Bargaining and Sustainability: The Argentine Debt Swap of 2005

Amrita Dhillon (), Javier Ignacio García-Fronti (), Sayantan Ghosal and Marcus Miller ()

No 5236, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: bargaining; debt restructuring; efficiency delay; sustainability (search for similar items in EconPapers)
JEL-codes: C7 F3 F33 F34 K4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-law
Date: 2005-09
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