Argentina Edges Back From the Debt Brink

Nobody would argue that Argentina is in good financial condition. It has lost almost half its foreign reserves since the start of 2011. The country’s credit is rated seven levels below investment grade by Moody’s Investors Service and Standard & Poor’s. Stagflation looms. President Cristina Fernández de Kirchner is clinging to the hope that the U.S. Supreme Court will agree on June 16 to hear Argentina’s case against a group of bondholders that she calls “serial predators.” If the justices say no, Argentina has repeatedly warned that it will be forced into default.

It might seem strange then to say that things are looking up for Argentina. They are, though—at least from a bondholder’s point of view. The Fernández government has managed to stanch the shrinkage of foreign reserves—including U.S. dollars, gold, and other assets—by devaluing the peso 19 percent and raising interest rates. Export earnings from a record harvest helped, too. In late May, Argentina reached an agreement with a group of creditor nations that calls for it to pay almost $10 billion over five years to settle claims stretching back to the government’s record $95 billion default in 2001. That followed an earlier deal to compensate Repsol, the Spanish energy company, for the nationalization of its Argentine unit, YPF, in 2012. After years of understating inflation, the government introduced a new benchmark in February. Investors have noticed: JPMorgan Chase’s index of Argentine bonds has risen 56 percent since March 2013.