Argentine default appraised

The solvency of a country can be measured by the payment capacity and the willingness of governments to honor its debt. The sustainability of a debt also depends upon the ability to generating fiscal surpluses and the availability of rollover alternatives. The argentine default in 2002 was a clear consequence of unsustainable stocks and an unrealistic willingness. Moreover, when governments adopt fixed exchange regimes, they bet their international reserves on a particular price of its currency. Experience indicates that markets will prefer a different one. The 2009 situation seems to be completely different. On one hand, economy performs trade-fiscal surpluses and foreign reserves level differ significantly from the 2002 scenario. On the other, argentine government adopted a floating exchange rate. Additionally, the government owns more than a half of the deposits in the financial system, when they were only 10% in 2002.

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