Retructuring, Default & Debt Reduction

Doug Henwood dhenwood at
Fri May 18 08:03:25 PDT 2001

Brad DeLong wrote:

>>Meltzler's idea is that at the announcement of the default, the IMF announces
>>that it will buy Argentinian bonds at 60 cents in the dollar. This
>>removes the
>>incentive to panic, because you now know the maximum extent of your loss.
>>Anyone who wants to sell, sells to the IMF at 60c. That won't
>>attract genuine
>>vultures, so there's more of a chance of an orderly market. In fact, given a
>>guarantee that there will be liquidity and that they won't get "stuck" with a
>>position, it's likely that the everyday traders will continue to
>>make a market
>>and the price will never even reach 60.
>But if it does reach 60, don't we need a much bigger and well-funded
>IMF? How many bond are out there?

I think the idea is that the IMF will never actually have to buy the bonds - just the guarantee will keep their price comfortably above 60. And if it did buy them in a panic, it's highly likely it could sell them at a profit - not unlike central banks buying their own currency to defend its value. The Fed has consistently turned a profit on its foreign exchange interventions.


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