Argentina’s Economic Experience:

Lessons for Europe’s Periphery?

| November 2012 |

| Itaú BBA | Argentina´s Economic Experience: Lessons for Europe´s Periphery | November 2012

Public Debt Market

– Public Debt Market:

- To lend to a King has been always a risky business

- How is it possible a public debt market if

- There is no mechanism to avoid a sovereign default

- It is very difficult to cash 100% Nominal Value after a default

- It is not easy to restructure debt and regularize payments

- Most striking is: why sovereign borrowers delay a default even

when the situation does look totally unsustainable?

| Itaú BBA | Argentina´s Economic Experience: Lessons for Europe´s Periphery | November 2012

Public Debt Market

– However…

- Private sector purchases and trades sovereign debt

- Government delays a default

- At the end, debt restructuring is completed

– Relevance of the models:

- Sovereigns do not borrow to smooth consumption

- Sovereigns do not like to default and official lenders may play a

key role in the default

- Defaulters are not precluded from the markets on a permanent

basis

| Itaú BBA | Argentina´s Economic Experience: Lessons for Europe´s Periphery | November 2012

Public Debt Market:

– The best strategy

- Which is the best strategy to achieve a sustainable debt burden?

- How are we sure that a fiscal adjustment scenario is better than

one of default and restructuring?

- What are the likely payments in both scenarios?

| Itaú BBA | Argentina´s Economic Experience: Lessons for Europe´s Periphery | November 2012

Public Debt Market

– Preventive debt restructuring

- Not an easy task? Incentive problems vs operational problems

- Hypotesis:

- Economic and political costs for the incumbent

- Bondholders may prefer to leave the room in silence

- Fast restructuring is better than a longer process?

– Experiences

- The risks of avoiding hostile clauses (Mopping-up)

Thanks!