...27.12.2011 Sovereign Debt Crisis - Greece vs. Argentina Everyday more and more headlines are being filled with the debt crisis in Europe. But the center stage of the developments in Europe is being taken away by Greece. As Greece is being basically bankrupt, its expenses are way bigger than its obligations; it is also being supported by the EU because of the fear of consequences from its collapse. Analyzing a Bloomberg article, about two economists, and their view of the Greece debt crisis, I found out that they tried to compare the “Greece crisis” with Argentina’s default in 2001. They argued about two lessons concerning how and what could Greece possibly go through. According to the article “the first lesson has to do with the timing and size of the debt exchange”. As I figured out it is about building up the solvency for the debt in way to get access to capital markets. First of all in the article it says that “Greece and its private creditors have been invited to implement a bond exchange with a nominal discount, or haircut, of 50 percent of face value”. This voluntary agreement they also call the default. So in order to do the right thing, the Greece attempt to extend the debt relief beyond the 50% haircut agreed upon, should be assessed by someone. Also it is argued that the faster Greece starts contributing solutions instead of delaying their problem they will be able to begin normalizing the relationship with capital markets. The second lesson as said in the article...
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...governments and departments which helped to reduce the bad effects of it. Not a single year has gone by in the past two centuries where there was not a financial crisis somewhere in the world (see figure 1). Arguably, the world witnessed its first international financial crisis in 1825. The opening up of Latin America after the overthrow of the Spanish empire led to the opening up of international trade between England and the Latin American republics. The result was massive capital flows from London to finance infrastructure, mining and government spending. But once the capital outflows impinged on the Bank of England’s (BoE) gold reserves, the policy rate was raised, leading to a banking crisis. A sudden stop of capital flow from London resulted in banking panics in the US and currency crashes across Latin America. Figure 1: The history of financial crises Indeed, the crisis in 1825 marked the first of seven clusters of sovereign defaults in the period 1800 to 2010 In the first cluster of defaults, which happened during 1824-1834, 13 Latin American countries defaulted. The following period (1835–1866) was relatively tranquil. But a lending boom developed in this period, which soon resulted in a new series of default episodes. The global crisis of 1873 started with the collapse of a property boom in Germany and Austria, then spread through the continent and affected the US as European investors dumped...
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...REPORTS ON GLOBAL FINANCIAL CRISIS – 9 SESRIC REPORTS ON THE GLOBAL FINANCIAL CRISIS European Debt Crisis and Impacts on Developing Countries STATISTICAL ECONOMIC AND SOCIAL RESEARCH AND TRAINING CENTRE FOR ISLAMIC COUNTRIES (SESRIC) 1 SESRIC REPORTS ON GLOBAL FINANCIAL CRISIS – 9 2011‐2 Issue EUROPEAN DEBT CRISIS AND IMPACTS ON DEVELOPING COUNTRIES July – December 2011 SESRIC Reports on Global Financial Crisis : The financial crisis which started in July 2007, when investors lost their confidence in the mortgage‐ and asset‐based securities in the United States, has deepened during 2008‐2009 with a global reach and affecting a wide range of financial and economic activities and institutions in both developed and developing countries around the world. As the crisis deepened, the governments of major developed and developing countries as well as international financial regulators attempted to take some mitigation actions and coordinate efforts to contain the crisis. Given this state of affairs, the SESRIC has been preparing short reports since May 2009 with the aim of monitoring the developments related to the current global financial crisis at the global, regional and national levels. In particular, these reports focus on the impact of the crisis on the economies of ...
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...The Political Economy of the Greek Debt Crisis: A Tale of Two Bailouts Silvia Ardagna and Francesco Caselli First draft: February 2012; Final version: January 2014 Abstract We review the events that led to the May 2010 and July 2011 bailout agreements. We interpret the bailouts as outcomes of political-economy equilibria. We argue that these equilibria were likely not on the Pareto frontier, and sketch political-economy arguments for why collective policy making in the Euro area may lead to suboptimal outcomes. Most modern sovereign debt crises have been managed in Washington, DC, through the combined e¤orts of the International Monetary Fund (IMF) and the US government. A distinctive feature of the crisis that has engulfed European sovereign-debt markets since the fall of 2009 has been that the IMF has played only a supporting (albeit important) role, while the management of the crisis has been driven by European institutions: the council of …nance ministers (ECOFIN), the European Council (EC, made up by all the heads of government of the European Union) and the European Central Bank (ECB). To the extent that the IMF is largely a technocratic institution (though of course not entirely immune from political in‡ uence) while ECOFIN and the EC are made up of politicians, one may expect the management of the crisis by the EC to be more a¤ected by electoral concerns. Furthermore, since there are 27 members to the EC, representing countries with potentially di¤erent interests, one...
