Default deja vu belies fear that Argentina's options are shrinking

Below the often tranquil surface in Buenos Aires, cracks are beginning to appear

People listen as Axel Kicillof, economy minister for Argentina, not pictured, speaks about the country’s missed bond payment.   Photograph: Diego Levy/Bloomberg

People listen as Axel Kicillof, economy minister for Argentina, not pictured, speaks about the country’s missed bond payment. Photograph: Diego Levy/Bloomberg

Sat, Aug 2, 2014, 01:00

For most Argentines the really shocking news this week was the sudden death of Julio Grondona, the 82-year-old boss of the Argentine FA, who died on the same day that the country defaulted on its debts.

In charge of the national game since 1979 he seemed an eternal presence to many of his fellow countrymen. A consummate politician who expertly navigated the South American country’s treacherous politics, “Don Julio” was loathed by many for his corruption and Machiavellian scheming that saw him rise to become the number two at Fifa while overseeing a long decline in the domestic game.

But such was the longevity of his 35-year reign his passing felt momentous.

In contrast the simultaneous coverage of Wednesday’s default seemed almost routine, perhaps not surprising as the country has been here before. This was Argentina’s eighth default since independence from Spain in 1810, the second since the millennium.

For a country as used as Argentina is to not paying its debts this week’s crisis will have seemed reassuringly underwhelming. After all, what markets witnessed on Wednesday was a default within a default.

When a country fails to meet its financial obligations the first thing that normally happens is it finds itself denied access to global capital markets, typically a brutal shock to the system. But Argentina has been shut out from these anyway since 2001.

Back then default was the culmination of a wild month that saw the country’s financial system implode, supermarkets looted, dozens of protesters shot dead and a president forced to flee office in a helicopter.

In marked contrast this week the banks in Buenos Aires’s financial district are going about their business normally. None now require the hoarding that used to protect them from saucepan-wielding savers demanding their money back.

The shops are all open and many porteños seem distinctly uninterested in the fight in a New York courtroom between their government and a group of US creditors.

“I couldn’t care less about this default. What does this one matter after the last one?” asks Nilda Caseres as she makes her way to work. “The last time it was hell but this time we just have our daily struggles to get on with and they are hard enough. It all seems to be a dispute between the government and the vultures and if it stays that way and does not affect us then that is enough.”

President Cristina Kirchner denies that the country has defaulted again. She correctly points out that it deposited the funds to meet an interest payment due on Wednesday.

The problem is her government is only willing to service the bonds of those who participated in a 2005 restructuring of the country’s debt.

But a group of US hedge funds who refused to take part in it won a ruling in the US that prevents Argentina servicing the restructured debt unless they receive $1.5 billion (€1.12 billion) in full payment for their paper as well.

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