Argentina to default (again)

[Dante Von Hespburg]

Just something i thought may be of interest, Argentina has defaulted on her debt repayments (for the second time in 15 years).

So-called "vulture fund" investors were demanding a full pay-out of $1.3bn (£766m) on bonds they hold.
Argentina has said it cannot afford to do so, and has accused them of using its debt problems to make a big profit.
A US judge had set a deadline of 04:00 GMT on Thursday for a deal. The crisis stems from Argentina's 2001 default.
Late on Wednesday evening, Argentina's Economy Minister Axel Kicillof said the investors had rejected the government's latest offer.
"Unfortunately, no agreement was reached and the Republic of Argentina will imminently be in default," Daniel Pollack, the court-appointed mediator in the case, said in a statement on Wednesday evening.
Continue reading the main story


The latest default is expected to exacerbate problems in Argentina's recession-hit economy, analysts say.
However, the effect will not compare with the consequences of the country's economic meltdown in 2001-02, when savers' accounts were frozen to stop a run on the banks and violent street protests led to dozens of deaths.

http://www.bbc.co.uk/news/business-28578179

Some other sources for those who like to get a fuller picture:

http://www.latimes.com/world/mexico-...731-story.html
http://www.ft.com/cms/s/0/5d7c8016-1...#axzz3982iPNZ2

“The full consequences of default are not predictable, but they certainly are not positive,” Pollack wrote in an e-mailed statement. “Default is not a mere ‘technical’ condition, but rather a real and painful event that will hurt real people.”
Kicillof, speaking at the Argentine consulate in New York, told reporters that the holdouts rebuffed all settlement offers and refused requests for a stay of the court ruling. He said Argentina couldn’t pay the $1.5 billion owed to the hedge funds because doing so would trigger clauses requiring the country to offer similar terms to other bondholders. He also criticized the judge in the case andratings agencies.

http://www.bloomberg.com/news/2014-0...-continue.html

So it seems Argentina are in real trouble...again, with an economy about to go totally down the toilet, though potentially not as bad as the first time back in 2001, 2002, where they actually froze citizens bank accounts to avoid a rush on the banks (Though i get the feeling such measures may be implemented again if things look set to go the same way).

What i would now perhaps question in Argentina's actual viability as a state in the long term, especially considering:

The S&P announcement ends months of speculation on whether the country would be able to cut a deal with the holdouts in time to avoid a default on the country’s bonds due in 2033. As much as $29 billion of securities are subject to so-called cross-default clauses, allowing holders to demand immediate repayment. The amount is equal to the country’s foreign-currency reserves.Argentina’s rating was cut from CCC- because “the grace period expired with bondholders not receiving their payment,” according to a statement from S&P.
If the country is able to undo the default, “we could revise our ratings on Argentina depending on our assessment at that time of Argentina’s residual litigation risk, its access to international debt markets and its overall credit profile,” S&P said.
Credit-default swaps to protect against losses from an Argentine default over the next three months had become the most expensive in the world, according to data compiled by CMA.

http://www.bloomberg.com/news/2014-0...-continue.html

There seems to be a lot of work that must be done by the government there to get things back under control. What's interesting is Argentina are currently blaming the US for their current situation:

Argentine President Cristina Fernandez de Kirchner said in a televised speech last week in Buenos Aires that the country wouldn’t be in default on its obligations if the deadline passed, because her government had duly sent the $539 million payment to a trustee bank before they were blocked by the judge.
“People have created all kinds of euphemisms to describe this situation,” Kicillof said today. “But it can’t be a default if we’ve deposited the funds. We’ll continue to pay our debt.”

http://www.bloomberg.com/news/2014-0...-continue.html

So from their perspective at least (against the rest of the worlds) they shouldn't have to default. So armed with all this, i'd open it to the floor, what do you think will happen? Can Argentina in the long term continue to act as a viable state? Also to what extent do Cristina's own arguments hold merit?

