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Argentina celebrates bond payout
Argentina celebrates bond payout

Bond payoffs are supposed to be boring, but Argentina's president is celebrating today's final $US2.3 billion ($A2.21 billion) payment on a bond given to people whose savings were confiscated a decade ago, calling it a lesson for European countries now mired in foreign debt.

The nation's economic disaster left thousands with a grim choice after the government seized their dollar-denominated deposits to stop bank runs in 2002. They could switch to devalued pesos and regain access to what was left of their savings, or accept a piece of paper promising to repay the money in dollars over the next 10 years.

Few had any faith in the government's promises back then. Argentina had just defaulted on more than $US100 billion in foreign debt, banks were shuttered, the economy was in ruins and streets were filled with pot-banging protesters whose chants of "throw them all out" would send five presidents packing.

But Argentina has mostly paid up after all, making good on 92.4 per cent of that defaulted debt so far, including $Us19.6 billion in US currency over the years to cancel the Boden 2012 bond. Most of the hard-luck account-holders later sold the bonds at a loss, but as the government makes its last $Us2.3 billion payment on Friday, the few stalwarts who kept the faith have been made whole, while earning a modest 28 per cent profit over the years.

"It was good business" for anyone who got the bonds early and held them, said Jorge Oteiza, a bond trader with Banco Comafi in Argentina.

"To have the same buying power you had back then isn't bad."

President Cristina Fernandez praised her government for meeting its commitments and blamed multi-national financial institutions for the debt crises that afflicted Argentina back then and threaten Europe today.

"This is the money that the banks should have returned to the Argentine citizens," she said during a national address from the Buenos Aires stock exchange Thursday night. Showing charts and rattling off numbers, she argued that her government has shown the world how to emerge from default without imposing austerity measures, growing its economy and strengthening the social safety net.

This debt relief "has given us an immense independence from the activity of the market," she said to applause from the hundreds of guests she had invited onto the exchange floor.

Argentina's foreign-currency debt has dropped from a daunting 166 per cent of GDP at the end of 2002 to a more manageable 42 per cent of GDP at the end of 2011, said Ramiro Castineira of the Econometrica consulting firm. "If before it was a burden to shoulder, now it's just a handbag. It doesn't restrict the economy as it did in the past," he said.

However, the debt has grown in nominal terms during the same period, from $US137 billion to $US179 billion.

Many economists suggest the official story is misleading at best, since the government has refused to pay billions of dollars in other bad debts while borrowing freely within Argentina, taking money from pension funds, provinces, state-owned banks and the central reserve to stimulate the economy and reduce its foreign debt exposure.