The last pillar.
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This goes much deeper into certain concepts mentioned in this guide.
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Argentina suffered the worst economic & financial crisis in history after a $80 billion default occurred following poor monetary and fiscal policy decisions which led the country into uncontrollable deficits and debt, devaluing the Argentine Peso by over 300% against the Dollar within a matter of weeks. Debt-to-GDP also jumped from 55% to 150% after the devaluation of the Peso.
Let’s paint the picture…
Prior to the December 2001 crisis Argentina was suffering a deep recession, high levels of debt, deficits in fiscal & current accounts and a currency which was overvalued.
Devaluation of the currency wasn’t an option because this would break their fixed exchange rate (a law where one Argentine Peso had to be equal to one US Dollar).
Argentina tried to regain economic competitiveness through domestic deflation & increasing the fiscal account (raising taxes and government revenue).... during a recession! They then attempted to avoid a default by resorting to the IMF (who are known for rescuing countries on the brink of default), which didn’t work.
This is all without mentioning the huge issuance of bonds that Paul Singer’s hedge fund, NML Capital (a subsidiary of Elliot AM), bought for pennies on the dollar to finance all of this debt! Argentina’s bonds had a face value of $617 million, yet NML Capital managed to pick up these bonds for only $117 million. They bought these bonds for roughly ¢19 on the dollar! NML Capital bought $617 million worth of these bonds for just $117 million.
Figure 1 - Paul Singer, President of Elliott Management Corporation