Argentina was in dire financial straits at the beginning of the century and, in the end, suffered a sovereign default on her debts. At the height of the crisis, Argentina had a debt to GDP ratio of 166% and unemployment of 21%. As a consequence of the default, Argentina has effectively been shut out of the international money market ever since.
A new government came to power and working with the IMF embarked upon a death management strategy from 2003 onwards designed to boost economic growth and so enable the nation to honour (in part) its obligations. As part of this strategy, two debt restructuring agreements were decided in 2005 and 2010 which gained the approval of 93% of the nation’s creditors, but the dissenting voices have prevented this accord from being enacted.
Argentina argues that much of the debt held by dissenting creditors is held by “vulture funds”, hedge funds that bought distressed credit from other investors at a very cheap price (but above its then market value) and are insisting that they be allowed to redeem 100% of the face value of the debt.
Earlier this week, the US Supreme Court sided with the hedge funds insisting that Argentina should pay them $1.3 billion. As a consequence of this decision, the ratings agency S&P has cut the nation’s credit rating from CCC+ to CCC- and 4.9% has been wiped of the value of shares on Argentina’s main sock market.
The IMF has voiced its concerns over the Supreme Court decision since it could have significant repercussions well beyond Argentina (for example, Greece might have found it impossible to get its creditors to agree to a “haircut” if they believed that a US court would insist that the full debt be honoured). "The Fund is considering very carefully this decision and, as we have said before, we are concerned about possible broader systemic implications," the IMF said.