I find myself in a sardonic enough of a mood to wonder if defaulting has become an Argentinian pastime. About a week ago, Argentina de facto defaulted on its bonds for the second time in thirteen years per a New York court ruling. If you need a good primer on Argentina's history on defaulting and how we arrived at this situation, the Washington Post has a good analysis on it. There are some speculations as to the effect this default will have both on the defaulting country and the global market. Default is typically rough on a country because it becomes nigh impossible to borrow money from other countries to help the defaulting country rebuild its economy. This is the eighth time in Argentinian history that it has defaulted, so maybe the eighth time is the charm. So who do we blame for Argentina's default?
Maybe Argentina was receiving bad advice from its lawyer. Maybe this is a sign we need to adjudicate sovereign-debt disputes in international courts because Argentina was not given enough leeway with being able to restructure its debt (although, in all fairness, the court ruling is too narrow to have broader implications). I'm actually going to put the vast majority of the blame on Argentina. While I was in graduate school, I wrote a policy paper for one of my classes outlining the fiscal irresponsibility and poor macroeconomic decisions that led to the 2001 default. It doesn't help that Argentina's economy is not in the greatest of shape (although it could be doing much, much worse), nor that its freedom of press has been in decline. And let's not forget its deteriorating economic freedom (see here and here). This is not a case of a victimized nation-state that has been bullied or coerced. It is about Argentina needing to make payments that it promised to make. Some kvetch how it's unfair to make Argentina payments on "vulture funds," but you know what is truly unfair? Reneging on debt payments you promised to pay. Refusing to keep to your word is something that should put any sensible creditor at ease.
Whether it's dealing with student loans, mortgages or sovereign debt payments, we should hold contracted parties accountable for their financial irresponsibility. That is why the court-induced default was a victory for the rule of law. Argentina chose to borrow money under New York jurisdiction, waived sovereign immunity, and agreed to no collective action clauses (Collective action clauses are more common in such debt restructuring now than it was when Argentina first took out the loans, which is another reason why this court ruling isn't going to have broader implications). Argentina lost fair and square because it preferred to borrow money at a lower interest rates and for a longer period of time than to borrow elsewhere. Either pay what you owe, which seems to be in Argentina's power, or default. Argentina has weathered worse economic conditions before, it hasn't had the same potential for the contagion effect that the last default had, and I think they will be able to make it through this default. There's no reason to cry for Argentina, so why waste your tears?