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Argentina Background Issue Definition Argentina is rich in natural resources and boasts of an export oriented agricultural center as well as a diversified industrial base Recurring economic problems of inflation external debt capital flight overvalued currency and budget deficits have put the nation into severe debt and default with the IMF Currently 517 of the population lives below the poverty line In December of 2001 Argentina defaulted on 818 billion that it owed in bonds With interest it currently owes approximately 140 billion About 40 billion of which is from domestic creditors that has already been settled The decision to peg the peso to the US dollar proved to be a critical mistake When the peso had to be devalued and float it lost 23 of its value Rapidly escalating inflation also seriously hurt the already troubled economy Very little effort has been made to restructure the debt over the last three years since default until now Argentina is currently offering a nonnegotiable 30 cents on the dollar with a firm take it or leave it stance This is the worst default ever by a sovereign nation with a very low return offered on the debt However it is estimated that between 70-80 of lenders are expected to agree The agreement will offer new securities in exchange for the defaulted bonds Argentine lawmakers passed a bill in February banning the administration from reopening or improving its offer Over the past three years since default Argentina has focused on spending money on investment and social programs rather then repaying the debt It has thus resisted pressure from private creditors and the IMF to raise the governments primary surplus before interest payments The Argentine economy has shown great improvements and seems to be on the rebound In 2003 and 2004 GDP rose and remained at 88 Now it is critical that Argentina regain access to international capital markets to prevent growth from being
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