Investors are wary of Argentina, but if the country is to address its $95bn default, it needs to foster international relations. 

Argentina’s $95bn default is still biting, more than a decade after it first took hold. The government’s fierce line against ‘vulture fund’ hold-outs, and a US court’s pari passu ruling that would make them equal to the owners of restructured bonds, continue to make investors wary of the sovereign, no doubt fearing it will refuse payments and descend into default, although a technical one.

The International Monetary Fund’s (IMF's) short-lived attempt to support Argentina’s case to be reconsidered and brought to the attention of the US Supreme Court was swiftly retracted once the IMF’s largest constituent, the US, gave it the thumbs down.

Furthermore, there are now concerns over Argentina’s actual solvency. The ability to honour bond obligations due in 2015 is under scrutiny as it is highly related to the country’s foreign currency reserves, now at a six-year low. These reserves have been tapped by the government – unable to use international markets – and dollar withdrawals by bank customers; the memory of frozen accounts during periods of crisis is still painful.

Despite some headline-grabbing economic data in years gone by, mostly driven by commodities exports, exclusion from international markets is likely to eventually asphyxiate Argentina. Even commodity-rich economies need international capital and to detangle corporate life from political life. It is futile to fund or even plan business expansion when the country’s future seems so uncertain.

The expropriation of Repsol YPF a year ago does not exactly vouch for predictable policies and openness to foreign investors, even if another foreign giant, California-based Chevron, has now been invited to develop the shale oil and gas field initially discovered by the Spanish oil multinational. The poor state of Argentina’s energy sector made it a net importer in 2011 for the first time in more than 15 years and contributed to eroding currency reserves.

In her speech to officially launch the current legislative session in March, president Cristina Fernández de Kirchner said: “If there's a country or a system that chooses to damage the 93% of the bondholders to benefit the other 7% and also damages the global financial balance, then I would doubt if this is justice.” Her words may indeed ring true, particularly to holders of restructured bonds concerned about their rights, and the IMF, concerned about systemic implications for the debt restructuring process in general. But if Argentina is also concerned about its future, it ought to change its tune, as the current situation calls for conciliatory policies, not intransigent populism.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter