Argentina has made it back into the international capital markets thanks to having reached a deal with the holdouts who had been demanding payment on the defaulted bonds they held. The Government of Argentina already has borrowed nearly $15billion, in part to payoff the holdouts and in part to cover some temporary financial needs.
The irony of the situation is that the holdouts used the so-called “pari passu” clause (that all holders shall be treated equally) which is the result of work by Carlos Calvo, an Argentine jurist in the 19th century who wanted to prevent powerful countries from using their superior force to demand payment on debts before other creditors.
Now, the international community realizes that this clause makes it more difficult to re-financing the sovereign debt of countries in financial trouble. So, to meet today’s needs, bond contracts should drop the pari passu clause and add a clause that requires all holders to accept refinancing deals negotiated with a debtor in default. And, so, the evolution of the international financial community attempts to meet its current needs.
We shall see if the Argentine experience facilitates that evolution.