DP5236 Bargaining and Sustainability: The Argentine Debt Swap of 2005
|Author(s):||Amrita Dhillon, Javier García-Fronti, Sayantan Ghosal, Marcus Miller|
|Publication Date:||September 2005|
|Keyword(s):||bargaining, debt restructuring, efficiency delay, sustainability|
|JEL(s):||C7, F3, F33, F34, K4|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=5236|
When Argentine sovereign default in December 2001 led to a collapse of the peso, the burden of dollar debt became demonstrably unsustainable. But it was not clear what restructuring was feasible, nor when. Eventually, in 2005 after a delay of more than three years, a supermajority of creditors accepted a swap implying a recovery rate of around 37 cents in the dollar. In this paper a bargaining approach is used to explain both the settlement and the delay. We conclude that the agreed swap broadly corresponds to a bargaining outcome where the Argentine government had 'first mover' advantage, and that a substantial delay occurred as negotiators seeking a sustainable settlement waited for economic recovery. Factors not explicit in the formal framework are also considered - heterogeneity of creditors, for example, and the role of third parties in promoting 'good faith' bargaining.