Argentina slides into second default as talks fail

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Argentina slides into second default as talks fail
An activist holds a banner that reads in Spanish "Homeland or vultures, be strong Argentina", during a demonstration in support of the government in their dispute over $1.5 billion with a U.S. hedge fund, known locally as "vulture funds", in Buenos Aires, Argentina, Wednesday, July 30, 2014. Argentina's economy minister leads a last-gasp effort Wednesday to strike a deal with U.S. creditors that would prevent the South American country from slipping into default. (AP Photo/Victor R. Caivano)
An activist plays a drum during a small demonstration in support of the government in their dispute over $1.5 billion with a U.S. hedge fund, known locally as "vulture funds", in Buenos Aires, Argentina, Wednesday, July 30, 2014. Argentina's economy minister leads a last-gasp effort Wednesday to strike a deal with U.S. creditors that would prevent the South American country from slipping into default. (AP Photo/Victor R. Caivano)
An activist holds a banner that reads in Spanish "Homeland or vultures, be strong Argentina", during a demonstration in support of the government in their dispute over $1.5 billion with a U.S. hedge fund, known locally as "vulture funds", in Buenos Aires, Argentina, Wednesday, July 30, 2014. Argentina's economy minister leads a last-gasp effort Wednesday to strike a deal with U.S. creditors that would prevent the South American country from slipping into default. (AP Photo/Victor R. Caivano)
An activist holds a newspaper with a headline that reads in Spanish "Argentina or vultures", as he signs the national anthem during an event in support of the government in their dispute over $1.5 billion with a U.S. hedge fund, known locally as "vulture funds", in Buenos Aires, Argentina, Wednesday, July 30, 2014. Argentina's economy minister leads a last-gasp effort Wednesday to strike a deal with U.S. creditors that would prevent the South American country from slipping into default. (AP Photo/Victor R. Caivano)
An activist holds a newspaper with a headline that reads in Spanish "Argentina or Vultures", during a demonstration in support of the government in their dispute over $1.5 billion with a U.S. hedge fund, known locally as "vulture funds", in Buenos Aires, Argentina, Wednesday, July 30, 2014. Argentina's economy minister leads a last-gasp effort Wednesday to strike a deal with U.S. creditors that would prevent the South American country from slipping into default. (AP Photo/Victor R. Caivano)
Axel Kicillof, Argentina's economy minister, addresses member of the news media after a negotiation session, Wednesday July 30, 2014, at the Argentinean Consulate in New York. Argentina officials and U.S. bondholders met for the first time in hopes of preventing an Argentine default. (AP Photo/Craig Ruttle)
Axel Kicillof, Argentina's economy minister, addresses member of the news media after a negotiation session Wednesday July 30, 2014, at the Argentinian Consulate in New York. Argentina officials and U.S. bondholders met for the first time in hopes of preventing an Argentine default. (AP Photo/Craig Ruttle)
Axel Kicillof, Argentina's economy minister, addresses member of the news media after a negotiation session Wednesday July 30, 2014, in New York. Argentina officials and U.S. bondholders met for the first time in hopes of preventing an Argentine default. (AP Photo/Craig Ruttle)
People walk a by sign posted at the entrance of the Argentine Economy Ministry reading in Spanish; "Together we will fight against the loan shark vultures," referring to an unresolved dispute over $1.5 billion in unpaid debts after its record $100 billion default in 2001, known as "vulture funds," in Buenos Aires, Argentina, Tuesday, July 29, 2014. Argentina will default for the second time in 13 years if it cannot reach a deal with the U.S. hedge funds before July 30. (AP Photo/Victor R. Caivano)
