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Argentina set for turmoil as debt talks fail

Talks in New York aimed at averting second default in 13 years end with bitter recriminations as deadline looms.

Last updated: 31 Jul 2014 03:12
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People in Buenos Aires walk past a sign saying: 'Together we will fight against the loan shark vultures' [AP]

Talks in New York aimed at averting Argentina's second default in 13 years have ended with bitter recriminations as Buenos Aires said it could not accept a deal with US hedge fund creditors it dismisses as "vultures".

Court-appointed mediator Daniel Pollack said the failure triggered an imminent default that, among other things, would hurt the Argentine economy as well as bondholders who were not part of the dispute.

"The full consequences of default are not predictable, but they are certainly not positive," Pollack said.

A US court ruling previously blocked Argentina from making $539m in interest payments, due by midnight on Wednesday, to the majority of bondholders until a deal with the hedge fund creditors was reached.

The hedge funds reject the restructuring accepted by 93 percent of bondholders and are demanding a full payout of $1.5bn on bonds they hold.

Cristina Fernandez, Argentina's president, had long refused to negotiate with the hedge funds, calling them "vultures" for picking on the carcass of the country's record $100bn default in 2001.

There was no immediate comment from the hedge funds.

'World will keep on spinning'

Axel Kicillof, Argentina's economy minister, emerged from the meeting with Pollack and creditors with an air of defiance, saying his government could find no middle ground.

"We're not going to sign an agreement that jeopardizes the future of all Argentines," Kicillof said.

"Argentines can remain calm because tomorrow will just be another day and the world will keep on spinning."

Kicillof said the hedge funds refused a compromise offer to settle their claim, although he gave no details of that proposal.

He said the hedge funds would not agree to a stay of the court order to allow Argentina, which is struggling with recession, a shortage of dollars and one of the world's highest inflation rates, to make the interest payments by Wednesday night's deadline.

Kicillof also 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.

'Risk and uncertainty'

The hedge funds, known as holdouts and led by New York billionaire Paul Singer's NML Capital, have spent more than a decade litigating for payment in full rather than agreeing to provide Argentina with debt relief.

They sent lawyers around the world 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.

"It is an unfortunate situation which is pushing the country into another default," said Alberto Ramos, Latin America analyst at Goldman Sachs.

"As defaults go, we all know when we get into one but it is very unclear when and how to get out of it. We just added another layer of risk and uncertainty to a macro economy that was already struggling.

"This puts us on a path of unpredictable economic and financial consequences. But nothing will last forever. At some point the parts involved will hopefully sort this out."

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