The Argentine government said on Monday it will make another effort to reach a deal with US creditors ahead of a looming deadline that risks sending the country into its second default in 13 years.
Argentine Chief of the Cabinet of Ministers Jorge Capitanich said an Argentine delegation would be in New York to meet with a court-appointed mediator yesterday, just a day ahead of the deadline.
“Argentina’s position is to reach a dialogue that establishes fair, legal and sustainable conditions for negotiation with 100 percent of the bondholders,” Capitanich said at a news conference at the presidential palace.
However, the mediator, Daniel Pollack, said in a statement that while the Argentines would meet him, they had not yet accepted his recommendation of face-to-face talks with the plaintiffs in the dispute, led by New York billionaire Paul Singer’s NML Capital Ltd.
Those creditors bought Argentine bonds on the cheap and rejected the Argentine government’s restructuring offers following its record US$100 billion default in 2001. They are demanding payment in full of about US$1.5 billion in unpaid debts.
By today, Argentina has to make a payment to other creditors who accepted the restructured bonds or fall into default. US District Judge Thomas Griesa has forbidden Argentina to pay them unless it also pays the holdouts.
Last month, he ordered Bank of New York Mellon Corp to return to Argentina US$539 million it had deposited to pay holders of restructured debt.
The Argentine Ministry of the Economy said on Monday that the government had made a US$642 million payment on debt owed to the Paris Club of creditor nations. It was the first installment in a plan it reached with those nations in late May for repaying a total of US$9.7 billion.
Argentina already is struggling with recession, a shortage of dollars and one of the world’s highest inflation rates. However, the government says a new default would have no effect on most Argentines.
“There’s no link to the economic activity. It’s independent to the evolution of these restructuring processes,” Capitanich said, adding that Argentina’s cashflow is guaranteed by the surplus in its trade balance and recent investment deals signed with China.
Many economic analysts and bond buyers agree that the effect of a default would be limited because, in contrast to 2001, Argentina is now solvent.
“Argentine authorities seem to have reached the conclusion that to default now and renegotiate later would be the less costly option,” said Carlos Caicedo, principal Latin America analyst at IHS Country Risk.
Full payment to the hedge funds would likely trigger lawsuits from other bondholders demanding to be paid on similar terms. While Argentina has nearly US$29 billion in foreign reserves, those include loans to other countries, deposits with the IMF and other assets that are not easily used.
Troubled countries often find investors willing to lend them money to pay other creditors. However, Argentina has been locked out of the bond markets for more than a decade. Any money it could borrow would likely come at high interest rates — and at great political cost for the center-left government.
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