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Argentina Defaulting for Second Time
By admin July 31, 2014

After talks failed to produce a deal July 30th, Standard & Poor’s has officially stated Argentina is in default on some of its obligations. The BBC reports that investors are asking for a full payout of $1.3 billion on bonds they hold. The change in credit rating could hike Argentina’s borrowing costs, and put even more pressure on the country’s already struggling economy.

 

Argentina’s default is confined to the country and has not spread to the region, so there is not yet widespread panic. This will most likely mean that the peso will need to be revalued to preserve foreign currency reserves, inflation could drastically increase and the default will be an issue for the slowing economy. CNN wrote that inflation is already projected to hit 40% and the peso has fallen by about 25% against the dollar this year. The breakdown of negotiations also complicates President Cristina Kirchner’s efforts to stabilize the economy ahead of elections next year.

 

It looked like Argentina’s banks might bail out the government as a last resort, as the Wall Street Journal reported that they could agree to pay off the “holdout” creditors, NML Capital and Aurelius Management, and wait until next year to be repaid with government bonds. But those talks have now fallen apart.

Argentina's economy minister, Axel Kicillof, arrives Wednesday morning at the office of the debt-dispute mediator in New York. Agence France-Presse/Getty Images

Argentina’s economy minister, Axel Kicillof, arrives Wednesday morning at the office of the debt-dispute mediator in New York. Agence France-Presse/Getty Images

 

This is Argentina’s third default in 25 years, according to ratings agency Moody’s. The international fallout of default is expected to be minimal, as Argentina has been locked out of international capital markets for 13 years. The current debt under foreign law amounts to a bit over one-third of what it was in 2001.

 


 

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