Argentina faces imminent default on foreign debt
OPINION With less than 24 hours left before Argentina defaults on its debts, the prospects for yet another financial crisis in the South American nation…
People walk by a sign posted at the entrance of the Argentine Economy Ministry reading in Spanish: “Together we will fight against the loan shark vultures,” referring to Argentina’s unresolved dispute over $1.5 billion in unpaid debts to the U.S. Argentina could be just hours away from defaulting. (AP Photo/Victor R. Caivano)
OPINION
With less than 24 hours left before Argentina defaults on its debts, the prospects for yet another financial crisis in the South American nation have become increasingly real.
The Argentine governments persistent campaign of denial has placed it on the brink of disaster as it faces imminent default if it fails to pay its outstanding debts or restructure its debt agreements with foreign creditors by Wednesday.
SEE ALL: What will happen with Argentina’s debt crisis
Following two separate U.S. court rulings last monthwhich ordered the Argentine government to repay long-standing debts to U.S. creditors by a June 30th deadlinePresident Cristina Fernandez de Kirchners government was granted a 30-day grace period in order to resolve the situation.
However, rather than settling with U.S. creditors or putting forth a proposition to restructure current debt agreements, President Kirchner and her economy minister, Axel Kicillof, have expended most of their energy on launching a full-out PR campaign criticizing the United States ‘extortionist policies.
The crisis stems from a June 16th decision in which two separate Supreme Court decisions ruled that Argentina was responsible for paying back nearly $1.5 billion in debts that date back to the countrys financial crisis of 2001-2002. Specifically, following the countrys massive debt crisis at the turn of the millennium, the Argentine government worked to restructure its public debt with foreign creditors in order to begin to dig itself out of the fiscal hole it was in at the time.
However, as Katy Barnato of CNBC explains, [several] so-called holdout creditors snapped up junk bonds around the time of its massive $82-billion default in 2001 and refused to accept the debt restructurings that followed.
Consequently, while over 90% of creditors would go on to accept the restructured deals, several vulture fundsso-called for their propensity to scavenge and take advantage of vulnerable governments for their own profitstood out as key exceptions to the new agreement.
Could Argentina Default on Its Debt? (AP Photo/Markus Schreiber)
Since the announcement of the judicial decisions, the administration in Buenos Aires has consistently maintained that the payment of dues would not be possible.
And yet, over the past two months, Kirchner and Kicillof have done little in order to avert the impending crisis by attempting to strike a deal with the holdouts.
Faced with the equally bleak options of settling or defaulting, the Financial Times argued earlier this month that, settling and moving on best serves Argentinas immediate interests. The outline of a possible solution can be glimpsed. Argentina could meet the holdouts $1.5bn claim with fresh bonds, rather than cash from scanty foreign reserves. The bonds would be issued on a deferred basis, so as to skirt the RUFO clause, which expires at the end of this year. All holdouts should be invited to join, to settle the problem for good. There could even be a fresh cash element to the issue.
However, in its state of obstinate denial, Argentina seems poised to default for the third time in just 28 years Wednesday. While most analysts dont believe this default will be as cataclysmic as previous oneswith growth only expected to slow by one percent and unemployment not expected to increase as dramaticallydefault could lead to substantial inflation and a devalued currency.
At this point, however, Argentinas politiciansled by President Kirchner and Economy Minister Kicillofdont view the default as a matter of economic negligence, but as a matter of autonomy, self-government, and nationalism instead.
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