What Iraq and Argentina Might Learn from Each Other

Iraq and Argentina each launched a $100 billion debt restructuring last year. The two cases are rarely mentioned together. Most think of Argentina as the quintessential case of financial globalization gone awry - a lapsed market reformer that sank under the weight of (depending on your perspective) misguided liberalization or its own financial chutzpah, and took with it Argentine depositors, Italian retirees, Japanese banks, and offshore investment funds. Iraq\u27s debt has a distinctly preglobalization flavor. Most of its obligations precede the recent wave of financial liberalization. In the words of Iraq\u27s own advisers, its debt restructuring is a quintessential geopolitical case, a classic outlier framed by strategic more than financial concerns. Aside from the obvious intuition that no case of government debt is immune from politics and no multibillion dollar restructuring is devoid of finance, Argentina and Iraq appear to be on opposite ends of the finance-politics spectrum. Despite, or because of this distance between them, each of these two restructurings offers insights for policy and doctrinal problems normally associated with the other. This essay focuses on two such problems: shielding sovereign debtors from lawsuits, now most acutely associated with Argentina, and restructuring debts inherited from bad regimes, such as those Iraq had incurred under Saddam Hussein. Early evidence reveals that existing legal, policy and financial techniques offer governments considerable flexibility to achieve deep debt relief and frame it in the political terms of their choice. These techniques, invoked ad hoc with the blessing of major economic powers and accepted by the financial markets, help preempt the emergence of more radical doctrines such as sovereign bankruptcy and odious debt