Argentina is no stranger to financial crisis. But an unprecedented drama is playing out there this summer, one that could alter the rules in global debt markets – and boost the sales in South Florida condo markets, as more Argentines look for safer places to put their money amid the turmoil.
At issue is $100 billion: the mountain of sovereign debt Argentina defaulted on in 2001 amid a horrific economic collapse. It was the largest default in history.
Almost all of Argentina’s creditors agreed to restructure the debt and erase two-thirds of what they were owed. But a holdout group of U.S. hedge funds wants full payment.
Argentina makes its debt payments in dollars through a U.S. bank. Last week the U.S. Supreme Court upheld a New York judge’s ruling that the bank can’t continue to pay the other creditors until Argentina pays the hedge funds. Argentina says it can’t afford that – especially since its economy recently sank into recession – and so technically it’s in debt default again.
To help make sense of this standoff, I spoke with Argentina native Ariel Armony, director of the University of Miami’s Center for Latin American Studies.
Who is most responsible for this mess? The hedge funds, Argentina’s president, Cristina Fernández de Kirchner, or both?
I don’t think that we can find a sole individual or group responsible for this. The government of Argentina has done a very good job in terms of identifying the [hedge funds] as the bad guys. And I think they are the bad guys. The argument of the Argentine government is that they cannot accept paying what these funds want because they [would be] opening the door to something that will result in the absolute collapse of the [Argentine] economy.
But another question is whether Argentina has handled this situation properly. I don’t think that it was a good idea to reach a point in which at the very last minute they were trying to come up with a solution. I don't think that’s the way in which you handle an issue of such importance.
So why can’t the two sides sit down and hammer out some sort of deal?
It is not irrational to think that there may be something beyond economics here. There may be some political aspect. [Take] the way that the [hedge] funds are behaving: maybe there is something that has to do with the left-wing orientation of the [Argentine] government. But here’s where we can only speculate.
How badly could this debt battle worsen Argentina’s latest recession?
It’s going to worsen the situation because Argentina needs dollars to come into the country. The situation of a default is going to increase this problem, and the fiscal situation of the government is going to deteriorate.
Argentines are the No. 2 foreign buyers of real estate in Miami. As a result of all this, are we going to see even more Argentines coming to buy condos here?
What I see… is more and more Argentines not only buying more condos here but applying for investor visas. That is, they are bringing their money to Miami because they want to emigrate to Miami. In Argentina, the conditions show a high degree of instability, and this has to do a lot with the cycles of boom and bust. People are really tired of this and they choose to exit.
So how do you see this default drama ending?
I hope the different players will come to their senses and they will reach some kind of agreement. The outcome of this situation is going to have a huge impact on the international financial system and the way in which countries, particularly developing countries, are going to restructure their debt. So we are talking not just about one country called Argentina.
Tim Padgett is WLRN's Americas editor. You can read more of his coverage here.