THE COLLAPSE OF talks with U.S. creditors sent Argentina into its second debt default in 13 years and raised questions about what comes next for financial markets and the South American nation’s staggering economy.
A midnight deadline to reach a deal with holdout bondholders came and went with Argentine Economy Minister Axel Kicillof holding firm to his government’s position that it could not accept a deal with U.S. hedge fund creditors it dismisses as “vultures.” Kicillof said the funds refused a compromise offer in talks that ended several hours earlier, although he gave no details of that proposal.
“We’re not going to sign an agreement that jeopardizes the future of all Argentines,” Kicillof said after he emerged from the meeting with creditors and a mediator in New York City. “Argentines can remain calm because tomorrow will just be another day and the world will keep on spinning.”
But court-appointed mediator Daniel Pollack said a default could hurt bondholders who were not part of the dispute as well as the Argentine economy, which is suffering through a recession, a shortage of dollars and one of the world’s highest inflation rates.
“The full consequences of default are not predictable, but they are certainly not positive,” Pollack said.
An earlier U.S. court ruling had blocked Argentina from making $539 million in interest payments due by midnight Wednesday to other bondholders who separately agreed to restructuring plans with the country in 2005 and 2010.
There was no immediate comment from the hedge funds, which refused to participate in the debt restructurings and won a U.S. court judgment that they be paid the full value of their bonds plus interest — now estimated at roughly $1.5 billion.
Kicillof dismissed a decision by ratings agency Standard & Poor’s to downgrade Argentina’s foreign currency credit rating to “selective default” because of the missed interest payments.
“Who believes in the ratings agencies? Who thinks they are impartial referees of the financial system?” he said.
The holdouts, led by New York billionaire Paul Singer’s NML Capital Ltd., spent more than a decade litigating for payment in full rather than agreeing to provide Argentina with debt relief. They also sent lawyers around the globe trying to force Argentina to pay its defaulted debts and were able to get a court in Ghana to temporarily seize an Argentine naval training ship. The threat of seizures forced Fernandez to stop using her presidential plane and instead fly on private jets.
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