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...group HSBC have fallen after it made provisions of more than $1.1 billion to cover losses from the economic crisis in Argentina. The Argentine crisis accounted for $1.12 billion of the write-down - which was slightly higher than analysts had forecast. The figures were in line with analysts' expectations and this helped push shares in HSBC 59p higher to close at 837p. Last year Argentina descended into chaos as people protested against draconian policies introduced to try and avoid default on overseas debt and devaluation of the peso. Eventually the pressures became too strong, and Argentina defaulted on its debts and floated the peso against the dollar. HSBC took a $520m charge to cover losses stemming from the change in value of the peso, and a general provision of $600m for losses in Argentina. Concerns about HSBC's exposure to the crisis in Argentina came to the fore yesterday as it emerged that its investment banking arm was preparing to lower its profits forecast for the company. HSBC Group's 2001 results, notably the economic crisis in Argentina and the related devaluation of the peso by the government which forced HSBC to book a US$1.12 billion charge. Argentina has been a major disappointment foe HSBC and they have a very talented team and all the necessary elements for success in a stabilised economy to have a profitable business. Nevertheless, the situation in Argentina remains both fluid and disturbing. The Argentine monetary collapse in 2001 was devastating to the economy...
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...Argentine subsidiary. Argentina is currently in the midst of a recession that has lastednearly 4 years. After considerable help from the IMF in an attempt to control impending foreign debt, a mix of Argentina’s political and monetary policies has resulted in the instability of the Argentine economy and the suspension of payments leading to an uncontrollable build up of national debt. The questionable sustainability of the Argentinean government has led to a freeze in the cash flow of foreign investors in the country, consequently placing HSBC as one of the main investors to decide whether or not to permanently cut its losses and fully pull out of Argentina or believe in Argentina’s historical economic climate and continue to invest in the hopes of an outstanding upside to the current crisis. G3 Consultants Inc.’s objective is to evaluate and analyze the crisis and provide HSBC Holdings with a recommended course of action. KEY ISSUES Fiscal Policy Convertibility Plan Structural Reform Throughout the 1990s, G3 Consultants Inc. identifies Argentina as a relatively closed economy based on several factors and with little control to implement the necessary structural reforms. Firstly, the country was fairly closed-off to tradeand while it did remove some barriers to direct and indirect trade, the structural reforms were not significant enough to promote substantial trade which could have earned foreign exchange to pay off the national debt. Secondly, the...
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...Does history really repeat itself? After reading the article on “Surviving A Debt Crisis: 5 Lessons for Europe from Latin America” by Samuel George from Bertelsmann Foundation, it seems very convincing that European leaders may have an opportunities to learn from the Latin American on how to handle and survive a debt crisis. The fundamental causes of these two debt crisis are highly similar. When the global economy was in good shape, massive lending was made to countries with unstable macroeconomic histories. Investors saw the lucrative opportunities to achieve high returns in some low-credibility nations but decided to take risks since there were no signs indicating any sort of recession. However, the second oil shock in 1979 led to spike in oil prices. As a result, the US went into recession, which drove commodities prices down significantly. Latin America countries import oil and export commodities, a deteriorated international trade situation slowed down their GDP growth. They were not able to pay for their loans which associated with floating interest rates. In 21st century European, the global financial crisis trigged a series of events. The Greek government had to spend heavily through debt to subsidize shipping and tourism industries which were harmed by the business cycle. Real-estate bubble in Spain and Ireland forced their governments to bailout private banks via national debts. It is, therefore, clear that in "sunny days", countries should be cautious...
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...Kaunas University of Technology SCHOOL of economics and BUSINESS department of economics The Problems Of Bankruptcy Process In Argentina Semester work Written by student_: saskia saimol Sebastian (VBa4) Sajith Saji Nair (VBa3) ) Accept: dr. Rita Remeikienė Table of Contents INDRODUCTION 3 Case Study 1 4 Argentina and 10 Other Countries Facing Bankruptcy 4 Case study 2 6 Argentina Bankruptcy 6 Argentina towards Bankruptcy 6 What Happens When Argentina Goes Bankrupt? 8 Background to the Crisis 9 Argentina's Unemployment Rate 10 The Facts of the Case 12 Riots, Rate, Default and Resignations of Argentina 13 Research Matrix about Bankruptcy 16 CONCLUSION 17 REFERENCE 17 INDRODUCTION Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills petitions the court to get legal protection from creditors and to obtain a fresh financial start. Although a bankruptcy filing is a court proceeding and all documents are signed under oath. However, in most bankruptcy cases you do not need to go before a judge. At the moment your bankruptcy is filed, the automatic stay goes into effect. The automatic stay immediately stops your creditors from attempting to collect debts from you in any way, including phone calls, letters and pending court proceedings. There are some exceptions to the automatic stay including criminal or government...
