In new york he said: "the vulture funds have not accepted our offer."This means that sudamerica’s second-largest economy is formally insolvent, even though the state coffers are actually well-filled.
The dispute between argentina and the hedge funds NML capital and aurelius revolves around the repayment of old bond debts dating back to the 2001 sovereign default. A total of 1.5 billion dollars at stake. Hedge funds are relatively lightly regulated financial firms that trade securities – such as government bonds – in rough style, betting specifically on sharp changes in value – or on high redemption claims.
In the dispute that has been raging for five years, there are now only losers: the investors go empty-handed. Argentina’s already tattered reputation in the financial markets continues to suffer. German savers need not worry, experts say. As long as argentina has not paid its $1.5 billion debt, it may not service other bonds, according to a u.S. Court ruling. That’s why buenos aires can’t pay glaubiger, even though it would like to and has the money to do so.
"Unfortunately, no settlement could be reached, and the republic of argentina is facing default," the court-appointed mediator in the dispute, daniel pollack, said after several hours of talks in new york.
The rating agency standard& poor’s did not even wait for the negotiations to fail – it lowered argentina’s creditworthiness to "partial default" before the end of the meeting with the hedge funds. The other two major rating agencies fitch and moody’s were allowed to follow suit.
Minister kicillof tried to reassure argentines: "tomorrow will be another day, and the world will go on." Plain pollack, meanwhile, warned against downplaying the consequences of bankruptcy. The payment default is "a rather real and painful event, which (…) will hurt people".
The hedge funds NML and aurelius could not initially be reached for comment. A last-minute solution in which argentine private banks took over the disputed bonds was reportedly rejected by the funds. Argentine government bond prices fell sharply on thursday.
"The bankruptcy will hurt the argentine economy," said economist christian schulz of berenberg bank. The country has already slipped into recession in the last quarter and is struggling with chronically high inflation.
German savers have little to worry about. Unlike argentina, eurozone countries had learned their lesson after the upheavals caused by the greek debt cut, schulz said. They now rely on reforms for crisis traps instead of pushing more credibly for debt waivers. Greece had undertaken a massive debt restructuring during the euro crisis, after which investor confidence had fallen drastically.
Private investors holding argentine bonds are advised by the german association for the protection of securities (DSW) to keep calm. "Anyone who sells now will have to close the chapter for good with significant losses," explained DSW managing director thomas hechtfischer. The fact that argentina is apparently not prepared to be blackmailed by hedge funds is a reason for the DSW to be optimistic.