To Carmen Reinhart, an Argentine default is all but inevitable – and will likely come sooner rather than later.
The Harvard University economist says the government’s re-profiling plan is already a default on domestic debt, which rating companies will likely promptly respond to. While asking bondholders for more time doesn’t configure a default on its foreign obligations, it would be “a miracle if they get to six months.”
“You have the combination of political turmoil, a contracting economy, no access to private capital markets, the serious onset of domestic capital flight and extreme reliance on the IMF, which may not be sufficient to cover their debts coming due,” she said in an interview. “That’s pretty grim.”
Back in November, the Cuba-born economist – who was also deputy director of the IMF’s research department during Argentina’s 2001 crisis – warned that rising US interest rates, slower Chinese growth and potential defaults put more stress on the developing world. At the time, she called Argentina “the weakest of the set,” saying the South American country had little margin “for any kind of error or negative surprises.”
By Reinhart’s count, Argentina has defaulted on its foreign debt eight times since 1800.
--With assistance from Carolina Millan.