Axel Kicillof, Argentina's economy minister, addresses member of the news media after a negotiation session Wednesday July 30, 2014, in New York. Argentina officials and U.S. bondholders met for the first time in hopes of preventing an Argentine default. (AP Photo/Craig Ruttle)
Axel Kicillof, Argentina's economy minister, addresses member of the news media after a negotiation session, Wednesday July 30, 2014, in New York. Argentina officials and U.S. bondholders met for the first time in hopes of preventing an Argentine default. (AP Photo/Craig Ruttle)
Axel Kicillof, Argentina's economy minister, addresses member of the news media after a negotiation session Wednesday July 30, 2014, in New York. Argentina officials and U.S. bondholders met for the first time in hopes of preventing an Argentine default. (AP Photo/Craig Ruttle)
Axel Kicillof, Argentina's economy minister, addresses member of the news media after a negotiation session Wednesday July 30, 2014, at the Argentinean Consulate in New York Argentina officials and U.S. bondholders met for the first time in hopes of preventing an Argentine default. (AP Photo/Craig Ruttle)
Axel Kicillof, Argentina's economy minister, departs after a negotiation session Wednesday July 30, 2014, in New York. Argentina officials and U.S. bondholders met for the first time in hopes of preventing an Argentine default. (AP Photo/Craig Ruttle)
Argentina's economy minister Axel Kicillof, center, stops for a snap shot photo as he arrives for negotiations, Wednesday, July 30, 2014 in New York. (AP Photo/Bebeto Matthews)
People walk by the Bank of the Nation headquarters in front of Plaza de Mayo square in Buenos Aires on July 30, 2014. Last-ditch talks aimed at averting Argentina's second default in 13 years were to resume Wednesday in New York, after Tuesday's marathon session failed to reach a deal. AFP PHOTO / Daniel GARCIA (Photo credit should read DANIEL GARCIA/AFP/Getty Images)
People walk by the entrance of the Argentine Economy Ministry where white signs have been posted on the columns, with a message that reads in Spanish; "Together we will fight against the loan shark vultures," referring to an unresolved dispute over $1.5 billion in unpaid debts after its record $100 billion default in 2001, known locally as "vulture funds," in Buenos Aires, Argentina, Tuesday, July 29, 2014. Argentina will default for the second time in 13 years if it cannot reach a deal with the U.S. hedge funds before July 30. (AP Photo/Victor R. Caivano)
Axel Kicillof, economy minister of Argentina, speaks during a press conference at the Consulate General of Argentina in New York, U.S., on Wednesday, July 30, 2014. Argentine bonds rose to a three-year high on speculation that government officials and holdout creditors are getting closer to a deal amid talks to avert a second default in 13 years. Photographer: Peter Foley/Bloomberg via Getty Images
Pedestrians walk in the financial district of Buenos Aires, Argentina, on Wednesday, July 30, 2014. A top Argentine banker and former Economy Ministry official arrived in New York today to make a last-minute proposal aimed at averting the country's second default in 13 years. Photographer: Diego Levy/Bloomberg via Getty Images
Protestor Francisco Sobrero holds a sign that translates as 'Vultures! Don't take our pound of meat' outside the office building of mediator Daniel Pollack July 30, 2014 in New York as talks continue into Argentina's debt.Argentina was seeking an 11th-hour deal with 'holdout' creditors Wednesday to prevent a crippling new default -- the second in 13 years -- by day's end. Buenos Aires has until midnight to resolve its dispute with two US hedge funds whose refusal to accept a write-down on debt it defaulted on in 2001 has pushed Latin America's third-largest economy to the brink of a new crisis. Argentina is due to make a $539 million payment on its restructured debt by Wednesday, the end of a 30-day grace period. AFP PHOTO/Stan HONDA (Photo credit should read STAN HONDA/AFP/Getty Images)
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By CLAUDIA TORRENS

