Cooking Up a New Solution

Jun 1, 2003

As Argentina gears up for negotiations with the bondholders it stiffed 18 months ago, other sovereign issuers and banks are experimenting with a new generation of bonds that could profoundly reshape the debt market for years to come.

Argentina has been among the world's worst credits almost from the day it was founded. Writing 150 years ago, Juan Bautista Alberdi, one of the country's founding fathers, said, "Argentine governments would have to be very blind if they did not recognize that failing to fulfill their responsibility to pay interest on their debt is the same as poisoning their bread, their sole source of sustenance; it is more disastrous to condemn oneself to bankruptcy and hunger than to suffer dishonor."

Argentine leaders have never heeded Alberdi's remarks. In December 2001, the country staged the biggest sovereign default in recent history, and in the process, reduced millions of its people to abject poverty. This $144 billion default came less than 10 years after the government signed a $53 billion Brady bond deal that restructured defaulted debt from the 1980s.

Officials in the new government of President Néstor Kirchner say...

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