Argentina Debt Restructuring

I was recently in Paris for the annual meeting of LACEA (the Latin American and Carribean Economic Association). There I was a speaker in a panel on a Post-Mortem on the Argentine Debt Restructuring where Federico Sturzenegger, Sebastian Palla, Roberto Frenkel and Arturo Porzecanski presented a variety of - at times highly divergent - views on the topic. I have previously and extensively commented on the Argentine default and restructuring (see here and here); but the LACEA panel and several months since the successful March restructuring allow us to reflect again on the lessons learned from this episode and to think about how Argentina will and should deal with the holdout creditors. Indeed, while Argentina successfully restructured last March a large percentage of its foreign debt, a small fraction of such a debt, about $20b - or 24% of the nominal value of the defaulted debt - remains in default as 76% of the debt in default was converted into the new bonds offered in the government restructuring proposal.

The Argentine restructuring provides a few lessons on sovereign debt defaults and restructurings, some general to other default episodes and some specific to Argentina. The general results - that were confirmed by the Argentine case - are those that Brad Setser and I argued in our book on bail-ins and bailouts - i.e. that market-based sovereign debt restructurings are feasible even in the absence of collective action clauses or statutory mechanisms to deal with the creditor collective action problem of coordination in such defaults and restructurings. I have been saying that for years and the Argentine experienced confirmed it.

First, the "rush to the exits" coordination problem can be unilaterally solved by a debt suspension by the sovereign debtor; one does not need statutory or contractual tools to do a "legal" debt suspension.

Second, a debt suspension/default is not followed by a "rush to the courthouse" as they are very little assets that...