ROBERT SIEGEL, HOST:
One of the world's longest-running economic soap operas may end this week. Argentina is about to pay back its debts after 14 years of refusing to do so - 14 years of lawsuits and name-calling between the country and its lenders. Robert Smith of our PLANET MONEY team finds some lessons in the drama.
ROBERT SMITH, BYLINE: First lesson - when you find yourself in a hole, stop digging. Fourteen years ago, Argentina was in a hole so deep no one could see the sun. It was total economic collapse.
MARTIN MORATONA: The restaurants were empty. The main avenues of Buenos Aires were eerie because there was practically no traffic in the middle of rush hour.
SMITH: Martin Moratona was working for the city at the time.
MORATONA: And then one day, it all blew up. People started sacking supermarkets. And I remember there was this truck transporting cattle into Buenos Aires, and people blocked the highway. And they overturned the truck and took the cows. And then they practically slaughtered the cows right there in the middle of the highway because they were so desperate.
SMITH: There is no bankruptcy law for countries, no orderly way for a nation to figure out how to pay the bills when they have no money. So Argentina just said enough we need to feed our own people, so we're not going to pay back all the foreigners who lent us money, which brings us to lesson number two. When it comes to owing money, you can run, but you cannot hide. Economist Juan Cruces says that a lot of people around the world wanted their money back.
JUAN CRUCES: Many university endowments, insurance companies, mutual funds purchased our bond, also institutional investors like TIAA-CREF in the United States.
SMITH: Wait a minute. TIAA-CREF is my retirement fund. Does that mean that I lent money to Argentina?
CRUCES: You did, indeed.
SMITH: In all, Argentina had defaulted on around a hundred billion dollars' worth of loans. Now, what normally happens is the people who hold the bonds, the moneylenders - they start to negotiate with a country. But Hans Humes of Greylock Capital says Argentina wouldn't return his calls.
HANS HUMES: I actually did a quiet trip down to Buenos Aires to talk to the debt negotiator and say, hey, listen; you know, what do we have in common? What's the middle ground? The guy kicked me out of his office. He's like, you have to leave right now.
SMITH: Argentina's government had decided to play hardball - take-it-or-leave-it offer. They would give their lenders only around 30 cents on the dollar. For years, everyone fought and fought over this number. Most of the bondholders like Hans Humes eventually gave in.
HUMES: Just fatigue, I think a lot of people took it. It was just like, you know, I mean, what's the point of fighting?
SMITH: Oh, but the final lesson of the Argentine story is that sometimes the scrappiest fighters win. A small percentage of the bondholders decided to hang in there, to keep up the battle. They were the hedge funds who had bought the debt cheap. They were called the holdouts, although, in Argentina, they had a different name for them.
CRUCES: Fundois Vitures - the vulture funds.
SMITH: And for the last seven years, they have circled Argentina and not given up. They have sued and sued. They finally found a New York City judge that was willing to stop Argentina from using New York banks to make payments, and economist Juan Cruces says this tipped the balance.
CRUCES: The judge's decision gave the holdouts essentially an atomic bomb to put under their arm against the debtor.
SMITH: It may not be the lesson that you want to teaching to your children, but wielding an atomic bomb is effective. Today, lawmakers in Argentina are poised to approve a settlement for the hedge funds that wouldn't give up. One fund, Elliot Management, is expected to get $2.4 billion on the deal. It was expensive, but after 14 years, Argentina can finally say they are out of the hole. Robert Smith, NPR News. Transcript provided by NPR, Copyright NPR.
