Argentina Default Flashes Warning to Emerging Markets

Argentina Default Flashes Warning to Emerging Markets. YaleGlobal. Will Hickey. September 9, 2014.

Argentina, among the world’s top 25 economies, is trying to seek relief with bondholders and avoid being locked out of international credit markets. A U.S. judge has sided with a minority of bondholders led by a U.S. billionaire, blocking payments to the 90 percent who agreed to restructuring. For now, despite the judge’s ruling that all or none of the bondholders be paid, Argentina explores debt swaps and a separate account for the holdouts. The case highlights the challenges for emerging economies, explains Will Hickey. Advanced nations push ideas that require complex financing vehicles, developing nations have few financing alternatives, priorities change over the life of a bond, and investments are subject to speculation. As trouble emerges, a few wealthy bondholders can pursue highly complex legal cases. So far, U.S. courts have ruled that speculators who purchase debt for pennies can pursue full payment. If not careful, Hickey concludes, the emerging economies could be trapped into never-ending debt. [Note: contains copyrighted material].

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