Argentina's 2001 default
Argentina's suspension of external debt payments announced on December 23, 2001, followed by the end of the peso-dollar peg, the forced conversion of dollar contracts and fifteen years of litigation with holdout bondholders.
On December 23, 2001, before the Legislative Assembly, interim president Adolfo Rodríguez Saá announced the suspension of payments on Argentina's external public debt. Three weeks earlier, on December 1, economy minister Domingo Cavallo had frozen bank deposits, with withdrawals capped at 250 pesos a week: the corralito. On January 6, 2002, Law 25,561 ended the convertibility regime that had held the peso at one dollar since 1991. Decree 214 of February 3 then pesified the banking system asymmetrically, dollar deposits at 1.40 pesos, dollar loans one for one, with the state covering the gap for banks in BODEN bonds. By mid-year the dollar was worth close to four pesos. The exit took fifteen years. The 2005 exchange covered 81.8 billion dollars of eligible debt, 79.7 billion of principal and 2.1 billion of interest accrued to December 31, 2001, with a present-value loss in the region of 70% and 76% take-up; the 2010 reopening brought participation to about 92%. The rest, led by NML Capital, litigated in New York until Judge Griesa's pari passu injunction, a fresh default on July 30, 2014, and the April 2016 settlement of roughly 9.3 billion dollars. For a credit or political risk underwriter, the case packs almost every trigger into ten weeks. A private debtor holding pesos could no longer buy or remit dollars without central bank approval, so a trade default turned into a transfer claim. Argentine-law dollar contracts were rewritten by decree; utility concessions, their tariffs pesified and frozen, fed several dozen ICSID arbitrations. Every buyer limit fell in the same month, and only the country cap measured the real exposure.
Textbook case: in February 2002, a small firm in Córdoba has 100,000 dollars on deposit with one Argentine bank and owes 100,000 dollars to another. Decree 214 turns the deposit into 140,000 pesos and the debt into 100,000 pesos, before indexation. With the dollar at 3.60 pesos, the deposit is worth 38,889 dollars and the debt 27,778; the 40,000 peso gap between what the system owes the depositor and what the borrower owes it is made up in BODEN bonds. A European exporter that had shipped to the same firm on 90-day terms, payable in dollars in New York, still holds a 100,000 dollar claim on paper. But the firm needs central bank approval to buy and remit those dollars, and the default that follows is a transfer event rather than insolvency.
Argentine default 2001, corralito, asymmetric pesification, Argentina 2005 debt swap, end of convertibility
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