Argentina, hedge funds fail to strike debt deal

Argentina failed to reach a deal with hedge funds demanding full payment on its defaulted bonds, veering closer to what the IMF warned could be a painful new default.
With less than a week to go to either pay up or risk being declared in default, Argentine officials met with the US court-appointed mediator trying to break the impasse, but refused to meet the hedge funds' representatives directly, said the mediator, New York lawyer Dan Pollack.
"After speaking with both sides, separately, I proposed and urged direct, face-to-face talks between the parties. The representatives of the bondholders were agreeable to direct talks; the representatives of (Argentina) declined to engage in direct talks," Pollack said in a statement.
"The issues separating the parties remain unresolved at this time," he added, saying new talks would be held Friday.
One of the main funds battling for full payment, NML Capital, said Argentina had "made clear that it will be choosing to default."
The Argentine government "refused to negotiate any aspect of the dispute," it said. "There is currently a total lack of willingness on Argentina's part to solve this problem."
With a June 30 payment deadline looming, time is running out for Argentina to deal with the fallout of its 2001 default, which plunged the country into an economic crisis it is still battling back from.
Under restructuring plans reached in 2005 and 2010, it has persuaded 92 percent of its creditors to accept writeoffs of up to 70 percent.
But US District Judge Thomas Griesa's ruling in favor of the so-called "holdout" hedge funds -- which Argentina calls "vulture" funds -- has trapped the country in a Catch-22.
Under the ruling, it cannot pay its other creditors without also paying the hedge funds; but under the restructuring deal, it is supposed to pay all its creditors the same.
If it pays the holdouts 100 percent of the $1.3 billion it owes them, it could be forced to pay all remaining creditors in full, as well -- for a total bill of up to $15 billion.
- 'Substantial costs' -
The International Monetary Fund's chief economist, Olivier Blanchard, warned a default could hurt both the Argentine economy and the global financial system.
"If it goes into default and doesn't pay the holdouts, there might be substantial costs, being basically unable to access markets for some time," he said at a news conference where the IMF cut its global growth forecast for 2014 by three percentage points to 3.4 percent.
A default would also cast serious doubts on the ability of existing systems to resolve debt disputes when countries get into trouble, he added.
"There's much more uncertainty as to how we'll be able to restructure debt for others countries in the future," he said.
Ahead of Thursday's talks, there had been speculation the two sides could reach a deal under which the beleaguered South American country would pay the hedge funds a guarantee to buy more time.
The clause in Argentina's restructuring deal that entitles all debt holders to the same level of repayment -- called a Rights Upon Future Offers, or RUFO, clause -- expires at the end of the year.
But Argentina denied that plans were in the works for a guarantee payment.
"Nobody can demand a guarantee from a sovereign country," cabinet chief Jorge Capitanich told journalists in Buenos Aires, sticking to the defiant tone the government has struck throughout its legal wrangling with the funds.
The other main fund involved in the dispute, Aurelius Capital Management, also denied any such plan.
Aurelius and NML bought up Argentine debt at cut-rate prices when it was already in default, then sued the country to stop it from carrying out its restructuring plan with an initial payment of $539 million scheduled for last month.
Argentina is pushing for Griesa's decision to be suspended until the end of the year so it can go ahead with restructured payments.