bondholders accepted the offer.<sup>38</sup> The government then resumed payment on debt – except for the holdout debt—and sovereign spreads dropped from the astronomical levels (over 5000 basis points) that prevailed during the payment moratorium period.

During 2005, the government still faced financing constraints. In order to close a financing gap of $6.5 billion, the government resorted to extraordinary financing sources, “....including placing public-sector bonds with the tax collection agency ( _Administración Federal de Ingresos Públicos_ , AFIP), the social security system ( _Administración Nacional de la Seguridad Social_ , ANSES) and other public sector funds holding excess liquidity. The authorities also sold bonds to the government of the República Boliviariana de Venezuela and the province of Santa Cruz” (EIU Country Report March 2006). The use of ANSES for liquidity would foreshadow later events.

In terms of international relations and macroeconomic policy, the government made an early payment of $9.6 billion to cancel its obligations to the IMF in January 2006. An Article IV Consultation was completed in July 2006, but the staff report was never published. Since then, there have been no Article IV consultations, and in this regard, Argentina is not in compliance with its membership agreement with the IMF.<sup>39</sup> Leading up to the presidential elections in October 2007, the economy was still growing at 8 percent. Inflation had been accelerating. In January, the government intervened in the national statistics agency (INDEC). Since then, there has been a credibility cloud over the official inflation data, and private agencies started publishing alternative data. With accelerating inflation, the government engaged in price control negotiations with major retailers and used export taxes to keep the supply at home of goods with rapidly rising prices.

Nestor Kirchner’s wife, Cristina Fernandez de Kirchner, won the 2007 presidential election with 45 percent of the vote, 20 percentage points ahead of the second-place candidate in a crowded field. During much of her first administration, however, it was generally considered that her husband retained substantial power in formulating policies and coordinating political strategies.

Over the 2008-2009 period, the economy suffered the consequences of the emerging global financial crisis with growth decelerating to 3 percent in 2008 and then 0 percent in 2009. On the policy front, the extraordinary government financing maneuvers continued with the seizure of $30.2 billion in assets of the private pension funds.<sup>40</sup> In addition to these assets, a new flow to the government pension agency (ANSES) would then be established from the payroll contributions that had been flowing to the private funds. The government also increased export taxes, sparking protests ( _cacerolazos_ ) and farmers’ strikes.

In 2010, the government offered a new bond exchange for the remaining holdouts. The two-thirds adherence by this group lowered the remaining share of holdouts to only 7 percent of

> 38 IMF Article IV Staff Report, July 2005.

> 39 Dreher and Voigt (2008) find an association between membership in international organizations and credibility, where country risk ratings is the proxy.  The stand-off with the IMF cast doubt on Argentina’s status as a member in good standing of a key international organization.

> 40 Arza (2009).

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