Wednesday, September 23, 2009

Brief Argentinian excitement

The Wall Street Journal reported Monday that there was a deal in the works in which Argentina would re-open a debt exchange deal that country closed in 2005.

Among public-finance wonks this was big news. Argentina is a G20 nation, and is often taken as a bellwether of the other Latin American economies. It also has had a very tumultuous recent monetary history.

Anyway, the deal as outlined in that story would still be big news if it happened, but it now appears that the excitement was premature.

Some history: The 2005 deal was to swap Argentinian bonds for GNP warrants. This meant that Argentina would save a good deal of money by not any longer having to make the interest payments on those bonds. It wasn't such a great deal for the bondholders, because the warrants weren't considered to be worth much, but they figured they'd be worth even less if Argentina should default, so many of them accepted the warrants in a half-a-loaf spirit.

Many bondholders refused to participate in the swap, hoping that they would get a better deal down the line, when Argentina was both willing and able to restore its international credit. The last three years have been good to Argentina (and not just because of the tourist dollars spent by trysting Governors of states of the US, either). This means that those once-spurned GDP warrants are now worth something, and it makes sense that at least some of those closed-out bondholders would want back in to something like the 2005 swap.

But it now seems that this report was inaccurate. If it were true, one would expect the markets in those old defaulted debt instriments to reflect it. Those markets have been unmoved by the report.

Also, a Barclays analyst has put out a report throwing cold water on the thing: "Our final assessment is that the ideas vented by the WSJ are unlikely to be the final proposal made to bondholders and that the process has a long way to go before the decision-makers give a go ahead to a specific proposal that can be seriously evaluated."

well ... the balloon was fun while it was afloat.

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