Pessimism reigns over Argentine economy

A U.S. federal court yesterday put a monkey wrench into the government’s plans to nationalize ten private pension plans. District Judge Thomas P. Griesa ordered the freezing of Argentine pension fund investments in the U.S. based on a petition filed by bondholders. Attorneys for the plaintiffs argued that the argentine government owes bondholders $554 million from the country’s 2005 debt restructuring plan.

Earlier today, Standard & Poor's ratings agency cut Argentina's sovereign credit rating for the second time in less than three months. The move by S&P means that Argentina will become less attractive to investors as stocks and the country’s peso have been hit hard recently.

Could Argentina undergo a massive political and economic crisis like in 2001? The S&P managing director for Latin America told Reuters that she did not expect Argentina to default "in the short term". The long-term prospects for default may be a different story, however:

Argentina's dependence on the global economy will make economic adjustment inevitable. Given the worsening global panorama, the government's attempts to improve access to fresh funds have proved fruitless. The nationalization of pension funds reflects the government's unwillingness to implement fiscal tightening and raises doubts about sustainability and the possibility of a new default.

Image- seattlepi.com (“A woman speaks on her cell phone in front of a sign showing the exchange rates for the U.S. Dollar and Euro against Argentina's Peso in the financial district of Buenos Aires.”)
Sources- The Latin Americanist, newsday.com, Guardian UK, Bloomberg, seattlepi.com, BBC News, IHT, Reuters