I personally have yet to form any concrete opinions here, beyond Argentina being in serious trouble, and perhaps should have long long ago looked at getting it's economic act together through severe economical reforms. I'm not entirely clued up on their past situation, but in the world wide recession many states have had to make huge sacrifices to remain, or regain economically viable(ility). What happened then in Argentina's case?

EDIT: Just as a final point...

http://www.economist.com/news/leaders/21610263-cristina-fern-ndez-argues-her-countrys-latest-default-different-she-missing

Ms Fernández is right that the consequences of America’s court rulings have been perverse, unleashing a big financial dispute in an attempt to solve a relatively small one. But hers is not the first government to be hit with an awkward verdict. Instead of railing against it, she should have tried to minimise the harm it did. Defaulting has helped no one: none of the bondholders will now be paid, Argentina looks like a pariah again, and its economy will remain starved of loans and investment.

(I love the economist..)

So Argentina has a long history of defaulting on it's debts. Arguably partly indeed it's the fault of investors, but of course the blame can't be taken away from the state government either. What i'd like to know also...why the heck do people KEEP investing in such a place if it's that bad? I get the whole high-risk, high-returns...but their hasn't been any, potentially Argentina could get out of the mire, but it needs serious economic reform before it can do that, which i'd perhaps say it's current government seem unable to actually provide (Of course the Junta didn't help matters either at all!).

[Stívarðr Reynitré]

Ms Fernández de Kirchner is a questionable leader in my eyes, but the I am British by birth and so I don't really accept her stance on the Falklands.

That aside...

The decade-long legal battle between a group of hedge funds and the Argentinian government basically crippled any chance of pulling through, as we know.

The Argentinian administration basically tried to be coy and have ended up looking stupid because they went up against a judge who wouldn't budge and laid down the law. Kirchner was of the opinion that as long as she pretended it was the fault of everyone else but her, it would all just melt away.

The intense litigation models of these hedge funds meant that Argentina basically left themselves wide open and caused their own downfall with some horrendously badly-managed debt.

It's likely a domestic business will finance some sort of deal, but they won't be happy having to bail the government out and it will cause some serious problems for the current administration in how they deal with companies and legislate for policies in the future.

The judge made a stupid mistake, that much is accepted, but he was also keen to emphasise that he would rule to the law and it was largely up to Argentina to discover these loopholes. They didn't, and yet again they managed the situation with what appears to be naivety, really.

[hellheaven1987]

Time to beg Chinese save them.

[Condottiere 40K]

Small print. Read it.

Legally speaking, the vultures have the Argentinians. Their problem is paying them opens up the floodgates to all the other creditors that took a haircut, who'll demand equal treatment.

I would ask the Venezuelans for another loan.

[Request a new user name]

The solution is obvious, declare Argentina's sovereignty, dishonor the loans to the holdout as the lenders negotiated in bad faith, issue arrest warrants for them if they step on Argentinian land, and just move on by investing Government Revenue back into Argentina's infrastructure and working with local businesses to rebuild Argentina's economic health from the ground up after paying those who did take the deal as they negotiated in good faith. Also pull all foreign assets in any non-BRICS nation out of them and make it clear that any nation wishing to trade with it honors its decision.

If the US judge speaks up, issue a warrant for his arrest if he steps on Argentinian Territory and restate Argentina's sovereignty.

[hellheaven1987]

I would ask the Venezuelans for another loan.

Just ask Chinese; Chairman Xi just visited Argentina a few weeks ago and I bet Chinese is very happy to undermine American backyard, not to mention Xi also announced China would back the Argentina claim on Falkland.

[Vanoi]

The solution is obvious, declare Argentina's sovereignty, dishonor the loans to the holdout as the lenders negotiated in bad faith, issue arrest warrants for them if they step on Argentinian land, and just move on by investing Government Revenue back into Argentina's infrastructure and working with local businesses to rebuild Argentina's economic health from the ground up after paying those who did take the deal as they negotiated in good faith. Also pull all foreign assets in any non-BRICS nation out of them and make it clear that any nation wishing to trade with it honors its decision.

