Tags: Stiglitz | Argentina | bond | default

Stiglitz on Argentina: 'America Throwing Bomb Into Global Economic System'

Thursday, 31 Jul 2014 01:11 PM

By Dan Weil

Hedge fund firm Elliott Management's demand for full repayment on its Argentine bonds and the U.S. court decisions backing the firm have pushed the country into default, as it has refused to abide by the decisions.

With almost all of Argentina's other creditors agreeing to a restructuring of the country's debt, Nobel laureate economist Joseph Stiglitz puts Elliott Management, led by industry legend Paul Singer, and the U.S. court at fault.

"We've had a lot of bombs being thrown around the world, and this is America throwing a bomb into the global economic system," the Columbia University professor told The New York Times.

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"We don't know how big the explosion will be, and it's not just about Argentina."

The problems could spread to other developing countries with heavy debt loads, he said. "Singer and Elliott have already done a lot of damage."

To be sure, others see the consequences of default as less worrisome. "Argentina has been living in a default reality for over 10 years," Estanislao Malic, an economist at the Center for Economic and Social Studies of Scalabrini Ortiz in Buenos Aires, told The Times.

He was referring to the country's 2001 financial crisis. "This default is not a drastic change," Malic noted.

Stuart Culverhouse, head of research at Exotix, a frontier markets investment bank, agrees.

"These problems have been rumbling along for years and were well flagged," he told the Financial Times.

Still, there is a good chance that the standoff in Argentina won't be resolved for some time. "This looks like it could now drag out until 2015," Kevin Daly, who manages emerging-market debt at Aberdeen Asset Management, told Bloomberg.

"The risk is that it gets pushed out further, or you get an acceleration demand by an exchange bondholder that adds a new wrinkle to the holdout quandary."

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