There is a saying: three things in life are certain: death, taxes and another Argentina default.
In the annals of sovereign debt there is no country that has defaulted more times on its debt, than the country formerly known as the pearl of South America - Argentina - which had defaulted exactly 8 times in just under 200 years. As of Monday, make that nine.
The first default came in 1827, just 11 years after independence; the most recent one was in 2014. In between, there were six others of varying size and form, according to Carmen Reinhart, a Harvard University economist. Almost all of them were preceded by boom periods as, perhaps most famously, when European migrants transformed Argentina into an agricultural powerhouse and one of the world’s wealthiest countries by the late 19th century. Invariably, however, profligate spending combined with easy access to capital supplied by overzealous foreign creditors, did the nation in.
Courtesy of Bloomberg here is a brief look back at each of Argentina's eight defaults:
- 1827: After declaring independence from Spain in 1816, Argentina’s economy quickly opened itself to foreign trade. Some historians would later refer to the early 1820s as the nation’s “happy experience,” a period of peace, prosperity and fascination with European aristocracy. That soon changed. Argentina had sold bonds in London to help finance its nationhood. That debt came under pressure when the Bank of England raised interest rates in 1825. Argentina defaulted two years later. It took another 30 years for the nation to resume payments on the debt.
- 1890: In the late 19th century, Argentina went on a borrowing spree to build trains and transform Buenos Aires into the cosmopolitan capital it is today. London’s Barings Bank aggressively invested in the nation’s railroads and other utility projects. The south of Argentina boomed, too, as sheep farming spread across the Patagonian grasslands and gold prospectors rushed to Tierra del Fuego. That euphoria faded when the commodities bubble burst. The nation halted debt payments, spurring a run on Argentine banks and the resignation of President Miguel Juarez Celman. That November, Barings teetered near insolvency. Argentina emerged from default four years later, buoyed by fresh capital from the U.K.
- 1951: An influx of immigrants and foreign capital fueled Argentina’s rise to one of the world’s most prosperous countries by the early 1900s. But World War I hit the nation’s economy hard, as did the Great Depression that followed a decade later. Unemployment and social unrest soared. In 1930, a coup brought the military into power, ushering in a period of political instability — eight presidents in two decades — and a policy of import substitution, which closed off the economy and helped trigger a default.
- 1956: The populist strongman Juan Peron rose to power in 1946 and proceeded to nationalize companies, redistribute wealth and assert greater government control over the economy. The policies he and his wife, Evita, carried out would become Argentina’s dominant governing principle for roughly half of the next seven decades. Initially, they stoked growth and expanded the middle class. But in 1955, Peron was ousted in a coup, plunging the economy into turmoil and leaving the country struggling to keep up with debt payments. The next year, the military junta struck a deal with the Paris Club of creditor nations to avert a larger default.
- 1982: During Argentina’s Dirty War, the military dictatorship borrowed, mainly from U.S. and British banks, to fund infrastructure projects and state industries. The nation’s foreign debt ballooned to $46 billion from $8 billion. Then commodity prices collapsed again when the Federal Reserve, under the leadership of Chairman Paul Volcker, raised U.S. interest rates to as high as 20% to tame inflation, spurring debt crises across Latin America and the rest of the developing world. Argentina became one of 27 nations, including 16 in Latin America, to reschedule its debt.
- 1989: A series of failures in the late 1980s to curb inflation — which climbed over 3,000% — triggered another default in 1989 and brought Peronist leader Carlos Menem into power. His government reduced inflation, privatized state companies and lured foreign direct investment, steering the nation from recession to double-digit growth by Menem’s second full year in office. Still, Argentina’s foreign debt surged to more than $100 billion, the result of Menem’s inability to rein in spending. By the time he left, the nation had fallen into recession once more amid rising unemployment, constrained exports and an overvalued peso.
- 2001: As the brutal recession entered its fourth year, wiping out about two-thirds of the nation’s gross domestic product, Argentines rioted around the rallying cry, “All of them must go!” The country had five presidents in two weeks, all while declaring what was at the time the largest default by a country in history. Payments were halted on $95 billion worth of bonds. That led to restructuring deals with creditors in 2005 and 2010 under Nestor Kirchner and his wife, Cristina Fernandez. Most bondholders agreed to take the 30 cents on the dollar offered, but a contingent led by hedge-fund billionaire Paul Singer held out and demanded full repayment.
- 2014: Haunted by a legal drama with Singer and other holdout creditors, Argentina defaulted once again, albeit on a lesser scale. Fernandez’s administration missed an interest payment after a U.S. judge ruled that Argentina couldn’t distribute the funds unless Singer’s Elliott Management Corp. and other so-called “vulture funds” got paid on their defaulted debt. That dispute was finally resolved in 2016, when the new president, Mauricio Macri, paid the holdouts so Argentina could regain access to international debt markets.
And now, with the credit-friendly regime of "reformist" Mauricio Macri a distant memory, we can add default number 9 because according to a decree late on Sunday, the government announced that Argentina plans to postpone payments on up to $10 billion of dollar debt that was issued under Argentina-law - and is thus not bound to international default arbitration - until the end of the year in a bid to relieve pressure over looming foreign currency payments.
The government's decree of necessity and urgency (DNU), does not affect the roughly $70 billion in foreign currency debt issued under international law that Argentina is currently in talks to restructure with creditors. Argentina’s government has previously said it is looking to restructure $83 billion in foreign currency debt under both international and local law as it looks to avert a sovereign default that would hit its access to global markets.
The move to delay payments on the local-law debt could give Argentina breathing room and may enable it more easily to make payments on foreign-law bonds. As the debt was issued under local law, any creditors wanting to take legal action would need to do so in local courts. And make no mistake: any change to the payment terns, or rather non-payment, is an instant event of default. The only question is which international creditors, which are better known in the country as "vultures", are bold enough to sue Argentina in its own court system in demanding payment.
The default will hardly come as a surprise: President Alberto Fernandez and Economy Minister Martin Guzman have repeatedly said Argentina cannot pay its public debts until it is given time to revive an economy that has been mired in recession for the last two years. The current coronavirus crisis only pushed the decision to the fore.
Argentina's major creditor, the International Monetary Fund, which sunk billions into the biggest failed IMF rescue loan in history that is now terminally impaired, has supported the country’s stance saying its debts are unsustainable. It also means that IMF member states will be forced to make the organization whole on its losses.
And with local-law debt done, next up is the default under foreign law. Guzman is expected to soon make a proposal to private creditors to restructure the country’s foreign law bonds, a process that has been hit by delays amid the global coronavirus pandemic that has led to a nationwide lockdown in Argentina.