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Talks Collapse as Argentina Defaults

Recent talks between Argentine economic officials and U.S. creditors have fallen through, forcing the South American country to default on billions of dollars in bonds. June 30 was the end of a 30 day grace period for Argentina to pay $539 million in interest to investors that hold $29 billion of the country’s restructured bonds. This is the second time in 13 years that the country has defaulted.

Negotiators from both the U.S. creditors and Argentinian representatives had until 04:00 GMT on June 30 to come to an agreement. The U.S. creditors have been holding out since Argentina restructured their debt in 2005 and 2010. At least 90 percent of the investors agreed to accept new bonds that had reduced payments.

The last remaining investors were holding out because they refused the terms of the most recent restructuring, and were eventually backed from a ruling by a U.S. District Court judge in New York. Argentina has tried offering these holdouts similar terms to those extended to the investors who had initially accepted the restructuring, but the holdouts continued to refuse the offers throughout the process.

The Argentine minister firmly held the position that the country would be unable to pay the holdout hedge funds an amount different from their most recent restructuring deal. They firmly held this stance throughout the negotiations, in spite of the ruling by a U.S. judge that requires them to pay the hedge funds.

Alex Kicillof, Argentina’s economic minister and representative at the talks, has repeatedly called the holdout investors “vultures,” and has placed the blame on the U.S. It’s still up for debate which side is at fault for Argentina’s predicament, but one lasting result from this situation is that it will create a new set of questions about what kind of and how much power U.S. courts have in cases that involve other nations.

This new default would place a new set of pressures on Argentina, which is still struggling to recover from its most recent recession. As of right now, it is anticipated that the currency will weaken, but it will take more time before other effects will be felt by the public. However, the general consensus is that this new default won’t have as drastic an effect on the country as their previous default in 2001.

Daniel Pollack, the mediator of these talks, however, indicated that there will be some demonstrable effect of Argentina’s default. As he explained, “Default is not a mere ‘technical’ condition, but rather a real and painful event that will hurt real people. The full consequences of default are not predictable, but they certainly are not positive.”

Despite the pessimistic future facing Argentina, there is a sign of hope. Even through the 30 day grace period has ended, both sides are still continuing their talks in an effort to mitigate the effects of the default before they worsen. As of this writing, though, no agreement has been reached, despite the efforts by both Argentine officials and U.S. creditors.

Andre Gobbo

Sources: Wall Street Journal, BBC, Reuters
Photo: Reuters