People really did expect something to happen to prevent Argentina from sliding into default this time. It wasn’t shocking, however, when Standard & Poor’s Rating Services declared the country as in default on the night of Wednesday, July 31, as Argentina’s grace period to make court-ordered payments ran out. The specter of default had been looming—and is unfortunately all too familiar to Argentina.
This is Argentina’s second default in 13 years. But this is not the devastating 2001 default of a seriously struggling economy. It was more complicated than Argentina—now solvent—not having the money to pay and simply throwing up its hands. As President Cristina Fernández de Kirchner said before the S&P decision, “They’ll have to come up with a new term for when a debtor has paid, the payment is blocked, and an external party prevents restructured bondholders from receiving their money.”
Through it all, Argentina is proving defiant in the face of default, seeking to hold other parties accountable for their roles in contributing to its current situation. And the country continues to fight. On August 7, Argentina announced it was suing the U.S. at the International Court of Justice for ”violations of Argentine sovereignty,” or for decisions made in US courts related to its debt. Meanwhile, the Argentine government is still refusing to affix the term “default” to its current circumstances.
Back to 2011
The saga starts with the country’s previous default in 2001. Since then, Argentina has restructured its debt twice. The majority of creditors exchanged their bonds, accepting reduced payments. But a few creditors—the holdouts, headed up by billionaire Paul Singer’s hedge fund NML Capital—wouldn’t take them, instead demanding full repayment.
In 2012, New York district court judge Thomas Griesa ruled Argentina was forbidden to pay restructured bondholders unless it also repaid the holdouts. The holdouts were demanding it all back, and Argentina, fearful that full repayment would give the restructured bondholders grounds to do the same, refused to comply.
Argentina had the money in the bank to pay everyone on schedule—everyone except the handful of holdouts who didn’t cooperate with the restructuring. Griesa’s ruling kept any of that money from reaching creditors on time, resulting in Argentina being unable to make its payments, therefore categorizing it as in default. Repeated talks, meetings and negotiation attempts couldn’t end the standoff between Argentina and the holdouts before the July 31 deadline.
David vs. Goliath
In the months leading up to the 2014 default, Argentina’s story took the form of a David versus Goliath tale. And because no one cheers for Goliath, it is a portrayal Argentina’s government has opportunely encouraged: that of a persevering economy trying to get back on its feet versus greedy, billionaire holdouts, given teeth by an unsympathetic New York judge.
The holdouts were branded “vulture funds,” a name that took even more easily when they employed tactics like impounding an Argentine naval vessel in Ghana—and when it’s a billionaire figurehead going up against an emerging economy.
[Get to know the relentless Paul Singer a bit better in this Bloomberg Businessweek profile.]
Street art and posters appeared across the country denouncing the “vulture funds.” President Kirchner and Argentine Economy Minister Axel Kicillof have detailed their struggle against them at every turn, even taking out advertisements (though sometimes questionably edited) in major newspapers.
In siding with the holdouts Griesa has reached a level of fame he likely never anticipated, as his name is has become known throughout the country. He has been shown as bungling in his handling of Argentina’s case in the weeks before the default and wholly unsympathetic for siding with the holdouts and refusing to grant a stay on his decision until the end of the year, which would have helped Argentina immensely.
Leading up to the default the hashtag #griefault spread on social media. As the hashtag pun put it, if Argentina slid into default, the fault was Griesa’s. Argentina was facing a “griefault,” not a “default.”
Despite losing to Griesa and the holdouts for now, Argentina has still managed to earn sympathy and deflect some of the blame. Op-eds and articles have appeared in international media highlighting other players that should be held accountable for Argentina’s default, such as this piece in the Guardian about Griesa. Many neighboring Latin American countries and fellow members of the Mercosur trade bloc have come out in support of Argentina. Even Brazil’s finance minister backed Argentina’s position, saying he did not consider the country to be in default.
Argentina has not just emerged the sentimental victor, but also has gained more support to resolve its situation. It is an impressive feat considering the country’s government has been widely criticized over the past few years for rampant inflation and moves like nationalizing the oil company YPF in 2012. More than 120 economists sent a letter to U.S. Congress last week, criticizing Griesa’s decision and asking the U.S. government to intervene, saying backing the holdouts could cause “unnecessary economic damage to the international financial system, as well as to US economic interests.”
International banks and holdouts could potentially reach a deal as soon as next week, too. Default, Argentina is determined to prove this time around, doesn’t have to mean defeat.