The country officially went into default Wednesday night after the failure of 11th-hour talks with two US hedge funds refusing to accept a write-down on their Argentine bonds.
Argentine stocks plummeted 6.42% at the open on Thursday, as the repercussions of the default began to set in.
Argentine President Cristina Kirchner’s cabinet chief, Jorge Capitanich, blamed the American government for the default, brought on by a US court ruling that blocked Buenos Aires from servicing its restructured debt without also paying the hedge funds the $1.3 billion it owes them.
“If there’s a judge who’s an agent of these speculative funds, if the mediator is their agent, what is this justice you’re talking about? There’s a responsibility of the state here, of the US, to create the conditions for the unconditional respect of other countries’ sovereignty," he told a press conference in Buenos Aires.
He accused US district judge Thomas Griesa and court-appointed mediator Dan Pollack of “incompetence" and said Argentina would take the matter to international courts “to exercise its rights before the international community."
Kirchner was due to give a nationally televised address Thursday evening.
Griesa, meanwhile, set a hearing on the case for Friday at 11 am (1500 GMT), a court spokesman told AFP.
Ratings agency Standard & Poor’s (S&P) had already placed Argentina in “selective default" before the unsuccessful end of Wednesday’s marathon negotiations between Argentine economy minister Axel Kicillof and hedge funds NML Capital and Aurelius Capital Management.
The talks’ failure caused Argentina to miss a payment of $539 million on the debt it restructured after its 2001 economic crisis.
Griesa barred the country from paying “exchange creditors" who accepted a 70% write-down on their bonds without also paying the so-called “holdouts" the full $1.3 billion it owes them.
Argentina says paying the holdouts could expose it to claims for up to $100 billion from exchange creditors, who are entitled to equal treatment under what is called a Rights Upon Future Offers, or RUFO, clause.
Hedge fund NML said Argentina bore full responsibility for its own default.
“During this process, the (mediator) proposed numerous creative solutions, many of which were acceptable to us. Argentina refused to seriously consider any of them, and instead chose to default," a spokesman said.
But Argentina complained that the creditors—which bought defaulted Argentine bonds at knockdown rates, then sued for full payment—had refused to compromise.
“What we offered them in terms of profit was 300%. It was not accepted, because they want more, and they want it now," Kicillof said.
The economy minister slammed S&P’s downgrade, arguing Argentina could not be regarded as being in default since the money for the repayment was in a US bank account but frozen by Griesa’s court order.
“Argentina paid. It has money. It is going to continue to pay. The one who is responsible for this situation is Judge Griesa," he said.
The Bank of New York said on Thursday that it continued to hold onto Argentina’s $539-million debt payment, saying it was sitting in the US bank’s account at Argentina’s central bank because of Griesa’s ruling.
Aftershocks of 2001
Wall Street and the Buenos Aires stock exchange opened sharply lower on Thursday following news of Argentina’s default.
Argentine stocks tumbled 6.42%, while the Dow Jones Industrial Average, S&P 500 and Nasdaq were also down.
Argentine press reports, however, suggested an alternative solution was being prepared in which a coalition of Argentine private banks would buy some or all of the outstanding debt.
Argentina got a show of support from French finance minister Michel Sapin, who said he was “extremely shocked" by the outcome of the legal battle.
“This undermines a decision taken in everyone’s interest" to restructure Argentina’s debt, he said, warning the court ruling would jeopardize future debt restructuring for countries in crisis.
Analysts have warned the default will deepen the economic malaise gripping Argentina, exacerbating its already unruly inflation—prices rose 15% in the first half of the year—and perhaps forcing another devaluation of the peso, already devalued 20% in January.
Argentina’s 2001 default on $100 billion in foreign debt, the largest in history at the time, plunged the country into an economic and social crisis it is still battling to overcome.
But the global impact of the new default will be far smaller, since Argentina has been locked out of international capital markets since its 2001 default, analysts say. AFP