Argentina has defaulted for the second time in 12 years after attempts to secure a deal with holdout creditors failed, thus setting up stock and bond prices for declines on Thursday and making it more likely that a recession could worsen this year.
The third-largest economy in Latin America failed to strike a deal in time to meet a midnight deadline for a coupon payment on exchange bonds following a long, arduous legal battle with hedge funds that rejected the country’s debt restructuring following its 2002 default.
“It is going to complicate life for businesses like YPF which were going to look externally for financing,” said Camilo Tiscornia, a former governor of Argentina’s central bank. State-controlled energy company YPF needs funds to develop Argentina’s huge Vaca Muerta shale formation.
Argentina had fought, in vain, to secure a last-minute suspension of a ruling by United States District Judge Thomas Griesa in New York to pay holdouts $1.33 billion plus interest. He ruled that Argentina could not service its exchange debt unless it paid holdouts at the same time.
“This is a very particular default, there is no solvency problem, so everything depends on how quickly it is solved,” said analyst Mauro Roca of Goldman Sachs.
As bad as things are for Argentina now, this is nothing compared to the mayhem that followed the country’s economic crash in 2001 when the economy collapsed around a bankrupt government, resulting in the loss of millions of jobs for Argentina’s civilians.
“Our base case is that a default would be cleared by January 2015,” said Alberto Bernal, a partner at Miami-based Bulltick Capital Markets. He projected that a default would cause the economy to shrink 2 percent this year compared with a previous market consensus for a 1 percent contraction.
Read more about the story at The Wall Street Journal.
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