By Erica Dunham
Each week The Rendon Group’s media analysts will focus on a different continent and a different issue affecting that continent. As always, we remain available to answer any questions you may have and to provide additional information upon request. For more information regarding The Rendon Group’s products and services, please contact us at Alert@Rendon.com or +1-202-745-4900.
Argentina’s Default Crisis
This week’s snapshot focuses on Argentina’s default crisis. The country recently defaulted for the second time in thirteen years after failing to reach an agreement with US investors. Following Argentina’s first default in 2002, US hedge funds sued the country for the value of their bonds and interest. Court-mediated talks between Argentina and US investors proved unsuccessful and no agreement was reached between the two parties. The country’s failure to repay its investors and its resulting default will likely trigger another financial crisis for an economy that already struggles in the international economy. Analysts expect the Argentina’s default to have wide-reaching consequences for both domestic and international markets.
News Summary of events during the week of 28JUL – 03AUG
28JUL14: Argentina’s government said it would make another attempt on 29JUL to reach a deal. (AP)
29JUL14: IMF Managing Director Christine Lagarde said a potential default by Argentina is unlikely to prompt broader market repercussions given the country’s relative isolation from the financial system. (Reuters)
30JUL14: Argentina fails to renegotiate a settlement or repay US hedge funds, leading to the country’s second default. (BBC)
31JUL14: Argentina blames US bond-holders for its default, calling them “vultures” using the country to make a profit. (BBC)
Sample of Twitter handles regarding Argentina’s default crisis:
@dscigliuzzo – Davide Scigliuzzo, Emerging markets reporter, Reuters and IFR
@CamiRusso – Camila Russo, Argentina reporter, Bloomberg
@irenecaselli – Irene Caselli, Journalist covering Latin America, formerly with BBC
@jotted – Alexandra Stevenson, Journalist, New York Times
@ALeipold – Alessandro Leipold, Chief Economist, Lisbon Council
@SamuelGeorge76 – Samuel George, Latin America project manager, Bertelsmann Foundation
Sample of Third Party Validators regarding Argentina’s default crisis:
Maximiliano Castillo, Director, Analysis de Coyuntura Macroeconomica (ACM)
“The situation might not be cataclysmic, but defaulting was still the worst decision the government could have made.”
– Argentina’s debt saga: No movement, The Economist, 02AUG14
Jeffery Christian, Managing Partner, CPM Group
“This has been going on for years. Most investors have already written off Argentina’s debt and the effects have worked their way through the system already… Anyone who has had issues with security, looking for a safe investment, has stayed away from Argentina for the last 13 years… Right now, the bullion market is following what is happening in Eastern Europe and the Middle East.”
– ‘Overblown’ Argentine Debt Crisis Ignored by Gold Market, Forbes, 31JUL14
Barbara Kotschwar, Research Fellow, Peterson Institute for International Economics
““I think that many people buy the argument that Argentina did not default, and buy into the hatred of the evil vultures… The story to watch, however, is what conclusion Argentines will draw in the medium term if their country’s economy and their personal welfare is affected and their daily lives become more complicated.”
– Argentina is in Default, and Also Maybe in Denial, New York Times, 31JUL14
Mauro Roca, Senior Latin America Economist, Goldman Sachs
“An Argentina default is expected to be short-lived at this point and shouldn’t have any major implication for the country.”
– Argentina Declared in Default by S&P as Talks Fail, Bloomberg, 30JUL14
Carlos Caicedo, Principal Latin America Analyst, HIS Country Risk
“Argentine authorities seem to have reached the conclusion that to default now and renegotiate later would be the less costly option.”
– Argentina in last-ditch effort to avert default, Associated Press, 28JUL14
Sample of open source research conducted by TRG analysts related to Argentina’s default crisis:
1. Argentina president says country will not default
Media: Associated Press
Date: 23 July 2014
BUENOS AIRES, Argentina (AP) — Argentina’s president says her country will not default because it has paid its debts to bondholders.
