Buyer Beware

Nov 1, 2006

Five years on from Argentina's $100 billion default, the immense costs to the rest of the world have finally been totted up. Latin America risks paying much more.

Ecuador's 2006 presidential campaign rattled overseas investors with talk of an Argentina-style restructuring. Buenos Aires paid a hefty price for repudiation, but not enough to dissuade other sovereigns from at least considering following suit. A recent study estimates that taxpayers and shareholders worldwide incurred $74 billion in direct and indirect costs from Argentina's delinquency. And there is renewed pressure on the major economies, in particular the US, to make Argentina pay.

Junk rated sovereigns coasting on a wave of excess liquidity have so far been spared retaliation from most investors. But damage has been done to the emerging markets asset class and the questions remain: How much did Argentina pay to scale back its debt by 75%? And will other debtors push for similar relief in the same manner?

Crime and Punishment

Beyond the obvious social costs to the country, Argentina continues to suffer from default. And it has also...

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