On Argentine Debt

Published by marco on

The very short post ”Holdouts” On Argentine Bonds, Did Not Own the Bonds at Time of Default by Dean Baker (CEPR) corrects the New York Times on their chronic mischaracterization of the Argentine default situation that drags on long after the default actually occurred (in 2001).

The NYT likes to make us think that the battle is between a noble group of American investors which generously invested in Argentina, only to be robbed a country with no work ethic and a casual willingness to declare default rather than pay back their creditors.

What actually happened is that the original investors had already taken their losses, having sold their debt to the current holders “at a small fraction of its face value”. The original investors understood that their investment had turned sour and took their losses.

The new investors? They bought debt at a very low price in the hope of getting a much higher payout on it: just another investment, in other words. Why are they more confident in this investment than the group from which they bought the debt?

“Their hope was that they could use their political connections and their legal expertise to force the Argentine government to pay substantially more on its debt than it offered to other creditors.”

The NYT characterization of this second group as “holdouts” is therefore completely misleading. One commentator asked why the timing of the purchase (pre- or post-default) should affect our opinion or the involved parties, to which Baker responded,

“[T]he default amounts to a psuedo-bankruptcy. It’s only pseudo, since we don’t have international bankruptcy rules for governments. Someone how [sic] held the bonds prior to the default would have had a greater expectation that they would paid in full than someone who had bought them after the default when it was almost certain they would not be paid in full.”

The difference in attitude toward the parties can be easily explained: Baker evaluates the situation objectively because he doesn’t have a dog in the hunt. The New York Times—despite all protestations by both themselves and their enemies—is biased toward big-business and especially finance. They are only a liberal newspaper as the term “liberal economics” is used in the rest of the world, where it means “laissez faire” rather than left-leaning. The slant is obvious if you know how to look for it.