The consequences of Argentina’s selective default
The fact that Argentina was at high risk of defaulting was no secret to anyone paying attention. But the manner in which the country’s debts are being postponed and re-negotiated has still baffled almost every analyst; even those who foresaw a debt crisis looming.
Argentina has not really defaulted on its mid- and long-term bonds yet. So far, it is only in the beginning of discussions with creditors to try to reach a more realistic payment schedule agreed by both parts, with no payments unilaterally missed. Instead, it was the short-term bonds, many of them denominated in pesos — a currency that the country can freely print — that went unpaid.
As a consequence, Argentine firms and local governments were thrown into all kinds of trouble. Their short-term working capital was invested in this type of bonds, which they assumed to be the safest. Now, they are struggling to pay salaries and other basic maintenance costs on time, setting off a series of chain reactions that we are only starting to witness.