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Argentina: Can Kirchner hold out?

Argentina’s president has tried to circumvent a New York ruling that caused it to default for the second time in 13 years. Can Cristina Fernández de Kirchner sort out the mess before elections in October 2015?



Cristina Kirchner-R-envelope
President Cristina Fernández de Kirchner, pictured here belying her combative tone


Argentina’s long-running and complicated default saga has enthralled emerging market bond investors. A dramatic finale is not expected any time soon. 

Argentina has effectively been locked out of global capital markets since 2001, when it defaulted on around $95 billion of debt, then the biggest sovereign default in history. At some point, though probably not until a new president is in office in 2016, Argentina will have to make its way back to the international markets. 

The current administration’s concern about the depletion of the central bank’s hard-currency reserves has led it to take the first steps to regaining access to international financing – retrenchment with the IMF on the dispute over its inflation index and, more significantly, an agreement with the Paris Club.

One hurdle remains: ending a bitter dispute with holdout creditors who refused to accept the terms of bond swaps in 2005 and 2010, when most of the defaulted debt was restructured.

The government was unable to come to an agreement with the holdouts before July 30, which meant a so-called pari passu ruling, made by New York judge Thomas Griesa, prevented Argentina from paying some of the restructured debt and it defaulted for the second time in 13 years.