海角大神

Argentina is on the brink of its second default this century after losing a long court battle with a group of US bondholders. How did it end up here and what鈥檚 at stake?

What鈥檚 going on?

Back in 2001, Argentina defaulted on聽$100 billion聽in debt during an economic crisis. The default resulted in chaos in Argentina, with widespread looting and violence in the capital. The nation was effectively locked out of global financial markets since it had stopped paying lenders.聽

It reached agreements with 93 percent of its creditors in 2005 and 2010 to repay them over several years at a heavily discounted rate. But a minority of bondholders refused the deal. These so-called 鈥渉oldouts鈥� have taken legal steps to pressure Argentina to cough up the $1.5 billion (including interest) they say they鈥檙e still owed.聽

President Cristina Fern谩ndez de Kirchner decries these bondholders as 鈥渧ulture funds鈥� that profit from risky investments, such as distressed government debt.聽

Who are these holdouts?

NML Capital, part of American billionaire聽Paul Singer鈥檚聽Elliott Management, is leading the group of creditors demanding full repayment of Argentine bonds.聽

In 2012, the group sued Argentina for nonpayment in New York. They won the case, and the South American nation was ordered to pay $1.33 billion into a court-controlled escrow account, while also making ongoing payments to the creditors who initially signed on to the restructured debt agreement.

In 2012, NML Capital seized an Argentine聽boat docked in Ghana, one of nearly 30 assets apprehended by these groups awaiting payment from Argentina.

Why is July 30 an important date?

The legal battle has been long and drawn out. Argentina appealed the initial 2012 ruling, and a year later, a federal appeals court in New York upheld the lower court鈥檚 decision.

Argentina argues it can鈥檛 manage to pay both its restructured debt and court-ordered payments to holdouts, saying it would be putting the nation 鈥渁t imminent risk of default.鈥�

The case was appealed once again, and in June this year, the US Supreme Court deferred to the federal court ruling requiring Argentina to pay out.

July 30 is the deadline for Argentina to either negotiate a settlement with holdouts or default on all bond payments. On June 30, it missed a payment to creditors who did restructure their debts. Under the US court ruling, Argentina is prevented from paying one group of creditors without paying the holdouts.聽

On top of all this, there鈥檚 an added complication. Written into the restructured bonds is a clause, which expires Dec. 31, saying that if Argentina offers the holdouts a better deal, it has to match that offer to all bondholders. Argentina says this could add up to an additional obligation of $120 billion.聽

What happens if Argentina defaults?

It's bad, for sure. But not as bad as the fallout from the 2001-02 economic crisis. A default would hurt the government's ability to borrow overseas, but unlike in its previous default, the government does have money in its coffers and can keep its economy afloat.

鈥淭he situation is very different,鈥� says Jos茅 Lu铆s Espert, an economist with the Espert & Asociados consultancy in Buenos Aires. The potential default would be equivalent to about 7 percent of Argentina鈥檚 GDP, compared with 40 percent in 2001, he says. Citizens aren鈥檛 at risk of losing their savings like they did at the turn of the century, and the economy is far less dependent on the dollar today. When Argentina defaulted in 2001, the currency was pegged to the dollar, which meant a catastrophic devaluation of the peso.聽

That鈥檚 not to say the economy is doing well: Inflation is high, there鈥檚 little economic growth, and these issues will remain whether Argentina brokers a deal or defaults, Mr. Espert says.

Despite reassurances from economists, many citizens are still anxious.

鈥淚 worry about a default, because I remember what 2001 was like,鈥� says Valeria Mangieri, who works at a children鈥檚 museum. She remembers looting in her neighborhood 13 years ago and violence in the streets.

鈥淚f there is a default [today] maybe something similar could happen,鈥� Ms. Mangieri says. She acknowledges the environment is different, but 鈥渆ven if the context changes, people are still suffering when it comes to the economy.鈥�

Jorge Pereyra, a hotel administrator, places the blame on both the government鈥檚 policy decisions and the holdout creditors. 鈥淓veryone believes that we can be affected by a default鈥�. We as Argentines are the victims,鈥� Mr. Pereyra says.

Will all investors steer clear of Argentina if it defaults?

Argentina has given investors plenty of reasons to stay away over the past decade: Aside from refusing to pay holdout creditors, President Kirchner renationalized a Spanish energy firm, and repeatedly claims the British-controlled Falkland islands actually belong to Argentina.聽

However, Argentina is also home to the Vaca Muerta oil field, which holds an estimated 16 billion barrels of shale oil and 308 trillion cubic feet of shale gas. Already, investors 鈥� from China to Russia to private companies in the US 鈥� are lining up to get involved.

- Irene Caselli contributed reporting from Buenos Aires.