Just a really quick post today. I want to take a look at two different cases of debt default/restructuring/whatever. The first is the well-known and widely cited case of Argentina and the second that of Uruguay.
I want to approach the whole issue from a different angle, namely the trajectory of inward FDI (foreign direct investment) in the defaulting country. All the talk about FDI in Greece these days made me curious enough to look it up.
A bit of background first. Argentina defaulted in December 2001, but the process dragged on for several years after that and, unless I’m terribly wrong, the whole issue is not yet fully resolved. That’s why I’m not able to say what the overall haircut applied was. On the other hand Uruguay reprofiled its debt in 2003 without any principal forgiveness involved and the whole exchange was strictly voluntary, while the Argentinean process was much messier (I don't mean to be insulting by using that phrase).
I’m not going to get into more technical details since it would mean straying from the point.
Here’s the chart about inward FDI stocks in the two defaulting/restructuring countries.
The evolution of FDI stocks post-restructuring couldn’t be more different. I’m not going to comment on what is responsible for that, you can reach your own conclusions…
P.S. One more thing. Here is the two countries rank according to the World Bank Ease of Doing Business Index where the lower the ranking the more business friendly the location. If one takes into account that indicator, Argentina is considered to be more business friendly.
|source: World Bank|