Sunday, October 25, 2009

Renewed Argentinian Excitement

A little more than a month ago (on September 21), the Wall Street Journal reported that there was a deal in the works in which Argentina would re-open a debt exchange deal that the country had closed in 2005.

Among public-finance wonks this caused a flurry of excitement. But then various parties noticed that the markets weren't reflecting any such optimism, and talk waned. See this blog's contribution to that discussion, two days after the WSJ report here.

The excitement was a tad premature, but the WSJ did not have the story wrong. On Thursday, Oct. 22, Argentine Economy Minister Amado Boudou announced a debt swap plan. The plan will seem quite niggardly to those who have held on to the old 2001 instruments all thse years -- more so even than the deal they rejected in 2005. Still, it is important, because it requires the country to change its laws, amendingt he official position that the 2005 offer was the last ever offer.

A law enacted in 2005 in the wake of that earlier swap prohibited the country from ever offering a new swap to investors who had refused that one. The executive branch has asked Congress to repeal that law.

What does all this mean? Those of us who don't have a vested interest in the 2001 instruments are of course free to look at it all dispassionately. What it means is that Argentina has ridden a commodity price bull market since 2005. It didn't need to worry about the fact that its credit in the international markets was lousy -- it had stuff to sell the rest of the world wanted to buy. Now, times are tight, and the Argentines want access to international credit once again, so they have to do something conciliatory.