Argentina looks set to default on its debts for a second time in less than 13 years as efforts to end an impasse with creditors suing the country before a crucial interest payment deadline appeared to be coming up short.
In an attempt to find a last-minute solution to the crisis, Argentinian officials met with a US court-appointed mediator on Tuesday but they refused face-to-face negotiations with the so-called “holdouts”, owners of bonds the country defaulted on in 2001 who are now demanding payment in full.
Argentina says it will only service the debt of investors who accepted a 2005 restructuring deal but the holdouts have won a ruling in New York – where their bonds were originally issued – that blocks the South American country from making an interest payment due on Wednesday today to holders of the exchanged debt unless it pays them $1.5 billion (€1.12 billion) as well.
After more than a decade of legal battles in the US courts between the two sides, Argentina has exhausted its legal avenues.
Without a last-minute resolution it must pay up or face entering into default for the eighth time since independence from Spain with potentially severe consequences for its economy.
Even a technical default could leave the country exposed to billions of euros in legal claims and set back its efforts to return to capital markets after a 12-year absence.
With hopes of a deal fading, top officials in Buenos Aires again argued that the country would not be in default with cabinet chief Jorge Capitanich saying the fact it had deposited cash in New York to cover the interest payment due on the restructured bonds meant “Argentina paid, pays and meets its financial obligations”.
He blamed the deadlock on what the Buenos Aires government labels ‘vulture funds’ who refused to accept the 2005 restructuring along with 92 per cent of other bondholders, accusing them of “bad faith, an absolutely belligerent attitude with the objective of not reaching a decision that allows us to resolve the problem”.
But in labelling Argentina “a uniquely recalcitrant debtor” the US court has accepted the holdouts claim that Argentina never sought to enter into negotiations over its defaulted debt, instead making a non-negotiable offer that implied a 65 per cent cut in the value of their bonds.
A possible means of avoiding default floated by Mr Capitanich would be for the court to reinstate a stay on interest payments until the end of the year. This would run down the clock on a “rights upon future offers” clause in the 2005 restructuring deal which obliges Argentina to extend any improved deal for holdouts to those who have already settled.
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