BUENOS AIRES, Argentina - Bond payoffs are supposed to be boring, but Argentina's president is celebrating Friday's final US$2.3 billion ($204 billion) payment on a bond given to people whose savings were confiscated a decade ago, suggesting it is a lesson for European countries now mired in foreign debt.
The nation's economic disaster a decade ago left thousands with a grim choice after the government seized their dollar-denominated deposits to stop runs on the banks. They could switch to devalued pesos and regain access to what was left of their savings, or accept a piece of paper promising to repay the money in dollars over the next 10 years.
Few had any faith in the government's promises back then. Argentina had just defaulted on more than US$100 billion in foreign debt, banks were shuttered, the economy was in ruins and streets were filled with pot-banging protesters whose chants of "throw them all out" would send five presidents packing.
But Argentina has mostly paid up after all, making good on 92.4 per cent of that defaulted debt so far, including US$19.6 billion in US currency over the years to cancel the Boden 2012 bond. Most of the hard-luck investors later sold the bonds at a loss, but as the government makes its last US$2.3 billion payment on Friday, the few stalwarts who kept the faith have been made whole, while earning a modest 28 percent profit over the years.
"It was good business" for anyone who got the bonds early and held them, said Jorge Oteiza, a bond trader with Banco Comafi in Argentina. "To have the same buying power you had back then isn't bad."
President Cristina Fernandez, who planned a major speech on the debt problem at the Buenos Aires stock exchange Thursday night, has frequently called on European nations to follow her lead, refusing to bow to international financial pressures and avoiding painful austerity measures on those who can least afford it.
"A disastrous era for the Argentine people is now history," her economy minister, Hernan Lorenzino, wrote in a column published by the government's Telam news agency. "We've also demonstrated that you can emerge from crisis without austerity measures. At the same time this debt was paid, unemployment dropped along with infant mortality. While we got out of debt, we grew eight per cent."
Argentina's foreign-currency debt has dropped from a daunting 166 per cent of GDP in 2002 to a more manageable 42 per cent of GDP today, said Ramiro Castineira of the Econometrica consulting firm. "If before it was a burden to shoulder, now it's just a handbag. It doesn't restrict the economy as it did in the past," he said.
However, the debt has grown in nominal terms, from US$112 billion before the crisis to US$179 billion at the end of last year, according to Fausto Spotorno, an economist with the Orlando J. Ferreres and Associates consulting firm.
Spotorno is among many economists who suggest the official story is misleading at best, since the government has refused to pay billions of dollars in other bad debts while borrowing freely within Argentina, taking money from pension funds, provinces, state-owned banks and the central reserve to stimulate the economy.
In her determination to make Argentina financially independent, critics say Fernandez has only shifted the debt burden onto her citizens, with policies that damage the country's growth potential and rob retirees of their pensions.
"It's wonderful to see Argentina pay down debt, but for every dollar they're paying down, they're borrowing two or three through the other window, and increasingly from their own people," said Arturo Porzecanski, an expert on emerging markets at American University in Washington.
Lorenzino proudly described the Argentine recipe in his column on Wednesday: Spurn the requirements of the International Monetary Fund and World Bank. Strong-arm the so-called "vulture funds" into accepting lower returns on their risky bets. Nationalize private pension plans, the airline and now the YPF oil company, putting their assets to use creating jobs. And tap central bank reserves to pay down international debts.
Frozen out of international markets as a consequence of the 2002 default, this government made breaking their rules a point of pride, Lorenzino suggested.
"At first, they called us heretics and the international community turned its back on us," he recalled. But "this government makes policies today without conceding to international pressure, thinking first of those on the inside, and later on those outside."
Lorenzino has said this government will not take on more international debts. Not that it could: Friday's payoff still doesn't resolve nearly US$7.5 billion it owes the US and other Paris Club nations, or the US$11.2 billion claimed in US courts by bond holdouts.
Argentina also owes millions in court judgments to US companies, and Spain's Repsol Group wants US$10.5 billion for its shares in YPF that Fernandez expropriated this year. Many of these investors would try to seize any newly borrowed money before it reaches Buenos Aires.
Lorenzino suggested that Argentina's renegade approach makes it better prepared to confront global crises because the portion of its debt held by the private sector has dropped from 124 per cent of GDP a decade ago to 14 per cent last year. "This was possible only under the concept of economic independence, political sovereignty and social justice," Lorenzino wrote.
But this shift from private to public debt means that the government is essentially borrowing from Argentine taxpayers and bank account holders to stimulate its economy, at rates far below inflation, which is estimated at 25 per cent a year or more. Unless this changes soon, the money could run out and there will be few other places to turn for help.
"It's no longer us versus them," Porzecanski said. "At first it was big multinationals, filthy-rich bondholders, the IMF, the World Bank. Now it has become a fight within Argentina. That's why I think the end is coming."