Wednesday, July 23, 2014

Argentina Debt Update - One Week to Go

This is a story we continue to follow because it has implications that go beyond just what happens to Argentina and these bond holders. The IMF and World Bank both expressed concern at a recent US Supreme Court decision to let stand a ruling that Argentina must pay these bond holders full value by next week or be in default.

Here are the most recent articles I can find on this situation. You would think this should get resolved because if Argentina really does default on these bonds it will hurt their standing in the credit market. And the bond holders will not get paid either. Both will lose. Here are links to three of the latest articles:

ABC News - Judge Orders 24-7 Argentina Debt Talks 

Reuters - Argentina Default in Balance as government refuses to capitulate

Wall Street Journal - Argentina Mediator postpones meeting to Thursday

The two sides have until next Wednesday to settle. Argentina requested a stay to get more time but the judge refused that and ordered them to meet around the clock to settle before the deadline. 

While most analysts believe that if Argentina defaults it will not lead to contagion elsewhere, we still have to watch it. The global financial system now is interconnected (even though most say the Argentina debt was islolated). And there are trillions and trillions of interest rate sensitive derivative products out there. Many are Over the Counter and not transparent. So any time a major country or too big to fail institution might default, we have to keep an eye on it.

Meanwhile the IMF prosposed rules to handle bad sovereign debt still awaits approval and this court ruling opens the door for other debt holders to fight with a chance to win in other situations. This is why the IMF and the World Bank issued statements of concern. 

No comments:

Post a Comment