Argentina’s latest default will not be short-lived, according to new analysis from Carlos Caicedo, Principal Analyst at IHS Country Risk.
“President Fernandez’s decision to request bondholders of restructured debt to change jurisdiction from New York to Buenos Aires kills once and for all the market expectations that Argentina’s latest default will be short-lived.
President Fernandez has called on Congress to approve her voluntary debt swap proposal, allowing holders of exchanged bonds (restructured in 2005 and 2010) to be paid. Argentina tried to pay those bondholders USD539 million on 30 July 2014, but was prevented from doing so by a ruling by US judge Thomas Griesa.
The proposed debt swap is fraught with legal challenges, even if Congress passes the law. It would require the approval of the majority of hundreds of diverse bondholders. Such a swap would be extremely challenging as the bonds not only have different maturities, but are also located in different jurisdictions. Furthermore, some bondholders by mandate would not be allowed to switch to Buenos Aires.
The uncompromising stance adopted by President Fernandez has marginally boosted her domestic approval ratings; this suggests that the domestic political agenda is driving her response to the default issue. This may bring her government some immediate boost in popularity but at the cost of making the country’s credit and macroeconomic situation even more uncertain. Argentina has presidential elections in October 2015.”