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Argentina in technical default on some debt, but no repeat of 2002 economic meltdown seen

Argentina in technical default on some debt, but no repeat of 2002 economic meltdown seen
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The blame game has started over Argentina’s technical default on its debt.

A top politician – Cabinet chief Jorge Capitanich – insisted the country is not in default and he accused the US mediator who was trying to negotiate a settlement of “incompetence”.

This follows a long legal battle with US-based investors – hedge funds – that were looking to make a killing by forcing Buenos Aires to pay 100 percent of money owed on bonds from its 2002 default.

The government has since reached an agreement with other bondholders to pay them up to 70 percent less.

Economy Minister Axel Kicillof, who was in New York for the negotiations, railed against the US court judge who ordered Argentina to pay the hedge funds in full and blocked interest payments to other bondholders.

He insisted Argentina is paying what it owes: “The country has money, it will keep paying what is due, because it wants to and it is able to.”

Even a short default will raise borrowing costs for businesses in Latin America’s third-biggest economy, which is in recession.

It will also pile more pressure on Argentina’s currency, the peso, drain the government’s dwindling foreign reserves and fuel one of the world’s highest inflation rates.

The response from the financial markets has been relatively muted as this is not a repeat of the country’s crash of 12 years ago when the economy collapsed around a bankrupt government.

As Emiliano Surballe, fixed income analyst at Bank Julius Baer, pointed out: “The situation that generated the default was a lawsuit, not the failure of the country to transfer the proceeds to pay existing debt.”

Many investors and economists still hope a solution can be worked out.

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