ARGENTINA: Analysts in Argentina say that recent default will cause less hurt than the 2001-2002 debt crisis

Record ID: 449187

  • Title: ARGENTINA: Analysts in Argentina say that recent default will cause less hurt than the 2001-2002 debt crisis
  • Date: 31st July 2014
  • Summary: VARIOUS OF NEWSPAPERS WITH HEADLINES RELATED TO DEFAULT AND DEBT TALKS
  • Embargoed: 15th August 2014 13:00
  • Keywords:
  • Location: Argentina
  • Country: Argentina
  • Topics: International Relations,Economic News
  • Reuters ID: LVA611QUTZ7IIUE5AMZ5AMJDZIVP
  • Story Text: One day after Argentina defaulted for the second time in 12 years after last-ditch talks with what it called "vulture" creditors failed, analysts in Buenos Aires on Thursday (July 31) weighed in on the country's road ahead.
    Economist Aldo Abram said the selective default would cause a worsening in the country's ongoing recession.

    "What's starting to happen is a period of uncertainty which is going to cause people in this country to consume less and invest less, deepening the recession that already existed but making it much more pronounced," said Abram.
    After a long legal battle with hedge funds that rejected Argentina's debt restructuring following a 2002 default, Latin America's third-biggest economy failed to strike a deal in time to meet a midnight payment deadline on Thursday (July 31).
    Even a short default will raise local companies' borrowing costs, pile more pressure on the Argentine peso, drain dwindling foreign reserves and fuel one of the world's highest inflation rates.
    Analyst Fausto Spotorno said that Argentines will continue looking abroad for help.

    "A fall in bonds and shares will result in an increase in interest rates, at least in the short term. With higher interest rates, stocks and bonds will drop, which means there will be greater pressure on the national currency as people seek refuge in the dollar. If I don't know what to do, I go to the dollar," said Spotorno.
    He also added that Argentines could expect an increase in what is already one of the highest inflation rates in the world.

    "In general terms, I think we are going to have higher inflation and less economic growth than what we were expecting. And probably more difficulty with the trade balance. For Argentina, that is particularly problematic because this year we are already seeing a fall in the trade surplus on top of the recession," he explained.
    Argentina had been seeking a last-minute suspension of a ruling by U.S. District Judge Thomas Griesa in New York to pay holdouts $1.33 billion plus interest. He ruled Argentina could not service its exchange debt unless it paid the holdouts at the same time.
    The stymied Argentine response is a far cry from the mayhem that followed the crash back in 2001-2002, when the economy collapsed as a result of the government's plunge into bankruptcy, causing millions of Argentines to lose their jobs.
    This time, however, the government is solvent. How much pain the current default inflicts on Argentina will depend on how swiftly the government can extricate itself from its obligations.

    "There are clear differences between today's situation in comparison to what we lived through in 2001. First of all, back then we defaulted on all our debt. Now we are defaulting only partially. That doesn't mean that if the economy runs into problems we won't see a complete default. That could happen. But today's situation is clearly something different. Today it seems, given the conditions in terms of political stability and the economy, and in spite of the recession and high inflation, the economy is bit more stable. Not much more stable, but a bit more and as such that helps soften the impact [of the default] so there's no collapse," said Abram.
    Judge Griesa, whose ruling that Argentina must pay out in full to the holdout creditors resulted in Wednesday's deadline, scheduled a new hearing in New York for Friday (August 1) at 11 a.m. EDT (1500 GMT). Details about the meeting was not disclosed.
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