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Many View Argentina's Comeback With Skepticism

Some Financiers and Bondholders Say Offer to Settle Huge Debt Is Far Too Little

By Paul Blustein
Washington Post Staff Writer
Friday, March 4, 2005; Page E01

BUENOS AIRES -- Tainted for the past three years as a deadbeat debtor and international financial pariah, Argentina is proclaiming itself cleansed.

In late 2001, during bloody riots, the Argentine government defaulted on about $100 billion in debt. The default was the biggest by any nation in history, and it plunged the economy into chaos, with millions falling into poverty and unemployment reaching nearly one-quarter of the workforce. Many Argentines are still struggling to recover from the fallout.


A boy plays soccer at a Buenos Aires shantytown. The population of slums just a few blocks beyond fashionable waterfront steakhouses and hotels mushroomed after Argentina's economy collapsed four years ago. (Marcos Brindicci -- Reuters)

_____Special Report: Argentina_____
_____Photo Gallery_____
Digital Copyright A Road to Ruin: The economic crisis in what was once Latin America's richest nation ravaged Argentina's middle class, forcing millions into poverty. (Flash required)
_____Story Archive_____
IMF Says Its Policies Crippled Argentina (July 30, 2004)
Argentina Didn't Fall on Its Own (August 3, 2003)
Scrap by Scrap, Argentines Scratch Out a Meager Living (June 7, 2003)
Gulf Between the Rich and the Poor Grows in Argentina (May 16, 2003)
As Crime Soars, Argentines Alter Outgoing Ways (January 27, 2003)
Despair in Once-Proud Argentina (August 6, 2002)
_____Timeline_____
Argentina's Economic Collapse
_____Graphics_____
Biggest Underwriters of Argentine Government Bonds; The More Argentina Borrowed, The More Investors Bought

Now, however, Argentine is recovering, and it is seeking to reenter the global financial system after having cast itself out. The implications go well beyond Argentina's borders to the international system's basic workings.

The government is completing a restructuring of its debt in which it offered new securities to hundreds of thousands of bondholders, ranging from Italian widows to New York hedge funds. Officials announced yesterday that bondholders owning 76 percent of the defaulted debt had accepted the deal, worth about 32 cents on each dollar of claims that they held.

"The country is leaving the default behind," a triumphant President Nestor Kirchner told the nation's Congress.

That assertion is subject to challenge by international financiers and investors. Many of them are angry with the take-it-or-leave-it terms of this week's deal, which leaves bondholders with losses about twice as deep as the average settlement reached in previous sovereign defaults such as Russia's and Ecuador's.

Thrown into question in the process are some hoary financial principles. Countries that treat foreign creditors so shabbily are supposed to be doomed to stagnation for years, because investors and lenders presumably will shun nations that show little respect for property rights. But the boom that Argentina is enjoying stands in mocking counterpoint to that tenet.

It is not just that Argentina recorded annual growth of 8.8 percent for the past two years. More significant, companies are investing. According to government figures, business spending on structures, plant and equipment is close to all-time highs as a percentage of national output.

The investors include foreign-based multinational companies such as Volkswagen. Eight months ago, the German automaker decided to spend $200 million on producing a new vehicle model and expanding capacity at its transmission plant in the industrial city of Cordoba.

"You can see just by opening the paper" that foreign firms are expanding in Argentina, said Viktor Klima, the head of Volkswagen's operations here, referring to a news article reporting that General Motors was investing in its plant in the city of Rosario, and another reporting that a company was moving its manufacture of ignitions to Argentina from South Africa.


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