Argentina defaults for 2nd time this century

[jimmy olsen]

Different century, same fiscal discipline from the Argentinians. Why do banks keep loaning them money?

http://www.bbc.com/news/business-28578179

Argentina defaults for second time

31 July 2014 Last updated at 07:01

Argentina has defaulted on its debt - for the second time in 13 years - after last-minute talks in New York with a group of bond-holders ended in failure.

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.

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.

"The full consequences of default are not predictable, but they certainly are not positive," Mr Pollack said.

Speaking at a news conference in New York, Mr Kicillof said Argentina would not do anything illegal.
Bond reaction

The investors, also known as "hold-outs", are US hedge funds that bought debt cheaply after Argentina's economic crisis.

They never agreed to the restructuring accepted by the majority of bond-holders.

President Cristina Fernandez de Kirchner has described as vultures the minority bond-holders - including Aurelius Capital Management and NML Capital.

She accuses them of taking advantage of Argentina's debt problems to make large profits.

Ratings agency Standard & Poor's (S&P) downgraded the country to "default" earlier on Wednesday, although the price of the bonds did not react.

S&P noted that it could revise the rating if Argentina were to find some way to make the payments.

The hedge funds are demanding Argentina make interest payments on debt which it defaulted on in 2001, even though it was bought at less than face value.

The US courts have blocked payments to other bondholders who agreed a separate deal with Argentina, until agreement with the "hold-outs" is reached.

Mr Kicillof said he planned to return to Argentina after the news conference, saying the country would do what is needed to deal with what he called an unfair situation.

He reiterated that Argentina could not pay the hedge funds without triggering a clause that would force it to renegotiate with bondholders who accepted new debt agreements.

[Viking]

It seems that profitseeking risk takers lent them money at high interest rates and vultures purchased their existing debt at well below face value.

[alfred russel]

It seems that profitseeking risk takers lent them money at high interest rates and vultures purchased their existing debt at well below face value.

I may get some details wrong, but this isn't a real default. Argentina's debt back when it defaulted was governed under US law (for some reason investors are leery about their protections under Argentine law). When Argentina defaulted, it reached a settlement with most existing bondholders but a few refused to settle insisting on payment in full.

This default is basically stiffing the current holders of those bonds that were not settled at the time of the default. US courts recently ruled that they have to be paid in full, and Argentina is like "no way dude, we announced we weren't paying that debt more than a decade ago". But since US courts say they have a legal obligation to pay, and they are refusing, it is being written up as a current default.

[DGuller]

Their armies's morale must be very low.     Time to strike?

[derspiess]

Their armies's morale must be very low.     Time to strike?

Uh, it's been that way for about 32 years.

[Valmy]

A minor hiccup.  Argentina has a plan that will lead to a century of prosperity and progress.  Right Spicey?

[derspiess]

A minor hiccup.  Argentina has a plan that will lead to a century of prosperity and progress.  Right Spicey?

Not until La Puta Cristina is out of office 

I hope my countrymen come to their senses and vote all Kirchnerists out of office next year.  The other wing of the Peronist party looks sane by comparison.

[alfred russel]

The problem with Argentina is that it is full of Argentines. We should breed them out.

Derspiess, good job.

[derspiess]

The problem with Argentina is that it is full of Argentines. We should breed them out.

Derspiess, good job.

I could use some help.

[Ed Anger]

You rang?

[Barrister]

A minor hiccup.  Argentina has a plan that will lead to a century of prosperity and progress.  Right Spicey?

Not until La Puta Cristina is out of office 

I hope my countrymen come to their senses and vote all Kirchnerists out of office next year.  The other wing of the Peronist party looks sane by comparison.

Your countrymen?

[The Minsky Moment]

This default is basically stiffing the current holders of those bonds that were not settled at the time of the default. US courts recently ruled that they have to be paid in full, and Argentina is like "no way dude, we announced we weren't paying that debt more than a decade ago". But since US courts say they have a legal obligation to pay, and they are refusing, it is being written up as a current default.

It is a real default because the US Courts are blocking payment to ALL creditors on the bonds, including the settling bondholders, under the pari passu clause. 

The lesson here for sovereigns is don't issue foreign law bonds with pari passu provisions without a collective action clause.

[alfred russel]

The problem with Argentina is that it is full of Argentines. We should breed them out.

Derspiess, good job.

I could use some help.

I may need help finding the ones that aren't a bit crazy.

[alfred russel]

It is a real default because the US Courts are blocking payment to ALL creditors on the bonds, including the settling bondholders, under the pari passu clause. 

The lesson here for sovereigns is don't issue foreign law bonds with pari passu provisions without a collective action clause.

I didn't know that, but the bonds that matter are the bonds issued post bailout. Extra default on bonds already defaulted probably won't have much effect on Argentina's ability to raise future capital.

That being said, the Argentine economy is showing some signs of going Venezuela on us.

[derspiess]

I may need help finding the ones that aren't a bit crazy.

I'll PM you when I find any.