Argentina’s disputed debts: Feeding the vultures

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How to manage the migrant crisis

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Argentina’s disputed debts

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Buenos Aires

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One man’s vulture is another man’s victim

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The government has struck one deal with holdout creditors. Others will be harder

One man’s vulture is another man’s victim

IT MAY have taken 14 years, but the holders of $900m of bonds on which Argentina defaulted in 2001 should soon be repaid. On February 2nd Alfonso Prat-Gay, Argentina’s new finance minister, announced a deal with Italian bondholders worth $1.35 billion, or 150% of the principal. The “pre-agreement” (it still has to be approved by Argentina’s Congress) is fairly small: it covers only 15% of the “holdouts” who rejected restructurings in 2005 and 2010. But it sets an important precedent. The creditors had been seeking $2.5 billion, including outstanding interest payments, and Argentina hopes to persuade the remaining …

Don't shed a tier: How to make negative rates less painful

NEGATIVE interest rates are intended to give the economy a boost. But one potential side effect can be to damage the banking system. A cut to official interest rates feeds through into money markets. In addition to moving the exchange rate, that affects asset prices and wholesale borrowing rates. Commercial banks generally react by lowering the rate they charge borrowers. Banks would normally pass that reduction on to their depositors but, as depositors by and large refuse to pay for their accounts, they find it difficult to push their deposit rates below zero.That means that once official rates hit zero, further cuts reduce banks’ lending rates but not their borrowing rates. That squeezes their net interest margin—the main way they make money. Though the mechanisms are as yet unknown, some worry that if banking becomes unprofitable, banks might cut back on their lending. That could be economically detrimental. Central banks are therefore keen to find ways of pushing interest rates below zero without damaging their banking systems’ profitability. They have tried to do this in a number of ways.

The Bank of Japan (BoJ), which pushed its main policy rate negative last week, did it by introducing a complicated three tier interest rate structure. The headline negative rate will only apply to new balances created by the Bank’s continuing quantitative easing—what the BoJ …