Argentina Background & Issue Definition
Argentina is rich in natural resources and boasts of an export oriented agricultural center as well as a diversified industrial base. Recurring economic problems of inflation, external debt, capital flight, overvalued currency and budget deficits have put the nation into severe debt and default with the IMF. Currently, 51.7% of the population lives below the poverty line. In December of 2001, Argentina defaulted on $81.8 billion that it owed in bonds. With interest, it currently owes approximately $140 billion. About $40 billion of which is from domestic creditors that has already been settled. The decision to peg the peso to the US dollar proved to be a critical mistake. When the peso had to be devalued and float it lost 2/3 of its value! Rapidly escalating inflation also seriously hurt the already troubled economy. Very little effort has been made to restructure the debt over the last three years since default until now.
Argentina is currently offering a nonnegotiable 30 cents on the dollar with a firm "take it or leave it stance". This is the worst default ever by a sovereign nation with a very low return offered on the debt. However, it is estimated that "between 70-80% of lenders are expected to agree". The agreement will offer new securities in exchange for the defaulted bonds. "Argentine lawmakers passed a bill in February banning the administration from reopening or improving its offer".
Over the past three years since default, Argentina has focused on spending money on investment and social programs rather then repaying the debt. It has thus resisted pressure from private creditors and the IMF to raise the government's primary surplus before interest payments. The Argentine economy has shown great improvements and seems to be on the rebound. "In 2003 and 2004 GDP...