Edição Especial - Faap

parties, including the sovereign debtor, authorities of various countries and
representatives of creditors. Currently most of the creditors are all kinds of
bondholders that do not necessarily respond to the influence of monetary
bodies or alike. Because of that, the connection of parties that had a path
through the IMF is no longer there.
Definition of eligible debt
A second aspect that was different from exercises of previous decades was
the definition of eligible debt. Some years ago, the prevailing view was that
financial crises affecting countries were in some fashion equivalent to balance of
payments crises. As a consequence, there was a scarcity of foreign exchange that
would recommend through some ways produce a relief of payments of foreign
currency debt that was contracted by borrowers in the country involved,
regardless of the legal, economic or even financial status of the particular
debtor. In practice, it meant that private as well as public sector foreign
indebtedness were components of the universe subject to treatment. Then,
foreign currency debt had been roughly equivalent to debt owed to foreigners.
Although this particular debt was from time to time rescheduled, this was
perceived often as less of a punishment than the erosion of purchasing power
that suffered the domestic currency debt as a consequence of successive
devaluations of its currency predicated as a means to restore supply of foreign
currency. Over the last several years, and as a way of protection, there had been
increasing volumes of foreign currency financial instruments both, issued and
acquired by residents in a given country as well as more recently foreigners
holding domestic currency securities.
Increased interconnectivity of financial markets across the world also were
the reflection of rapidly growing capital mobility helped by technological
changes. As a consequence of all of these developments, the clear distinction
along the lines of currencies and subsequent repercussions of a diagnostic of a
pure balance of payments situation was more difficult to sustain as thought
before. The current prevailing view is more given by the liquidity and solvency
circumstances of the particular debtor and its merits. That is why in the
Argentine case, as well as the other recent exchanges, the debt involved was of
sovereign nature, regardless of currency. Private sector debt was generally
speaking also left alone, meaning that it was not subject to across-the-board
treatment mandated by authorities. The implication of this is that some private
sector credits are trading at level richer and lower implied cost of capital than
the sovereign, based upon perceived stronger financials and not necessarily
subject to unnecessary governmental debt actions.
Other aspects, like definition of a cut-off-date, even from exceptions of
securities or other claims to be incorporated in a restructuring exercise to
understandings pertaining comparability of treatment are still effectively within
the interpretation done by the sovereign borrower. On these issues, we might
see more precise conventions evolving over time.
Argentina’s debt exchange - new paradigm?..., Daniel Marx, p. 157-161
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