The Current Debt Default Crisis - 1005 Words

This policy memo addresses the current debt default crisis in Argentina. Despite the fact that 93% of the bondholders accepted reduced payment due to the bankrupt of Argentina, the two hedge fund NML Capital and Aurelius Capital Management have demanded full repayment of the $1.5bn ( £920m) they are owed, and have sued to prevent the country from paying back only its restructured bond . To relief the dilemma after July’s ruling, the financial sector should persuade the 93% exchange bond holders waive the RUFO to alleviate the current financial pressure over the next few months. Problem Statement and Strategic Issues The Argentina’s debt default crisis this year could be trace back to 2001’s crisis. After that, the government begin to†¦show more content†¦One helpful method to restore this mess is to persuade at least 75% of our existing exchange bond holders to waive the RUFO clause in order to avoid the hundreds of billions of new obligations before RUFO expire, while in the meantime continue seeking financial assistance to pay back holdout and restore our reputation. Rapid actions are required to solve this urgent crisis. The importance of Argentina back to bond market is so self-evident. The low foreign exchange reserve, which is totally $290 billion with only $160 billion available, is obvious insufficient to debt repayment, let alone other use of foreign exchange reserve. Normally countries with similar situation will choose to financing from bond investors. However being abandoned international bond market makes even high interest rate sovereign bonds is too risky for investors and will become more difficult to restore access to the world’s capital markets without figure out the default with no delay. This means the exchange bondholders have to receive their money as soon as possible. Since there are already a group of bondholders begin to work with Deutsche Bank to remove the RUFO clause , our government should send officials to help push enough creditors approve this decision and sign the supplemental indenture. Moreover, government could conclude new terms (on-table or off-table) to give extra compensate to exchange bondholders,