NEW YORK (AP) - The collapse of talks with U.S. creditors sent Argentina into its second debt default in 13 years and raised questions about what comes next for financial markets and the South American nation's staggering economy.

A midnight Wednesday deadline to reach a deal with holdout bondholders came and went with Argentine Economy Minister Axel Kicillof holding firm to his government's position that it could not accept a deal with U.S. hedge fund creditors it dismisses as "vultures." Kicillof said the funds refused a compromise offer in talks that ended several hours earlier, although he gave no details of that proposal.

"We're not going to sign an agreement that jeopardizes the future of all Argentines," Kicillof said after he emerged from the meeting with creditors and a mediator in New York City. "Argentines can remain calm because tomorrow will just be another day and the world will keep on spinning."

The government remained defiant Thursday, with Cabinet Chief Jorge Capitanich dismissing what he called a "supposed technical default" as an "absurd farce" aimed at forcing Argentina into an unacceptable debt-restructuring plan.

Court-appointed mediator Daniel Pollack said a default could hurt bondholders who were not part of the dispute as well as the Argentine economy, which is suffering through a recession, a shortage of dollars and one of the world's highest inflation rates.

"The full consequences of default are not predictable, but they are certainly not positive," Pollack said.

An earlier U.S. court ruling had blocked Argentina from making $539 million in interest payments due by midnight Wednesday to other bondholders who separately agreed to restructuring plans with the country in 2005 and 2010.

The holdouts, led by NML Capital Ltd., blamed Argentina for the failure to reach an agreement. In a statement, the hedge fund run by New York billionaire Paul Singer said the mediator had proposed "numerous creative solutions," to resolve the standoff.

"Argentina refused to seriously consider any of them, and instead chose to default," it said.

The hedge funds refused to participate in the debt restructurings and won a U.S. court judgment that they be paid the full value of their bonds plus interest - now estimated at roughly $1.5 billion.

Kicillof dismissed a decision by ratings agency Standard & Poor's to downgrade Argentina's foreign currency credit rating to "selective default" because of the missed interest payments.

"Who believes in the ratings agencies? Who thinks they are impartial referees of the financial system?" he said.

Argentine President Cristina Fernandez long had refused to negotiate with the hedge fund creditors, often calling them "vultures" for picking on the carcass of the country's record $100 billion default in 2001.

The holdouts spent more than a decade litigating for payment in full rather than agreeing to provide Argentina with debt relief. They also sent lawyers around the globe trying to force Argentina to pay its defaulted debts and were able to get a court in Ghana to temporarily seize an Argentine naval training ship. The threat of seizures forced Fernandez to stop using her presidential plane and instead fly on private jets.

Restoring Argentina's sense of pride and sovereignty after the 2001-2002 economic collapse has been a central goal of Fernandez and her predecessor and late husband, Nestor Kirchner.

Argentina has made efforts to return to global credit markets that have shunned it since the default. The government paid its debt to the International Monetary Fund and agreed in May with the Paris Club of creditor nations on a plan to begin repaying $9.7 billion in debts unpaid since 2001. It also agreed to a $5 billion settlement with Grupo Repsol after seizing the Spanish company's controlling stake in Argentina's YPF oil company.

Analysts say a new default undermines all of these efforts.

"This is unexpected; an agreement seemed imminent," said Ramiro Castineira of Buenos Aires-based consultancy Econometrica.

"Argentina would have benefited more from complying with the court order in order to get financing for Vaca Muerta," he added, referring to a massive Argentine deposit of shale oil and gas in the country's south.

Only a few international companies have made commitments to help develop the fields as many fear the government's interventionist energy policies. The government also has struggled to get investors because it can't borrow on the global credit market.

Prices for Argentine bonds had surged to their highest level in more than three years on the possibility that Argentina would reach a deal with the holdout creditors. Argentina's Merval stock index also climbed more than 6.5 percent in midday trade on a likely deal.

Optimism had been buoyed by reports Wednesday that representatives of Argentina's private banks association, ADEBA, were set to offer to buy out the debt owed to the hedge funds. In return, the reports said, the U.S. court would let Argentina make the interest payments due before midnight Wednesday and avoid default.

The deal failed to materialize.

"It is an unfortunate situation which is pushing the country into another default. As defaults go, we all know when we get into one but it is very unclear when and how to get out of it," said Alberto Ramos, Latin America analyst at Goldman Sachs.

"We just added another layer of risk and uncertainty to a macro economy that was already struggling," Ramos said.

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