To Brazil, Argentina Is Not In Default, But Simply in an Impasse

Brazilian Finance minister Guido MantegaBrazil’s Finance Minister Guido Mantega says he would not classify as default Argentina’s situation regarding the so-called vulture funds. In his view, it is no more than an “impasse”.

“I think the market has prepared itself for a possible impasse. I wouldn’t call it default; I would call it an impasse. The market has adapted. So there’ll be no major consequences in the short run,” he told journalists in Brasília.

The funds have been dubbed vulture because they are bondholders who bought from Argentina on the cheap following the country’s 2001 debt moratorium and have gone to court in an attempt to receive full payment, without the discounts tolerated by other creditors.

The court in charge granted the vulture funds the right to receive the full US$ 1.3 billion – with no discounts, and including the interest accumulated over time.

The minister believes Argentina may not be deemed in default because the country has paid off its debts, including the one with the Paris Club (made up by 19 countries) recently.

This shows, he argues, that Argentina has not fallen into default. “It’s a sui generis situation. [It’s] exceptional, because it’s an American judge who’s keeping the country from paying. I think there’s still room for negotiation.”

Mantega further maintains that if Argentina fails to pay, the vulture funds will also be at a disadvantage. For this reason, he deems negotiations crucial. According to Mantega, it is better for the creditors to be partially paid than not paid at all.

Furthermore, Mantega also argues that the issue does not make any significant impact in Brazil or in the global market at first. He does believe, however, that unsuccessful dealings with Argentina will have an effect on negotiations over foreign debt in several countries in the future.

He points out that there will be reactions from the international community over how the problem has been tackled, and adds that the International Monetary Fund (IMF) has also expressed criticism concerning the matter.

“It’s not an issue regarding Argentina alone. We must work to try and change this situation, and prevent the restructuring Argentina did in the past from being unfeasible.”

For the Minister, even if a financial agency downgrades Argentina’s risk rate, it does not mean that the market sees the country as having fallen into default, because negotiations may continue.

“There are other solutions. For instance, a financial institution may buy bonds from the vulture funds, though at lower prices. They’re playing all-or-nothing, but negotiations are worthwhile. We won’t be hasty.”

ABr

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