The year 2014 was not kind to Argentina’s economy. After defaulting on its debt, the country entered a recession, it still faces sky-high inflation, and the price of soybeans, its major commodity export, is falling. Something’s got to give. And tonight at midnight, something will.
If you been following the saga along with us, you know that Argentina’s default this past summer came after a long legal battle with hedge funds that bought the country’s debt on the cheap during a crisis in 2001 and then refused to accept restructuring terms in 2002 and 2005. When Argentina wouldn’t pay in full, these funds—you might call them holdouts or vultures, depending on where you’re sitting—got a US court to force Argentina to pay either all its creditors, or none. Argentina chose none.
The holdout funds have been trying to use the court ruling to force Argentina into settlement talks; so far, the country has refused to offer anything better than the previous restructuring terms. Its excuse was a clause in the restructured bond contracts that, in Argentina’s view, would entitle the rest of its creditors to whatever deal it gave the holdouts. This Rights Upon Future Offers (RUFO) clause expires at midnight tonight.
While some observers say that Argentina has overstated the importance of the RUFO clause, its expiration will eliminate the final technical excuse to refuse negotiations. Any further delay will simply reflect the stubborn refusal of president Cristina Kirchner’s government to give the holdouts any concessions.
So will 2015 be the year Argentina’s debt crisis comes to an end?
Despite the deteriorating economy, an $11 billion currency swap with China has shored up Argentina’s depleted foreign reserves, and it may be able to sustain its economy through the end of Kirchner’s term, despite being largely cut off from foreign finance.
But Kirchner’s government will leave the scene in October, and the funds expect that a new president in the midst of an economic malaise might make a deal to gain access to international financial markets, even at the expense of some national pride. You can’t, after all, eat pride—sometimes all you can do is swallow it.