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...the view that the debt crisis is a result of inappropriate development policies. (40 marks) In 2008, the total external debt for the world’s developing countries was US$3.7 trillion, and US$163 billion for the worlds least developed countries For the developing world as a whole, in 1991, the total external debt was $1.362 trillion, which was 126.5%of its total exports of goods and services in that year, and the ratio of debt servicing to the gross domestic product of the developing world reached 32.4%. For some LEDCs, debt stood at 98% (Congo) and 112% (Nicaragua) of their GDP in 1980. Consequently, we have the situation whereby the last ten years African countries have paid their debt three time over, yet are three times as indebted as 10 years ago. This phenomenon is the result of international debt growing enormously since the 1970s, which became apparent in 1982 when Mexico announced it could not repay its foreign debt. Other, especially Latin American economies, also faced crises in the 1980s and 1990s, when they simply could not service their debt repayments: they defaulted. Mexico was first in 1982, Argentina in 1999-2002. Many other LEDCs continue to exist in a state of massive indebtedness, which persists until the present day. Inappropriate development policies, that is, the ineffective economic policies of many LEDC governments, did cause the debt crisis and indebtedness, but this is an incomplete explanation. Debt and debt crisis were also caused...
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...THE RECENT CRISIS AND RECOVERY OF THE ARGENTINE ECONOMY: SOME ELEMENTS AND BACKGROUND Arturo O’Connell Universidad de Buenos Aires and Università di Bologna a Buenos AiresT 1 Argentine-Australia Economic Conference Buenos Aires, April 2007 Draft version; not to be quoted without permission from the author Introduction The Argentine crisis could be examined as one more crisis of the developing countries – admittedly a star pupil that had received praise from many sides – hit by the vagaries of the international financial markets and/or its own policy mistakes. illumination. But it could even be more interesting to examine the peculiarities of the Argentine experience – always in that general context – which did add to the difficulties other economies have faced and that have made it such an intractable case for normal medication. And not only those peculiarities and their consequences should better been pinned down. But also an attempt should be made at understanding that they were not just a result of the extravagance of that far away people in one Southern end of the world. This paper is organized in the following way. In the first section a brief And to a great extent that is a line that could provide some examination of some long-run trends in the Argentine economy is introduced. The next section is an attempt at a thorough examination of the performance of the Argentine economy in the 1990’s and the development of some severe imbalances eventually leading to an unsustainable...
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...Fiscal mismanagement caused Argentina’s 2001 crisis Summary: It is believed that the fiscal mismanagement which came from 1) fiscal indiscipline. 2) loose fiscal policy, caused Argentina’s 2001 crisis. Each of these two parts covered the problems of the country’s tax system, fiscal policy, currency policy and government management. The following contents will give more details. Fiscal indiscipline contributed to the crisis Fiscal indiscipline at provincial level lead to a heavier burden on central government In the early 1990s, percentage-based revenue-sharing between the national government and the provinces was replaced with a rigid system of minimum revenue guarantees. But provincial authorities used these guarantees as collateral that enabled them to run up significant private-sector debts for which the central government was ultimately responsible. (case P6) Corruption scandal leaved the government discredited. * A corruption scandal erupted when it was discovered that bribes had been paid to senators in exchange for support of the government’s initiative to bring flexibility to the labor market. (case P3) * In November 2011, Argentina attempted to execute another debt swap, guaranteed by fiscal revenue, but not well received. Instead, capital flight escalated and country risk climbed to 1,700 basis points (Exhibits 8&9 interest rate and bond spread data). Argentina’s loose fiscal...
