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Only Cristina Fernandez knows whether Argentina will default again or not

In the 12-year battle over paying back holders of its defaulted debt, Argentina’s president Cristina Fernandez has put up a strong front. But with a final deadline expiring on July 31, Argentina is sending a team to New York on July 7 to set the terms for talks through a court-appointed mediator to end the dispute.

A quick recap: Argentina defaulted on $93 billion of its debt amid an economic crisis in 2001. Two funds acquired some of the debt at a deep discount and have been pushing for more than a decade in the US courts to get 100 cents on each dollar of debt they hold (a total of $1.3 billion), unlike other creditors, who have agreed to “haircuts” (discounts) on what they’re owed. In June, the US Supreme Court sided with the funds, ruling that Argentina cannot pay its other creditors if it doesn’t pay the funds too.

Argentina now faces the prospect of a second default in 13 years. This, the economy could probably not cope with. It has less than $29.5 billion left in foreign-currency reserves at the central bank—an eight-year low. (To put that in perspective, its neighbor Brazil has seen its currency reserves surge from $35 billion in 2001 to about $360 billion now.) Argentina has frequent foreign-currency shortages, especially notable for a nation so dependent on exports. In January, the Argentine peso was devalued by 20% and interest rates increased to almost 30% as inflation has ravaged the economy.

Only Fernandez knows what’s going to happen next. “We are going to listen to the mediator and we want to know if there is the possibility of a genuine negotiation or if the vultures expect the ruling to be carried out as it was dictated,” an Economic Ministry source told Reuters. But with only weeks to go until the next payments are due, time for brinksmanship appears to be running out.

There’s probably a lesson in the necessary expediency of paying off holdout funds in the 2011 bailout of Greece, which at one point threatened to bring down the euro. Talks with bondholders over debt restructuring stalled for months as Greece and its benefactors were adamant that the Hellenic Republic would not ever be able to pay back its huge debts. In the end, most holders of Greek debt agreed to take losses of 53.5% on the face value of their bonds and the bailout went ahead.

Yet in March 2012, Greece paid €436 million ($576 million at the time) to Dart Management, which rejected the original restructuring and held on to its Greek debt from its base in the Cayman Islands. Greece reportedly paid the full face value of the bonds to the secretive investment fund, not requiring it to bear any loss. In the end, the risks of defaulting on the debt was just too high for Greece. After all, Greece could have ended up an economic pariah—like Argentina.

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