Argentina failed to reach an agreement with creditors and is defaulting on its debt for the second time in 13 years as Argentinian politicians do not follow budget discipline nor are prepared to compromise, says Estonian banking strategist Peeter Koppel.
Koppel told uudised.err.ee that the move will result in decreased in public and foreign investments.
Argentina said it cannot afford to repay the 1 billion euros owned to bond investors.
“In general a creditor/investor assumes a loan will be repaid,” Koppel said, adding that in the current economic climate it would not bode well for general morals if the fact that states pay back loans were to be questioned. He said the problem is not greedy investors but has to do with politics and the lack of systemic budget discipline.
“Insolvency and Argentina go hand in hand. Behind the current default lies the insolvency incident from 2001, when Argentinians were able to create a serious budget deficit […] and land in textbooks as an example on how a currency committee and budget 'flexibility' do not mix,” he said.
The current Argentinian government has been very rigid and refused to use outside sources to alleviate the situation, he said.
The Argentinian people will face higher interest rates, money printing and inflation. Economic growth will suffer, while property and homelessness will increase, Koppel said. “It means being cut off from international capital markets and with that the precondition for development and also the end to hope.”
He said there are no similar instances of conflict between a state and investors and international financial markets are already used to Argentina defaulting every once in a while.