Friday 28 November 2014

Argentina tangos to avoid sovereign default

Richard Lough

Published 31/07/2014 | 02:30

Argentine economic minister Axel Kicillof speaks during a news conference at UN headquarters (AP)
Argentine economic minister Axel Kicillof speaks during a news conference at UN headquarters (AP)

Argentina faced a race against time last night to avert its second soveriegn debt default in 12 years, needing to either cut a deal by the end 
of the day with "holdout" investors suing it or win more time from a US court to reach a settlement.

Argentine Economy Minister Axel Kicillof scrambled to New York on Tuesday to join last-ditch negotiations, holding the first face-to-face talks with the principals of New York hedge funds who demand full repayment on bonds they bought at a discounted rate after the country defaulted in 2002.

The hedge funds are owed $1.33bn (€1bn), but an equal treatment clause in an agreement Argentina made with bondholders in 2005 would cost Argentina many billions more.

Unresolved

Mr Kicillof emerged from talks late on Tuesday saying only that they would resume on Wednesday, but mediator Daniel Pollack said issues dividing the parties "remain unresolved" and it was still undecided whether the sides were to meet on Wednesday.

Latin America's third biggest economy has for years fought the holdout hedge funds that rejected large writedowns, but after exhausting legal avenues Argentina faces default if it cannot reach a last-minute deal.

Argentina had until 4am this morning to break the deadlock. If it fails, US District Judge Thomas Griesa will prevent Argentina from making a July 30 deadline for a coupon payment on exchanged bonds.

Minister Kicillof's unexpected appearance in New York raised hopes there was still time to avoid a default that would pile more pain on an economy already in recession, though not the economic collapse seen in 2002 when it defaulted on $100bn (€747m) in debt.

"Avoiding a default is still feasible and, even if there is a default, we believe the government could manage market expectations," Bank of America Merrill Lynch said in a briefing paper on Tuesday.

The Buenos Aires government has pushed hard for a stay of the US court ruling that triggered this morning's deadline.

Its chances of success were boosted on Tuesday when holders of Argentina's 
euro-denominated exchange bonds on Tuesday said a suspension would encourage a settlement.

While unnerving, the debt crisis is a far cry from the turmoil of Argentina's record default in 2002 when dozens were killed in bloody street protests and the authorities froze savers' accounts to halt a run on the banks.

How much pain a new default would inflict depends on how quickly Argentina could extricate itself from the mess.

IMF chief Christine Lagarde said a default was unlikely to prompt broader market repercussions. (Reuters)

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