It’s all here — everything from how the crisis could affect global poverty to why a New York hedge fund manager seized a three-mast sailing ship.
Marcos Brindicci / Reuters
On Wednesday, Argentina made international news by defaulting on its debt. The nation of 41 million people failed to make a $539 million payment to bondholders before a deadline, triggering a ratings downgrade, a slump in Argentine stocks, and not a little bit of panic and confusion.
Argentina has defaulted on its debt on more than a half-dozen occasions over its history. But this time it's different, because nobody knows exactly what to do or how to resolve the situation, and lots of people are concerned that this could harm not only Argentina but the whole world economy.
How did Argentina get to this place?
A century ago, Argentina was one of the wealthiest nations on the planet, and considered a serious rival to the U.S. for economic dominance of the new world. The country had a fast-growing economy, agricultural abundance, and lots of natural resources. That didn't work out too well, however. Lots of reasons for it, but the end result is that while Argentina's GDP per capita in 1990 approached that of the U.S., by 2000 it was less than a third as much.
In the 1990s, Argentina borrowed heavily, issuing tens of billions of dollars in international bonds. By 2001, amid a recession, it became clear that the country couldn't keep up with payments and, in December of that year, the government defaulted on north of $80 billion in debt. It was — and still is — history's largest default by a national government.
This had many political and economic implications, but the main one is that the country was largely cut off from international capital markets, meaning it couldn't borrow any more money — or, if it did, it had to pay very high interest rates.
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Argentina's president, Cristina Fernández de Kirchner, was elected in 2007 and is currently serving her second and final term in office. Her husband, Nestor Kirchner, was her predecessor in the office, and he soon realized that it would be very helpful to all sorts of things if the country could have credit again. So in 2005, his government offered holders of the defaulted bonds a deal: If they'd agree to exchange their defaulted bonds for new ones worth significantly less — like as little as a 30% in some cases — Argentina would promise to pay this time. It might sound like a crappy deal, but something is better than nothing.
In 2010, President Fernández returned to the negotiating table and make a similar offer to bondholders who didn't accept the original offer. Nine years into not getting paid proved enough for a lot of them. By the time the bargaining was done, more than 92% of all the original bondholders had agreed to the exchange. And since then, Argentina has faithfully been making interest payments on the debt.
The other 8%, known as holdouts, have received nothing. And the Argentine legislature passed a "lock law" making it illegal for the country to make subsequent offers to other bondholders. Basically, the 8% who didn't take the offer were frozen out.
Jorge Silva / Reuters
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