Argentina's Default Debacle: Sign of the Slow Unraveling of the Global Financial System?

Argentina's Default Debacle: Sign of the Slow Unraveling of the Global Financial System?

07/15/14

John Quiggin

Economics, Law, Banking, Argentina, United States

The only remaining question is whether the common interest of states in reining in the financial sector will overcome their separate interests of backing their own “national champions.”

Perhaps mercifully, Argentinian President Cristina Kirchner missed the World Cup final because of illness and her grandson’s first birthday, while Angela Merkel was there to see Germany seal the win. In the aftermath of football’s disappointment and euphoria, both leaders have some tricky problems to deal with regarding international finance and their relations with the United States.

Kirchner’s problems are the most pressing. On June 16, the U.S. Supreme Court declined to hear an appeal from a decision of the 2nd U.S. Circuit Court of Appeals ordering Argentina to pay in full the claims of a group of creditors, who hold roughly $1 billion in Argentine bonds, about 1 percent of the country’s outstanding debt. The investors, led by New York billionaire Paul Singer and politically well-connected in Washington, acquired the tag of ‘vultures’ by buying up the bonds at steep discounts and refusing to accept an agreement signed by around 92 percent of bondholders. U.S. courts have also ruled that banks operating in New York must disclose information about non-U.S. assets of the Argentine government.

This financial dispute is entangled with a political relationship that is at best tense. The U.S. Department of State has criticized Kirchner’s government for interfering with freedom of the press, while Argentina has complained about U.S. espionage.

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