Sunday - Jun 25, 2017

As expected Argentina defaults on their debt


As expected Argentina defaults on their debt

As had been broadly forecast, Argentina has announced their intentions to default on its sovereign debt after frantic last-minute talks between the Argentinian government and their creditors failed to arrive at a compromise situation. This is the second time in the South American country’s history that they have failed to meet their financial obligations, with the last default occurrence taking place in 2001.

As the news of Argentinians default became public the Argentinian Minister for the Economy Axel Kicillof stated that what he described as “vulture funds” had rejected an updated offer, which had also been accepted by bondholders after the 2001 default, going on to state that it was “impossible” for the Argentinian government to pay them any more.

Shortly before the news of the default became public, Standard & Poor’s updated Argentina’s credit rating to “selective default” status, after they failed to make their monthly $539 million interest payment on outstanding debts in time to meet the Wednesday deadline.

Although Argentina has been largely excluded from the international capital markets since their previous default 13 years ago, and have suffered as a result, the latest default means that their cost of borrowing unknown liable to lead to dramatic increases which will affect both the public and private sector in the country.

Financial analysts throughout the world expect that this recent default will go a long way to worsening the already fragile financial situation in the country, and is liable to trigger higher inflation as well as putting considerable pressure on foreign exchange reserves, as the default is expected to trigger a series of bondholder claims which could reach as high as $20 billion due to cross-default clauses imposed after the first default.

Despite the fact that the Argentinian government had already deposited more than half a billion dollars with Bank of New York Mellon, the bondholders’ trustee, New York Judge Thomas Griesa, has slapped a court order on the bank preventing them from transferring any funds to the bondholders, which would be in direct violation of his ruling, which was later upheld by the US Supreme Court, insisting that Argentina must pay the holdouts in full at the same time as holders of its performing debt.

Argentina’s first default which took place between 2001 and 2002, released as high as $100 billion which was, at that time, the largest sovereign default in history.

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