Argentina will default in just a few days unless the country
can find a way to satisfy creditors that are owed roughly $1.5 billion. The
country's only remaining option appears to be negotiations -- and a compromise.
If a deal is not reached, the country could miss its next bond payment on July
30.
Argentina's pickle is the result of a marathon legal battle
with a small group of holdout creditors that have demanded full
payment on bonds they picked up after the country's last default in 2001. Most
of the country's other bondholders agreed to debt restructurings, but the
holdouts have waged a battle in court for full principal -- plus interest.
The countdown to default started in earnest last month
when a U.S. judge ruled that if Argentina doesn't pay the holdouts,
it can't make any more payments to its restructured bondholders. The government
of President Cristina Fernández de Kirchner is now playing a high-stakes game
of chicken with the holdouts. The group says they're open to a compromise that
would allow Argentina to avoid yet another default.
Argentina is worried that a deal with the holdouts could
trigger billions of dollars in additional claims. The country's government also
insists it doesn't have enough time to reach a fair resolution. So far, the two
groups appear to be making very little progress in the court-mandated
negotiations. Still, there are powerful incentives pushing both sides toward a
compromise.
Argentina is struggling through a recession that would almost
certainly be made worse by a default. Foreign investment could dry up, and the
government might be forced to further devalue its currency. For the holdouts, a
default would remove any leverage they have over Argentina to secure full
payment. If a deal does materialize, it's likely to happen at the last minute.
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