Argentina: Seeking a Return to Foreign Credit Markets

Buenos Aires has initiated a new debt exchange program aimed at opening up foreign credit markets that have largely barred Argentina since its 2001 default. The program will permit bonds held before the default to be exchanged for newly issued debt, or, depending of the size of the holdings, partially cashed out. With a tense eurozone economic situation, some of the smaller European bondholders may choose to take what they can in cash now. But the larger bondholders are unlikely to be as persuaded by the new terms, and could continue to hold the debt in hopes of a better deal. Even if participation in this debt exchange is high, Argentina's goal in opening up new credit markets is to finance domestic spending and to avoid politically hazardous cuts, the same behavior that led to the default in the first place.