Stocks fell sharply in Argentina today as the country defaulted on its bills for the second time in 13 years, raising fears the move could diminish foreign reserves, stoke inflation and drive the economy deeper into recession.
The Merval stock index was down nearly 7 per cent in midday trading after Argentina walked away yesterday evening from talks in New York, where a court-appointed mediator led negotiations with US hedge funds demanding some USD 1.5 billion.
Shares had rallied yesterday when a group of private Argentine bankers announced it would offer to buy up the disputed debt.
Such a deal would have enabled Argentina to make a late interest payment owed to a separate group of bondholders, which would have allowed it to avoid default.
"The stock exchange is falling heavily because it was, in the end, surprised by the fact that negotiations yesterday were frustrated," said Belen Olaiz, an economist with ABECEB.Com Consultants in Buenos Aires.
Olaiz said some investors may also have been spooked by Economy Minister Axel Kicillof's sharp criticism of the hedge fund investors, raising worry the dispute is far from resolution.
Speaking to reporters after the collapse of talks, Kicillof repeatedly referred to the investors as "vultures" and called their demands "extortion."
The default did not seem to rattle global markets, largely because investors have been well aware of Argentina's problems since its record USD 100 billion default in 2001. Also, traders had been preparing for a worst-case scenario before the talks fell apart, and many still hope a deal will be struck soon.
"The markets already sold off a fair amount before the news late yesterday night that we were definitely going into a default scenario," said Alberto Ramos, who analyzes Argentina for Goldman Sachs.
