Argentina Faces Countdown To Default

Negotiations in New York between Argentina and its creditors are drawing to an end. Should the talks come to nothing, The Latin American nation will default - and it wouldn't be a first for the country.



Vulture funds, bankruptcy profiteers and greedy capitalists - to many observers it's clear who is to blame for Argentina being only a step away from its second default. They believe it's the hedge funds, which have been branded as "extortionist" by the Argentine government.



US investors have a different take on the matter. They argue that somebody who's in debt has to pay it back. Josh Rosner is an analyst with the Graham Fisher consulting firm in New York. He advises governments and investors from around the globe. He's analyzed Argentina's debt crisis on the ground.



The Latin American nation looks back at a decade of loss-making, Rosner says. And if no deal is cut with the hedge funds, the next decade isn't going to be any better, he adds.



He mentions that after its first default back in 2001, the country has virtually been cut off from international financial markets and has not been able to secure more money.



Rosner compares Argentina with its South American neighbors. "If you consider what a hard struggle it's been for other nations economically, Argentina's situation is particularly sad," Rosner maintains.



He says if Argentina had access to foreign investments, the country could well become the most successful economy on the continent, given its resources and highly skilled labor.



Judicial plight



It was Argentina itself which got itself into a judicial dilemma. It had already struck a deal with 97 percent of its creditors. The latter were to get back only 30 percent of their investment by virtue of a generous debt cancellation program.



But there's a clause in this old agreement stipulating that creditors can make new claims, should Argentina find a different settlement with other creditors. And the three percent of creditors not covered by the original deal are hedge funds such as Elliot.



Now that a US court has sided with the claims of those hedge funds, which want all their money back, Argentina may unexpectedly face new claims worth billions of dollars. This is why the country may well opt for a default rather than making payments to creditors. But legal experts are undecided whether the clause in question is valid, if Argentina is forced to pay up by virtue of a court ruling.



Ideology of self-reliance



Whichever way you look at it, it's a tricky affair. And the very quarrel over debt has already done more damage than the amassed debt itself, says Josh Rosner. The country has believed for too long it could totally rely on itself and go on without resorting to international markets, he says.



The positive impact of a deal has been underestimated, he says. "The benefits of lower interest rates and access to global financial markets over the next 10 years would be about $70 billion [52.2 billion euros]; our calculation is they've left about $50 billion on the table from the lack of foreign direct investment."



Most people in Argentina are in favor of debt being paid back to creditors, Rosner says while referring to a number of recent polls he himself has participated in.



"Everyone who's educated does understand it that when the country issues bonds it benefits, as do the buyers of that debt. And contract law globally is that if you engage in a borrowing, you also accept the terms of the repayment."



Lawyers get richer as talks draw on



Rosner says Argentina's lawyers have had no small share in making the situation so difficult. After all, for them the equation is "the longer the talks, the more money they get." He cites a document revealing that the lawyers had actually advised the government to opt for default.



Lawyers, he quips, are not paid for getting a deal, but are paid for every hour the negotiations last.



If Argentina defaults again, its citizens will be the victims as they are to face recession, economic isolation and political unrest. Last time around, the country saw its president changing five times within just two weeks.