Argentina goes bust, again

It’s finally over, Argentina is going into default for the second time in 13 years. 

From Bloomberg:

Standard & Poor’s declared Argentina in default after the government missed a deadline for paying interest on $13 billion of restructured bonds.

The South American country failed to get the $539 million payment to bondholders after a U.S. judge ruled that the money couldn’t be distributed unless a group of hedge funds holding defaulted debt also got paid. Argentina, in default for the second time in 13 years, has about $200 billion in foreign-currency debt, including $30 billion of restructured bonds, according to S&P.

Zerohedge sums up the situation quite well:

…having explained Argentina’s position (i.e. not giving to so-called vulture funds), Economy Minister Kicilloff explains:

– KICILLOF SAYS HEDGE FUNDS NOT WILLING TO GIVE DELAY ON RULING
– KICILLOF SAYS HARD TO BELIEVE ARGENTINA IN DEFAULT IF HAS FUNDS
– KICILLOF SAYS ARGENTINA CAN’T COMPLY WITH COURT RULING
– HOLDOUTS DIDN’T ACCEPT ARGENTINE OFFER: KICILLOF

Argentina may trigger bondholder claims of as much as $29 billion, equal to all its foreign-currency reserves. The last 2 days have seen ‘smart money’ buy Argentine bonds and stocks to all-time record highs.

So what does this mean for the South American nation, Bloomberg gives some more context…

If the overdue interest on Argentina’s dollar-denominated securities due 2033 isn’t paid by July 30, provisions in bond indentures known as cross-default clauses would allow the nation’s other debt holders to also demand their money back immediately. The amount corresponds to Argentina’s debt issued in foreign currencies and governed by international laws.

In a default, even a temporary one, Argentina’s economy will contract and the odds of a crisis are high, according to Marcos Buscaglia, an economist at Bank of America Corp. Money demand will become unstable as Argentines scramble for dollars, causing the peso to slump, he wrote in a report today.

“Argentina’s current weak fiscal, monetary and external conditions make the probability of the situation spinning out of control quite high,” he wrote. “Argentina’s payment capacity should not be taken for granted if it defaults.”

Two things are for sure going forward.

1. The fiat money printing presses will really get cranking to cover up this shortfall and keep things as calm as can be.
2. Argentina will be punished big time for this actions. A default with western banks involved means that next year, in all probability, the Argentinean economy will grow by 5-7%, without the weight of debt payments to the west. That would be unacceptable as such a path to independence could followed by other indebted nations

Of course anther path for Argentina to take would involve joining the BRICS for a new monetary system. That would send Washington into a complete tailspin.

References:

http://www.bloomberg.com/news/2014-07-30/argentina-defaults-according-to-s-p-as-debt-meetings-continue.html

http://www.zerohedge.com/news/2014-07-30/argentina-defaults