Tags: Argentina | Defaults

Argentina Defaults

Thursday, 03 January 2002 12:00 AM

Overall, the financially and politically troubled country owes a staggering debt load of an estimated $132 billion, much of it owed to foreign lenders. If unable to pay, this would be largest default of debt in history, as it remains in its fourth year of recession.

At the same time, Argentina is starting measures to devalue its currency, the peso, which had been on par with the U.S. dollar, an artificial parity that has caused much of the country's economic and debt problems. Once the envy of its surrounding neighbors for its high standard of living, the country is being pointed to as an example of government, business and personal overspending.

It is expected that the peso will drop by up to 40 percent on the dollar almost immediately, should it be floated on the global currency markets, according to some analysts. But while the devaluation of the peso is likely to create panic within Argentina initially, the move would make Argentine exports cheaper and thus more competitive overseas, which in turn would boost economic growth in the long term.

In an effort to cushion the blow of devaluation, there is a strong possibility that the peso will not free-float completely, but instead will be pegged to a basket of currencies that would include Brazilian real, the Japanese yen, and the euro.

Though long in coming, the country's problems picked up considerable steam with the unseating of Argentine President Fernando de la Rua several weeks ago, who resigned amid chaotic and bloody street rioting touched off by worsening economic problems.

The latest interim replacement to de la Rua is Argentine congressional figure Eduardo Duhalde, a longtime politician and former presidential candidate for the Peronist party.

On Dec 23, officials announced the suspension of payments on the country's debt, pending attempts to reorganize Argentina's finances, and reform its economy - at which time the country was considered to have entered into a state of default. The Argentine government had expected at least $1.3 billion from the International Monetary Fund to come through earlier in the month, but technically declared bankruptcy when the financial agency decided to cut off funding to the country.

The IMF had stepped in late 2000 in order to keep the country's finances afloat, fearing that Argentina's demise could lead to a meltdown of its neighboring countries and emerging markets as a whole. In fact, the IMF had provided nearly $18 billion to Argentina to prop up its economy over the past year, but decided to cut off further financial assistance in early December, given that the country's woes appeared largely to be contained within its own borders.

With Thursday's non-payment, this became a train wreck long in the making.

Copyright 2002 by United Press International.

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Overall, the financially and politically troubled country owes a staggering debt load of an estimated $132 billion, much of it owed to foreign lenders. If unable to pay, this would be largest default of debt in history, as it remains in its fourth year of recession. At...
Argentina,Defaults
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2002-00-03
Thursday, 03 January 2002 12:00 AM
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