Fresh default looms for Argentina over US debts

Graffiti on a wall in Buenos Aires reads 'No to the debt payment'. Picture: Marcos Brindicci/Reuters
Graffiti on a wall in Buenos Aires reads 'No to the debt payment'. Picture: Marcos Brindicci/Reuters
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Argentina’s government is to make another effort to reach a deal with United States creditors before a looming deadline that risks sending the country into its second default in 13 years.

Cabinet chief Jorge Capitanich said an Argentine delegation was in New York yesterday to meet a court-appointed mediator, a day ahead of the deadline.

Mr Capitanich said: “Argentina’s position is to reach a dialogue that establishes fair, legal and sustainable conditions for negotiation with 100 per cent of the bondholders.”

But the mediator, Daniel Pollack, said the Argentines had not yet accepted his recommendation of face-to-face talks with the plaintiffs in the dispute, who are led by New York billionaire Paul Singer’s NML Capital.

Those creditors bought Argentine bonds cheaply and rejected the government’s restructuring offers following its record US$100 billion (about £59bn) default in 2001. They are demanding payment in full of $1.5bn in unpaid debts.

By today, Argentina has to make a payment to other creditors who accepted the restructured bonds or fall into default. But US District Judge Thomas Griesa has forbidden Argentina to pay them unless it also pays the hold-outs. In June, he ordered Bank of New York Mellon to return to Argentina $539 million it had deposited to pay holders of restructured debt.

Argentina’s economy ministry said the government had made a $642m payment on debt owed to the Paris Club of creditor nations, the first instalment in a plan for repaying $9.7bn.

Argentina is already struggling with recession, a shortage of dollars and one of the world’s highest inflation rates. But the government has claimed that a new default would have no ­effect on most Argentines.

“There’s no link to the economic activity. It’s independent to the evolution of these restructuring processes,” Mr Capitanich said, adding that Argentina’s cash flow is guaranteed by the surplus in its trade balance and investment deals signed with China.

Many economic analysts and bond buyers agree that the effect of a default would be limited because, in contrast to 2001, Argentina is now solvent.

Carlos Caicedo, principal Latin America analyst at IHS Country Risk, said: “Argentine authorities seem to have reached the conclusion that to default now and renegotiate later would be the less costly option.”

Full payment to the hedge funds could trigger lawsuits from other bondholders demanding to be paid on similar terms. While Argentina has nearly $29bn in foreign reserves, those include loans to other countries, deposits with the International Monetary Fund and other assets that are not easily used.

Argentina has been locked out of the bond markets for more than a decade. Any money it could borrow would probably come with high interest rates – and at great political cost for the centre-left government, which has rallied public support against paying what president Cristina Fernandez de Kirchner calls “vulture funds”.

Restoring Argentina’s sense of pride and sovereignty after the 2001-2 economic collapse has been a central goal of Ms Fernandez and her predecessor.