Argentina has defaulted on its debt for the second time since 2001.
It exceeded the timeframe for repaying creditors holding restructured bonds, and failed to make an interest payment of $539 million to bondholders that are owed $13 billion in restructured bonds.
The country missed the payment deadline due to New York Judge Thomas Griesa’s decision to block the deposit its government made at the end of June, declaring that the money would not be distributed until hedge funds that did not participate in the debt restructuring also receive $1.3 billion in payment.
Argentina has roughly $200 billion in foreign-currency debt, including $30 billion in restructured bonds.
On Wednesday, Standard & Poor’s declared that Argentina had reached “selective default” just minutes after negotiations between the hedge funds, the court-appointed mediator Daniel Pollack, and Argentine officials ended.
“Unfortunately no agreement was reached and Argentina will imminently be in default,” Pollack said.
Paul Singer, head of the NML investment group — one of the principal holdout hedge funds — released a statement that read, “During this process, the Special Master [mediator] proposed numerous creative solutions, many of which were acceptable to us. Argentina refused to seriously consider any of them, and instead chose to default.”
Argentine officials were reluctant to accept the consequences of the failed negotiation.
“To say that Argentina is in technical default is an absurd deception,” Cabinet chief Jorge Capitanich said.
Economy Minister Axel Kicillof responded with what was essentially a rhetorical shrug.
“The Argentine people should be calm — tomorrow will be another day,” Axel Kicillof said on Wednesday. “The world will keep on turning.”
Kicillof spoke at a press conference in New York to announce the collapse of negotiations with the holdouts.
“Argentina is not in default, because it has already paid,” he said. “The bondholders did not pick up their payments because of a ban put in place by Judge Griesa.”
Kicillof clarified that Argentina would not be able to reach a stay, which would allow them to continue negotiations while they pay back the bondholders.
“Technical default, selective default — some have called it Griesa default, Griefault,” Kicillof said. “No one knows what to call it because it is new, because it doesn’t exist, because no one would have thought that a judge could come along, and say — after the payment — ‘I’m going to order the banks to not meet their contracts.’ ”
Argentina, which is suffering a deep recession, has been teetering on the brink of an economic crisis. Wednesday’s default merely compounds the uncertainty.
“Default is not a mere ‘technical’ condition, but rather a real and painful event that will hurt real people: these include all ordinary Argentine citizens, the exchange bondholders (who will not receive their interest) and the holdouts (who will not receive payment of the judgments they obtained in Court),” Pollack stated.
Kicillof, however, got everyone’s attention when he said that a “private agreement” could still be arranged. Adeba, an Argentine banking group, had proposed to purchase the outstanding debt at a 20 percent discount. Juan Carlos Fábrega, the head of the Central Bank of Argentina, had initially backed the negotiations, but the proposed scheme quickly collapsed.
“They suggested reaching an agreement using the resources of savers,” President Cristina Fernández de Kirchner said, referring to the private savings of Argentine citizens. “As a country, we have already lived through this history, and I am not considering repeating it.”
Adeba’s proposal might have resulted in a run on banks similar to those that occurred during Argentina's 2001 economic crisis.
“It’s the same story as last time,” Gustavo, a construction worker in Buenos Aires, told VICE News. “I’m going to pull all my cash from the bank because they’re going to screw us all over again, like they did during the last default.”
At this point, with Argentina ceasing all repayments, the only entities that stand protected in this story are the ones who hold credit default swap insurance, which takes effect as soon as a country’s default is confirmed by the International Association of Swaps and Derivatives.
The ISDA met today to discuss future bond payments, and “resolved that a failure to pay credit event occurred in respect of the Argentine Republic.”
Kicillof isn’t the only one who believes the negative outlook for Argentina is exaggerated.
“The default is a transitional situation, and it will not effect the interests of the people. The economy will continue to run the same,” Agustín D’Attelis, an economist with a Kirchner-sympathizing group of financial experts called La Gran Makro, told VICE News. “This is not an apocalyptic scenario for Argentina.”
Follow Gaston Cavanagh on Twitter: @gastoncavanagh