The Vulture Funds and the Argentine Sovereign Debt Default

The Achilles’ heel of the Argentine economic strategy had been its long reliance on fiscal largesse as a basic policy tool, covering its shortfalls by expanding money supply (Refer to Exhibit 1). This resulted in recurring bouts of high inflation and indebtedness, followed by ephemeral efforts to stabilize prices. En route to the end of the 20th century, Argentina experienced hyperinflation and brought in the new regime with the Menem-Cavallo cure for chronic inflation, the now infamous “convertibility plan .” Though the convertibility plan worked well at first, cracks began to resurface in the Argentine economic policy due to the large fiscal deficits at both the provincial and national levels. Compounded by the practice of rolling over, the sovereign debt began to grow from 1993. The Argentine Peso soon got overvalued, reducing the country’s international competitiveness. This was followed by the typical declines in public revenue to service the mounting debt...