The government is in negotiations to resolve a dispute with some creditors over $1.5 billion in unpaid debts that could lead to the country’s second default in 13 years.
But President Cristina Fernandez said Wednesday that a new term for default will have to be created to refer to “a debtor that paid and someone who blocked it.”
2. Argentine debt mediator: no resolution, delegation returning to Argentina
Byline: Daniel Bases and Alejandro Lifschitz
Date: 28 July 2014
NEW YORK/BUENOS AIRES (Reuters) – Argentina failed to reach a breakthrough with the U.S. court-appointed mediator in its battle with holdout creditors on Friday in talks that lasted just an hour, suggesting a settlement to avoid a default next week remains elusive.
The Argentine delegation headed home to seek instruction from the government after the talks in New York, mediator Daniel Pollack said, while the country’s economy ministry underscored it would continue the dialogue with him over the next few days.
Earlier this week, U.S. District Judge Thomas Griesa ordered Argentina and holdout creditors who have rejected its debt restructurings to meet continuously with Pollack to try to reach a deal and avoid the country’s second default in 12 years.
If they fail to reach a deal and holdouts do not ask for a suspension of Griesa’s ruling to pay them back in full on their defaulted bonds, the judge will prevent Argentina from making a July 30 deadline for a payment on its exchanged bonds.
3. Argentina defaults as ‘vulture talks’ fail
Media: Agence France-Presse (AFP)
Date: 31 July 2014
NEW YORK, July 31, 2014 (AFP) – Argentina was in default Thursday for the second time in 13 years after the failure of last ditch talks with US hedge funds it has branded “vultures.”
After hours of meetings Wednesday in New York, Economy Minister Axel Kicillof emerged to confirm that no deal had been reached.
This left it inevitable that Latin America’s third largest economy was unable to meet repayment obligations by the midnight deadline.
“Unfortunately, no agreement was reached and the Republic of Argentina will imminently be in default,” said Daniel Pollack, the lawyer appointed by a US court to oversee the talks.
Ratings agency Standard and Poor’s had already placed Argentina in “selective default” when the talks ended.
4. Argentina blames US for debt default
Media: Agence France-Presse (AFP)
Date: 31 July 2014
BUENOS AIRES, July 31, 2014 (AFP) – Argentina blamed the United States on Thursday for the legal battle that blocked the country from servicing its restructured debt and forced it into a new default.
Eleventh-hour talks with two American hedge funds that have refused to accept a write-down on their Argentine bonds failed Wednesday, causing Buenos Aires to miss a payment deadline on its restructured debt under a US court decision that bars it from servicing those bonds without also paying the so-called “holdouts.”
Argentine President Cristina Kirchner’s cabinet chief, Jorge Capitanich, 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.”
“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 United States, to create the conditions for the unconditional respect of other countries’ sovereignty,” he told a press conference in Buenos Aires.
5. US judge orders new talks on Argentina debt dispute
Media: Agence France-Presse (AFP)
Date: 01 August 2014
NEW YORK, Aug 01, 2014 (AFP) – The US judge presiding over Argentina’s bitter dispute with hedge-fund creditors ordered the two sides to hold new negotiations and called for an end to “mistrust” at a hearing Friday in New York.
Argentina needs to strike a deal with the two US hedge funds, whose legal battle against its debt restructuring has blocked it from paying bondholders who agreed to take a 70-percent write-down after the country’s 2001 economic crisis.
It missed a $539 million payment due Wednesday after 11th-hour talks with the hedge funds — which Buenos Aires calls “vulture funds” — failed to break the impasse.
US District Judge Thomas Griesa, who has blocked Argentina from servicing its restructured debt without also repaying the hedge funds the full $1.3 billion it owes them, ordered the litigants to hold new talks.
“Let’s go back to work,” Griesa said.
He rejected Argentina’s request to change the court-appointed mediator charged with marshaling the negotiations, attorney Daniel Pollack, and called for more trust.
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