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...that contributed to the devaluation of the peso against the dollar, the affect it has on business opportunities for trade (importing and exporting), and the Argentina’s Government intervention to recovery. Additionally, this paper will illustrate the incompatibility between Argentina and the IMF (International Monterey Fund), and show the downfall of the IMF’s influence in Argentina. Furthermore, this paper will explain how the HSBC should maintain its status of investments and strategies in Argentina, and factors that should be monitored. Economic Crisis: Argentina and the HSBC Past to Present In the beginning of the 21st Century, Argentina’s economy prospered with a booming 5 percent annual growth rate over a three-year span; this economic phenomenon would not last. By the mid-21st century, Argentina was printing money to finance munificent benefits for workers, and protectionist measures were establishment. This intervention only led to poor productivity and crated a weakness in the structure of Argentina’s economy. During the 1980s, inflation became an epidemic that reached a high point (hyperinflation) twice and the collapse of two banks. Additionally, the people lost faith in the Argentina currency (peso), which led to shipping capital abroad and investing in the U.S. dollar (Daniels, Radebaugh, & Sullivan, 2011, pp. 333-334). Over the next decade, new economic policy was established; privatization of various state-run organizations, strengthen fiscal management...
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...Should We Cry For Argentina Question 1: Argentina’s peso was linked to the U.S. dollar through a currency board for 10 year before it was cut loose. Why did Argentina peg its currency to the dollar in the first place? Answer: In the initial time of 20th Century, Argentina was one of the wealthiest and successful economies in the world. Situation started changing after World War I, Argentina started undergoing slow economic growth rate because of bad policy, political gridlock and adverse change in trade. In 1970’s, Outbreak of oil crises concluded severe debt crises of 1980’s in Latin America. Government spending was more than the tax, market borrowing, which ultimately gave movement to inflation. Since 1980 Argentina was badly suffering from heavy debts and fast growing inflation. In 1989, inflation peaked to 5000 %, GDP lowered down by 10% from 1989 and 20 % fall on per capita GDP. In order to stabilize the growing inflation, the convertibility plan of 1991, fixed a peg of the Argentina currency peso against the dollar which means one peso to one dollar. This laid the foundation for exchange-rate stabilization. This helped Argentines to freely convert their pesos into dollars under currency board and increased bank deposits and loans in dollar became extensive. The main reason behind this implementation was to increase people confidence on Argentina currency after way long inflation. Idea was fixing the exchange rate which shows stabilization in inflation and thus...
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...Ar Impact As the debt grew, the interest rate that Argentina had to pay foreign creditors also rose, further increasing the annual imbalance and accelerating the growth of the foreign debt. Default became unavoidable. When Argentina finally defaulted on $155 billion of central and provincial government debt in December 2001, it was the largest sovereign debt default ever in history. Sophisticated Argentines and foreign investors knew that the peso had to be devalued if future current-account deficits were to be reduced without a continued massive recession. The convertibility law allowed them to shift pesos into dollars and then to take the dollars out of the country. Although a loan from the International Monetary Fund (IMF) in 2001 gave a temporary boost to confidence that stemmed the run on the central bank, this lasted only a few months and the peso was devalued sharply in January 2002. Unemployment spiked by 2003: * The De la Rúa administration implemented $1.4 billion in cuts in its first weeks in office in late 1999. Austerity was furthered by $938 million in spending cuts and $2 billion in tax increases. Within the next three years unemployment would rise from 12% to 25%, One question remains though: if Argentina was not able to cope with the fixed exchange rate system why did it not devalue its currency sooner in 1997...
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...Case: Argentina’s Monetary Crisis In the 1990s Argentina was the darling of the international financial community. The country had fixed the exchange rate for the Argentinean peso to the U.S. dollar at $1 = 1 peso. Maintaining the exchange rate had required Argentina to adopt strict anti-inflationary policies, which had succeeded in bringing down Argentina’s historically high inflation rate and stimulated economic growth. By 2001, however, the economy was running into trouble. Global economic growth slumped and demand for many of the commodities that Argentina exported had fallen in tandem. Argentina’s large neighbor and main trading partner, Brazil, was grappling with a financial crisis of its own and had devalued its currency against the dollar, and thus the peso, effectively pricing many Argentinean goods out of its market. To compound matters, the dollar had appreciated against most major currencies, taking the peso up with it, and making Argentinean goods more expensive in other international markets. Starting in 1999, the Argentinean economy entered into a tailspin that was to take unemployment up to 25 percent by 2002. Anticipating that the country would have to devalue the peso against the dollar, corporations and individuals started to pull money out of pesos, placing their funds in dollar accounts. As people sold pesos, the Argentinean government used its foreign exchange reserves to buy them back in an effort to maintain the exchange rate at $1 = 1 peso. The government...
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