In 2001, Argentina was in the midst of an economic depression going on its third year. Unemployment rates were over 20%, and political instability and riots were fracturing the fabric of the country. Within a span of two weeks, the country saw five people hold the office of the president, while rampant hunger and looting occurred throughout the nation. The country had seen great economic growth throughout the 1990s, but by the end of the decade, this growth came crashing to a halt. Following failed austerity measures and the instability in the country, Argentina stopped payments on its debt, which at over $100 billion was the biggest default ever seen in the world.

Because of the default, Argentina was cut off from international capital markets and has not been able to raise money through these markets for the past 15 years. Officials in the country looked to reach agreements with their creditors so they could rejoin the capital markets, and were able to find a middle ground with 92% of bondholders by 2010. The agreement paid the bondholders about 30 cents on the dollar, satisfying most of the country’s creditors. The problem arose when several creditors refused the deal, demanding full payment on their debt. Without an agreement with these holdout bondholders, Argentina continued to be barred from participating in the capital markets, greatly affecting possible economic growth.

After 15 years and a change in leadership, Argentina is finally returning to international markets, as the holdout creditors agreed to settle their debts and end the decade and a half battle. The holdout bondholders, assuming Argentina’s congress approves the agreement, will receive about 75 cents on the dollar, a much better agreement than other bondholders received in 2005 and 2010. For Argentina, turning the page on the 2001 default will allow the country to move on and get a new start with the economy. The new leadership in Argentina hopes the country can begin to see growth in the next few years, as the problems due to economic isolation in the global economy dissipate.

In South America, the news is a welcome sign as Argentina is the continent’s second largest economy. Neighboring countries are hoping that positive growth in Argentina will benefit their economies, with increased trade and demand for foreign goods. Globally, bondholders have to be happy with the result, as the holdouts were rewarded for their persistence. With sovereign debt defaults becoming a worry in several countries around the world, Argentina’s case shows that bondholders do hold some leverage, and that a minority group can put lots of pressure on the defaulting country. The impacts of this debt battle could be felt in future defaults and debt crises, as the precedent for holdouts to be rewarded is set.

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