ARGENTINA/FILE: Argentines prepare for a potential default as debt deal deadline approaches

Record ID: 449134

  • Title: ARGENTINA/FILE: Argentines prepare for a potential default as debt deal deadline approaches
  • Date: 29th July 2014
  • Summary: VARIOUS OF FRUIT AND VEGETABLE MARKET WITH PRODUCE VARIOUS OF BUTCHER SHOP ANTONIO LENCINA, BUILDING CARETAKER, WAITING IN LINE IN BUTCHER SHOP (SOUNDBITE) (Spanish) ANTONIO LENCINA, BUILDING CARETAKER, SAYING "The default is going to happen but for some time now strange things have been happening to usthe economy isn't doing well and as such we don't have much money." RUBEN MENYULU, VENDOR, ORGANIZING FOOD ITEMS (SOUNDBITE) (Spanish) RUBEN MENYULU, VENDOR, SAYING: "Things are not going to be the same or better. The times that Argentina has defaulted it has been particularly hard on us. I don't have any hope that this will get better." VARIOUS OF EXTERIOR OF ARGENTINE CENTRAL BANK VARIOUS OF SIGNS WITH DOLLAR EXCHANGE RATE BUENOS AIRES, ARGENTINA (JULY 28, 2014) (REUTERS) (SOUNDBITE) (Spanish) MATIAS TAMBOLINI, ECONOMIST, SAYING: "The practical consequences for people's daily lives have to do with an increase in the exchange rate and an increase in the interest rate. When the dollar goes up this obviously affects the prices and when the interest rate goes up this affects consumer credit and what falls is the level of activity because it affects investment, thereby affecting employment levels. That is to say, an economy that will finish 2014 with a level of recession higher than what it is currently and probably hoping for the economy to recover in 2015, understanding that it is not a crisis with characteristics from the 2001 crisis, but yes, a severe storm." VARIOUS OF TOY FACTORY VARIOUS OF FACTORY WORKERS WORKING ON BALLS AND DOLLS TOY FACTORY OWNER, NORBERTO GARCIA (SOUNDBITE) (Spanish) TOY FACTORY OWNER, NORBERTO GARCIA, SAYING: "We know it's a difficult situation, so from 10 investment projects we are left with three. And the rest, we need capital to face the coming years, we don't know what they will be likeIf they are good we will try to make a profit, and if they are bad we will just try to stay afloat."
  • Embargoed: 13th August 2014 13:00
  • Keywords:
  • Location: Argentina
  • Country: Argentina
  • Topics: International Relations
  • Reuters ID: LVA9F8RS0YHHSDLSTODWM55E35XA
  • Story Text: Argentines in Buenos Aires braced themselves on Tuesday (July 29) as the country looks set to default on its debt for the second time in 12 years.
    Latin America's number three economy has for years fought the holdout hedge funds which snapped up its junk bonds after its $100 billion default in 2002 and then refused the restructuring terms, suing for repayment in full.
    But time is almost up. After a slew of legal setbacks for Argentina in U.S. courts, the country has just days to comply with a 2012 ruling by U.S. District Judge Thomas Griesa to pay $1.33 billion plus interest to the funds it calls "vultures."
    If the deadlock persists, Griesa will prevent Argentina from making a July 30 deadline for a coupon payment on exchanged bonds, triggering a new default just as the economy struggles with recession, dwindling reserves and soaring inflation.
    Antonio Lencina, a building caretaker, wasn't optimistic about a last-minute deal with holdout investors.

    "The default is going to happen, but for some time now strange things have been happening to usthe economy isn't doing well and as such we don't have much money," he said.
    Ruben Menyulu, a shop vendor, was also pessimistic about the country's economic future.

    "Things are not going to be the same or better. The times that Argentina has defaulted it has been particularly hard on us. I don't have any hope that this will get better," said Menyulu.
    But, unlike Argentina's 2001-2002 debt crisis when it was bankrupt and could not pay its civil servants, this time around the country is solvent but prevented by Judge Griesa from servicing its bonds until the battle with the holdouts is resolved.
    Economist Matias Tambolini, explained how a potential default would most likely affect the daily lives of Argentines, saying that while reverberations would be felt, the consequences wouldn't be nearly as extreme as the 2001-2002 default.

    "The practical consequences for people's daily lives have to do with an increase in the exchange rate and an increase in the interest rate. When the dollar goes up this obviously affects the prices and when the interest rate goes up this affects consumer credit and what falls is the level of activity because it affects investment, thereby affecting employment levels. That is to say, an economy that will finish 2014 with a level of recession higher than what it is currently and probably hoping for the economy to recover in 2015, understanding that it is not a crisis with characteristics from the 2001 crisis, but yes, a severe storm," said Tambolini.
    Factory owner Norberto Garcia was poised to launch a series of new toys this year after grafting hard for the past decade to rebuild his business following Argentina's 2001-2002 economic crash.
    Instead, he's hunkering down for a possible second default, cutting investment plans and scaling back his targets.

    "We know it's a difficult situation, so from 10 investment projects we now just have three. And the rest, we need capital to face the coming years, we don't know what they will be likeIf they are good we will try to make a profit, and if they are bad we will just try to stay afloat," said 70 year-old Garcia.
    Garcia's wait-and-see attitude is typical of other businesses which anticipate a slowdown in sales in a country grappling with a surging inflation rate but are convinced any economic downturn will be moderate.
    While unsettling, the debt crisis today is a far cry from the turmoil of Argentina's $100 billion default in 2002 which had harsh economic consequences for millions of Argentines, and Garcia is optimistic things will ultimately improve.
    Time is running out for Argentina to pay "holdout" investors suing for full payment on their bonds, or reach a deal that buys more time to avert a default. Argentina said on Monday (July 28) that officials would travel to New York for last-gasp negotiations on Tuesday (July 29) but experts increasingly believe the government in Buenos Aires may calculate that a default would be cheaper than settling. The latter, it argues, would risk legal claims from holders of exchanged bonds that could cost hundreds of billions of dollars.
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