Headline: Argentina Loses Again, Sky Still Blue

Argentina lost in international courts yet again, this time to holdouts that insisted that their debt claim was more legitimate than all the others that lost money in the second largest sovereign debt default in history (congratulations, Greece).

As ever, the only real winners in this case for the time being were the lawyers – did anyone ever expect that the Argentine government stood a chance against a New York bankruptcy judge?

But what the creditors clearly don’t understand, betraying their complete and utter ignorance of the country whose bonds they purchased, is that Argentina doesn’t play by the same rules. Never has, never will. And, with China’s increasing role in its economy, certainly doesn’t have the same pressures to align with the “international” (Western) system as it did in the past.

Calling it “a kind of legal colonialism”, Argentina’s colorful economy minister Lorenzino dismissed the ruling as clear bias and a product of a case stacked from the beginning against his country.

He continued, “all we need now is for [Judge Thomas] Griesa to send us the Fifth Fleet.” He’s not alone in his views, and even opposition politicians (whatever that means in Kirchnertina) think the precedent of rewarding litigious bondholders over those that accepted settlements, and turning the notion of sovereign default over on its head is a bad idea.

This could mean much more than an increasingly intransigent and isolated Argentina, this could mean that private creditors once again, have precedent for protection in court against rogue borrowers. Moral hazard aside, this can’t end well.

What’s important for any observer to understand about Argentina is that the debt default was a godsend for the country in many ways – it stopped a self-destructive pattern of foreign borrowing, deleveraged the country, and put it on the path to record economic growth over the past ten years.

Yes, some of it is a mirage, and yes, inflation is rampant partly because of heterodox policies that come as a result of being shut out of international credit markets. Nonetheless, Argentine politicians don’t count international creditors among their constituents.

This may result in yet another default before the year is out, but the Argentine government won’t care. Why should it?

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