With one day remaining to stave off its second default in 13 years, Argentina voiced hope yesterday for a last-minute solution but repeated its unwillingness to budge in negotiations with creditors.
Buenos Aires has until the end of today to resolve its dispute with so-called “holdout” hedge funds whose refusal to accept a write-down on the debt it defaulted on in 2001 has pushed Latin America’s third-largest economy to the brink of a new default.
Argentine officials were holding last-ditch talks in New York with the US court-appointed mediator tasked with resolving the standoff, lawyer Dan Pollack.
But Buenos Aires, which has insisted the only possible solution is for US district judge Thomas Griesa to suspend his ruling in favour of the hedge funds, maintained a defiant tone.
“We hope the negotiations can advance, but that doesn’t depend on us,” President Cristina Kirchner’s cabinet chief, Jorge Capitanich, told journalists in Buenos Aires.
However, in a sign Argentina has not turned its back on the talks, he said Economy Minister Axel Kicillof, who is currently in Venezuela for a summit of South American regional bloc Mercosur, may fly to New York to take part.
Judge Griesa’s ruling has trapped Argentina in a Catch-22, barring it from making payments on its restructured debt without also paying the holdouts the full $1.3bn it owes them. But Argentina’s 2005 and 2010 debt restructuring deals - in which creditors accepted a 70% write-down - could fall apart if it pays the hedge funds in full.
The 92% of creditors who agreed to take a haircut could launch claims for equal treatment under what is called a Rights Upon Future Offers, or RUFO, clause.
Argentina was due to make a $539mn payment on the restructured bonds on June 30.
The 30-day grace period expires today. The RUFO clause meanwhile expires at the end of the year, leaving Argentina scrambling to find a way to placate the holdouts until then.
Eager to demonstrate its solvency, Argentina announced on Monday it had made a $642mn payment to the so-called Paris Club of wealthy nations with whom it reached a deal in May to clear nearly $10bn in arrears.
Griesa also allowed it to make a payment on some of its restructured bonds because they could not be distinguished from others issued as part of Buenos Aires’ compensation deal with Spanish energy group Repsol for the 2012 nationalisation of its subsidiary YPF.
But he called the ruling a one-time exception and ordered Citibank, which handles the payments, to find a way to separate the bonds by today.
Analysts have warned a default would deepen the economic malaise gripping Argentina, exacerbating its already troubling inflation - prices rose 15% in the first half of the year - and perhaps forcing another devaluation of the peso, already devalued 20% in January.
A default would also likely prolong Argentina’s isolation from international capital markets, which it has been locked out of since halting payments on its more than $100bn in foreign debt in 2001.
That default, the largest in history at the time, plunged Argentina into an economic and social crisis it is still battling to bounce back from. But unlike in 2001, when the economic crisis sparked a political crisis that turned the Argentine presidency into a revolving door, President Kirchner has managed to turn the current debt standoff into a political weapon.
Her government has branded holdouts NML Capital and Aurelius Capital Management “vulture funds” for buying up defaulted Argentine debt at discount rates, then suing for full payment.
That rhetoric has found a receptive audience both at home and with Kirchner’s fellow leftist leaders around Latin America. The government “presents the issue as a matter of choosing between your nation or the vultures, and that puts the opposition in a difficult position,” sociologist Ricardo Rouvier of consultancy Homonima said.
Nearly 50% of Argentines support the way Kirchner is dealing with the holdouts, while just 25% view it negatively, according to a recent poll. “A lot of people like this talk of ‘nation versus vultures,’ without realising that afterward they might end up losing their jobs,” said Elisa Carrio, a lawmaker for the opposition Civic Coalition.
