Argentina Defaults on $95 Billion in Bonds
Argentina’s President Fernando de la Rua said the country will exchange existing debt for new securities that pay lower interest, effectively defaulting on at least $95 billion of outstanding bonds.
Argentina, which last defaulted in the late 1980s, is the biggest seller of emerging-market debt, accounting for a quarter of all bonds sold by developing countries that trade overseas.
About 60% of the nation’s bonds are held by international investors.
De la Rua called for an “orderly” exchange of debt that will include government guarantees on new bonds.
The government aims to lower interest payments next year by $4 billion, de la Rua said.
Standard & Poor’s said any debt exchange that lowers the value of investors’ holdings is tantamount to a default.
The government failed to boost tax revenue and cut spending enough to meet debt payments, and economists now say only a debt restructuring will reassure investors the country is able to start pulling the economy out of recession.
The price of the country’s benchmark floating rate bond plunged more than 9% to its lowest level in six years after the International Monetary Fund ruled out additional financing for Argentina. The bond’s yield jumped to 54.5%.
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