Managing Argentina's external debt : the contribution of debt swaps

This paper analyzes the viability of servicing Argentina's foreign debt, most of which is owed by the public sector. The analysis focuses on the country's capacity for servicing the debt and on the possibility of giving domestic assets in exchange for outstanding foreign debt, taking advantage of the substantial discounts of this debt in secondary markets. Section II of the report presents the basic data on the process of indebtedness and reviews the main domestic problems that lay behind the difficulties to service the external debt. Section III provides a theoretical model of debt repurchases that provides the framework for the analysis of schemes for debt reduction. Section IV assesses the feasibility and convenience of alternative schemes. The main conclusion of the paper is that no lasting and mutually agreeable reduction of the external debt is possible until the government effectively confronts the internal economic problems of the country.