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Time almost up for Argentina to avoid second debt default - July 31, 2014

Javier Pargament (left), deputy attorney general for Argentina, arrives for debt negotiation talks with court-appointed mediator Daniel Pollack in New York. Photo: Mike Segar/Reuters

Javier Pargament (left), deputy attorney general for Argentina, arrives for debt negotiation talks with court-appointed mediator Daniel Pollack in New York. Photo: Mike Segar/Reuters

Argentina faced a race against time yesterday to avert its second default in 12 years, needing to either cut a deal by the end of the day with “holdout” investors suing it or win more time from a US court to reach a settlement.

Argentine Economy Minister Axel Kicillof scrambled to New York on Tuesday to join last-ditch negotiations, holding the first face-to-face talks with the principals of New York hedge funds who demand full repayment on bonds they bought at a discounted rate after the country defaulted in 2002.

The hedge funds are owed $1.33 billion, but an equal treatment clause in an agreement Argentina made with bondholders in 2005 would cost Argentina many billions more.

Latin America’s No. 3 economy has for years fought the holdout hedge funds that rejected large writedowns, but after exhausting legal avenues Argentina faces default if it cannot reach a last-minute deal.

Argentina had until the end of yesterday (5 a.m. BST on Thursday) to break the deadlock. If it fails, US District Judge Thomas Griesa will prevent Argentina from making a July 30 deadline for a coupon payment on exchanged bonds.

Kicillof’s unexpected appearance in New York raised hopes there was still time to avoid a default that would pile more pain on an economy already in recession, though not the economic collapse seen in 2002 when it defaulted on $100 billion in debt.

The Buenos Aires government has pushed hard for a stay of the US court ruling that triggered yesterday’s deadline.

Its chances of success were boosted on Tuesday when holders of Argentina’s euro-denominated exchange bonds said a suspension would encourage a settlement.

They also said they would facilitate a deal by waiving the so-called RUFO clause that prevents Argentina from offering other investors better terms than it offered them.

Argentina has consistently argued the RUFO clause prohibits it from settling with the holdouts.

“Obtaining a waiver of the RUFO clause, however, will take time,” the group of bondholders said in an emergency motion for a stay filed on Tuesday.

Christine Lagarde, the head of the International Monetary Fund, said an Argentine default was unlikely to prompt broader market repercussions given the country’s relative isolation from the international financial system.

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