The Endless Fall of Argentina's Credit Position, 1919–2025

Drawing on previously unexplored Moody&s;s reports, country risk analyses, and new sources of sovereign bond yields, this chapter shows that since the interwar period Argentina&s;s macroeconomic policies have frequently diverged from those of other Latin American countries and that since the 2000s they have led to increasingly frequent and severe debt crises. In the 1920s, Argentina&s;s credit position was high, both in absolute and relative terms. The country had returned to the gold standard and was rated in the middle of the investment-grade category. Unlike most Latin American economies, Argentina remained solvent in the 1930s. This decision turned out to be politically costly in the following years. Argentina&s;s government became active in the Eurobond market in the 1960s and the Euroloan market in the 1970s. However, this access was not always favorable and was contingent on the government&s;s compliance with different International Monetary Fund (IMF) programs. Borrowing conditions improved in the late 1970s, but then rapidly deteriorated in the 1980s. Throughout the 1980s, Argentina&s;s government was excluded from international capital markets and experienced macroeconomic volatility for the entire decade with a peak in hyperinflation levels in 1989. In 1991, the Menem administration implemented a currency board designed to curb inflation and stabilize the peso &s;s exchange rate. Inflation was cut but, starting in 1999, dependence on external financing grew dramatically. Whereas Brazil managed to get a competitive exchange rate, Buenos Aires could not allow the peso to depreciate against the dollar, which led to a massive default in December 2001. The debt restructuring was longer and more painful than in the early 1980s: two agreements were ultimately reached in 2005 and 2010. Yet, holdout creditors undermined these restructuring deals after a US district court order held that Buenos Aires was in breach of the pari passu clause. Since then, Argentina has defaulted several times on its foreign-currency debt and its economic decline seems endless.