Argentina braces for market reaction to second default in 12 years
By Sarah Marsh
BUENOS AIRES, July 31 (Reuters) - Argentina defaulted for the second time in 12 years after hopes for a midnight deal with holdout creditors were dashed, setting up stock and bond prices for declines on Thursday and raising chances a recession could worsen this year.
After a long legal battle with hedge funds that rejected Argentina's debt restructuring following its 2002 default, Latin America's third-biggest economy failed to strike a deal in time to meet a midnight deadline for a coupon payment on exchange bonds.
Even a short default will raise companies' borrowing costs, pile more pressure on the peso, drain dwindling foreign reserves and fuel one of the world's highest inflation rates.
"It is going to complicate life for businesses like YPF which were going to look externally for financing," said Camilo Tiscornia, a former governor of Argentina's central bank. State-controlled energy company YPF needs funds to develop Argentina's huge Vaca Muerta shale formation.
Argentina had sought in vain to win a last-minute suspension of a ruling by U.S. District Judge Thomas Griesa in New York to pay holdouts $1.33 billion plus interest. He ruled Argentina could not service its exchange debt unless it paid holdouts at the same time.
A proposal for Argentina banks to buy out the hedge funds' non-performing debt also fell through, sources told Reuters.
"This is a very particular default, there is no solvency problem, so everything depends on how quickly it is solved," said analyst Mauro Roca of Goldman Sachs.
As dire as it is, the situation is a far cry from the mayhem following the country's economic crash in 2001-2001 when the economy collapsed around a bankrupt government. Millions of Argentines lost their jobs. Continuación...