If the US judge speaks up, issue a warrant for his arrest if he steps on Argentinian Territory and restate Argentina's sovereignty.

Do you think this is the 1800s anymore? They can declare their sovereignty all they want. They still defaulted. Their credit is . Their economy is about to take another dive. Sovereignty isn't going to fix that.

[opock]

Do you think this is the 1800s anymore? They can declare their sovereignty all they want. They still defaulted. Their credit is . Their economy is about to take another dive. Sovereignty isn't going to fix that.

Precisely. I can imagine the hilarity of Argentina going the full on "freemen on the land" route trying to get out of paying their debts. Won't do them any better than the whacko individuals that try it in court.

As to Request's other nonsense. Quite frankly, who cares about being able to travel to Argentina or not? It's a 3rd world banana republic that has defaulted 7 times in the past 190 years. It clearly thinks it doesn't have to pay its bills so they won't have to worry about people traveling there to deal with their primitive legal system in the first place. Declaring "sovereignty" won't make the rest of the world lend them money which their basketcase economy desperately needs.

Gotta love how it's always the socialists that accuse, as they are trying to find ways to steal other people's money of being "greedy" or "vultures". Argentina borrows 100 dollars, decides they should only have to pay back 10, then declares anyone that actually wants back ALL the money loaned a "vulture". Oh well, enjoy your crashing standard of living Argentina. Maybe you can pick another fight with the British over the Falklands and get spanked again as a distraction.

[I WUB PUGS]

They seriously just need to be bought out by a consortium of Tyson, Diageo and Chevron.

[Claudius Gothicus]

Hehehe

Spoiler Alert, click show to read: 

[Stívarðr Reynitré]

They seriously just need to be bought out by a consortium of Tyson, Diageo and Chevron.

It might actually be the best way forward...

[Hookah Smoking Caterpiller]

The UK should take over more Argie territory. It's clear they can't run it.

[Stívarðr Reynitré]

The UK should take over more Argie territory. It's clear they can't run it.

Seconded.

With a caveat that we agree that the Falklands has never been their territory...

[Denny Crane!]

Falklands would be so much better in their hands.

Odd though they were doing so well in fact up until this dispute.

[Claudius Gothicus]

Odd though they were doing so well in fact up until this dispute.

Well, we've been dealing with a rising inflation rate (it's at 35% annual right now) that the government hid by systematically manipulating official statistical information for more than 7 years now. There's been a "sort of stagflation" for 2 years now too, we weren't doing "that well" but since the country's economy is mostly closed now external fluctuations have had a less than remarkable impact.

Or I didn't catch the irony.

[Denny Crane!]

Actually just a badly written comment from myself. I didn't actually mean that the economy was doing so well but that the default debt has been reducing steadily since 2005. To be perfectly honest other than the debt I have barely looked at the Argentine economy recently, it just doesn't feature much here.

[I WUB PUGS]

inflation is at 35% annual right now

Unreal. No wonder my customers in Buenos Aires were buying units 2 years in advance of World Cup for their TV trucks.

[Claudius Gothicus]

Actually just a badly written comment from myself. I didn't actually mean that the economy was doing so well but that the default debt has been reducing steadily since 2005. To be perfectly honest other than the debt I have barely looked at the Argentine economy recently, it just doesn't feature much here.

Ohh yeah absolutely, it has always been a somewhat peripheral economy and the systematic reduction of foreign investment through blatantly protectionist policies haven't helped our integration to world markets either. But in terms of sovereign debt we were doing quite well, at least on the surface, the problem was not dealing with these hedge funds before they could pull a legal stance like this one; as previous Finance Ministers had already recommended the best way of dealing with these people would've been to buy their bonds discretely while they were cheap and unprofitable.

But with Fernandez&Co. It's all about the show here.

[Admiral Piett]

It would be funny if a government that perpetually defaults should come under the administration of an international credit organization like they do private companies.

[Mayer]

Ms Fernández de Kirchner is a questionable leader in my eyes, but the I am British by birth and so I don't really accept her stance on the Falklands.

Spoiler Alert, click show to read: