Its Debt?

[Joe]

Question: What is the drawback of default?
Answer: It will be more difficult to get credit and the the credit available will be at higher rates.

Since Argentina has had a traditional problem of having it's debt misallocated to corrupt entities wouldn't it be better to discourage undertaking debt in the future? A default would accomplish that. As well as keeping foreign reserves from draining.

Wouldn't is be better to end the uncertainty of whether or not a default will occur? After all, financial markets hate uncertainty more than anything.

And if the debt was incurred by corruption, then Argentines shouldn't be forced to repay it:

In international law, odious debt, also known as illegitimate debt, is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

http://en.wikipedia....iki/Odious_debt


If you vote for a "Third Way" please explain.

 

[ajoknoblauch]

Question: What is the drawback of default?
Answer: It will be more difficult to get credit and the the credit available will be at higher rates.

Since Argentina has had a traditional problem of having it's debt misallocated to corrupt entities wouldn't it be better to discourage undertaking debt in the future? A default would accomplish that. As well as keeping foreign reserves from draining.

Wouldn't is be better to end the uncertainty of whether or not a default will occur? After all, financial markets hate uncertainty more than anything.

If you vote for a "Third Way" please explain.

So, the absence of foreign investment would make the economy grow faster, and enrich Argentines to Venezuelan levels.

 

[Joe]

So, the absence of foreign investment would make the economy grow faster, and enrich Argentines to Venezuelan levels.

What is the connection between sovereign debt default and foreign investment? The rules and government policies that govern these two entities is different and distinct. Government policies that might encourage Microsoft to open a software development facility in Argentina, e.g. the ease with which it can repatriate profits, etc. have nothing to do with whether the country defaulted on it's debt.

 

[Joe]

Come on folks! By 2 to 1 you voted that corrupt Argentine leaders are responsible for the debt but but a margin of more than 3-1 you say all Argentines should pay up (i.e. not default). This is like saying that you are responsible for the debts of your father's drunken wagers, a father who coincidentally tortured you with physical abuse! Would you think that was fair?

BAexpats, At long last have you no sense of fairness?

 

[Chet]

I'm not answering the poll cause the question is just too complex.
I think if they are going to default the sooner the better, even bad is better than uncertainty.
While the debt MAY not be the bad deeds of current citizens and this is questionable because corruption or not they were elected and people get what the deserve ...
the other part is that default will also cost the current people/gov in making a lot of business/trade more difficult.
Which costs more in the long run?
And of course the always question
"Cui bono" either way.

 

[ajoknoblauch]

Come on folks! By 2 to 1 you voted that corrupt Argentine leaders are responsible for the debt but but a margin of more than 3-1 you say all Argentines should pay up (i.e. not default). This is like saying that you are responsible for the debts of your father's drunken wagers, a father who coincidentally tortured you with physical abuse! Would you think that was fair?

BAexpats, At long last have you no sense of fairness?

If "fairness" were a relevant issue, Argentines would be able to purchase dollars without incriminating themselves.

 

[Joe]

If "fairness" were a relevant issue, Argentines would be able to purchase dollars without incriminating themselves.

So you are equating billions of dollars of Odious Debt paid by the poor to the small inconvenience of converting $300 dollars so you can splurge on a Bife de Chorizo dinner at Don Julio?

I ask again, "at long last, have you no shame?"

 

[ajoknoblauch]

So you are equating billions of dollars of Odious Debt paid by the poor to the small inconvenience of converting $300 dollars so you can splurge on a Bife de Chorizo dinner at Don Julio?

I ask again, "at long last, have you no shame?"

I am not an Argentine, and have free access to dollars (within the limits of my earning power). The principle of fairness, however, is the same; the difference is one of scale.

Don't care much for Don Julio; in fact, I don't eat much meat but, when I do, I prefer the more modest El Trapiche.

 

[Crema Americana]

The problem is that there's no good outcome. I would support a default if it meant responsible planning in the future. However, the most likely scenario is default + high interest credit + market uncertainty and continued irresponsibility.

In that case it'd be best if Argentina pays its debt and tries to keep this game going as long as possible. However unfair the vulture funds are, when you make a deal with the devil you better be prepared to keep your side of the bargain. Let it be a lesson to never make such deals again (and to hopefully never let things get so bad where such deals are even contemplated.)

 

[Joe]

I think a lot of you are making the common mistake of thinking this is a moral decision (expats) or suffering from misplaced pride (locals).

It is not a moral decision.

Do you think corporations make bankruptcy decisions based on morality? That concept is ridiculous. Corporations make the decision supposedly in the best interest of their shareholders but more usually they decide what is in the best interest of top management.

Argentina should default and default now. Morality is irrelevant.

As far as not defaulting out of a false sense of pride that Argentina is not a deadbeat borrower - that ship sailed a long, long time ago...

The best course of action for Argentina is a Big Bang: a default, combined with a time table to remove currency restrictions, new laws to encourage overseas investment and other market friendly measures.