Argentina’s negotiations with creditors to resolve a dispute over US$1.5 billion in unpaid debts remained deadlocked following talks on Friday, setting it on a course for a possible catastrophic default next week.
Argentina will default for the second time in 13 years if it cannot reach a deal with US hedge funds before Wednesday.
Daniel Pollack, the court-appointed mediator in the dispute, met with Argentine officials and in a statement released after the talks said that progress had not been reached. Pollack also said the Argentines were returning to Buenos Aires Friday night, but he expects more talks before the deadline.
Following a US judge’s order, Argentina cannot pay investors who accepted lower-valued bonds after its record US$100 billion default in 2001 unless it also pays off creditors who did not participate in previous bond swaps.
Argentine President Cristina Fernandez has long refused to negotiate with the plaintiffs led by New York billionaire Paul Singer’s NML Capital Ltd, who spent more than a decade litigating for payment in full, rather than agreeing to provide Argentina with debt relief.
However, Fernandez has been backed into a corner by NML Capital’s payment plan and has been sending a delegation to meet the negotiator in New York in hopes of averting a default.
The holdout creditors accuse Argentina of refusing to negotiate to provoke a default.
“Argentina’s government made clear that it will be choosing to default next week. Creditors arrived at the [debt mediator’s] office this afternoon prepared to negotiate and willing to be flexible in forging a solution,” NML spokesman Stephen Spruiell said in a statement on Thursday. “Argentina again refused to negotiate any aspect of the dispute.”
Paying the hedge funds that Fernandez often calls “vultures” in full would likely trigger lawsuits from other bondholders demanding to be paid on similar terms. Argentina’s government estimates that the liability could run up to US$15 billion.
With nearly US$29 billion in foreign reserves, Argentina appears to have the money to pay its bills, but those reserves include loans to other countries, deposits with the IMF and other assets that are not easily used. Take those away, and Argentina has about US$16 billion on hand.
Troubled countries often find bond investors willing to lend to them to pay other creditors, but Argentina has been locked out of the bond markets for more than a decade. Some investors would probably step up to lend it money, but at high interest rates — and at high political cost for the leftist government.
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