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Argentina's Default: The Costs
Latin Business Chronicle
September 08, 2008

Argentina's 2001 default and 2005 restructuring cost bondholders, taxpayers, and investors worldwide an estimated $155 billion.

BY ROBERT SHAPIRO
AND NAM D. PHAM

In 2001, the Argentine government defaulted on $81.2 billion of sovereign debt, the largest such default in history. Over the following three years, the Argentine government refused to negotiate terms for restructuring the debt with its bondholders. In 2005, the government issued a take-it-or-leave-it plan with the worst terms ever offered in a sovereign debt restructuring a bond swap worth less than 25-cents on the dollar and repudiation of all past due interest payments. When nearly one-quarter of its lenders holding $19.4 billion in Argentine bonds declined the offer, including U.S. lenders holding $2.1 billion in Argentine debt, the Argentine government repudiated its obligations to those lenders, an unprecedented act in sovereign finance.

In October 2006, we assessed the economic costs of this default, the restructuring plan and the repudiation for the bondholders and for taxpayers and investors in the United States and worldwide, from the default in December 2001 to the restructuring plan in January 2005. We found that these events cost U.S. bondholders $7.9 billion in capital losses, past due interest payments and foregone investment returns, net of their tax benefits for their capital losses. Further, the default's indirect economic effects cost U.S. taxpayers and equity investors another $10.4 billion. The default and its restructuring cost bondholders worldwide $73.6 billion, and worldwide taxpayers and equity investors lost $63.4 billion.

The costs to those lenders who accepted the terms of the restructuring ended in January 2005, but the repudiation of the debts owed to foreign lenders who declined the terms of the restructuring imposed additional costs of those lenders from January 2005 to the present.

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