Argentina default may trigger $29 billion claims

NEWYORK/ BUENOS AIRES: If Argentina defaults on its dollar-denominated securities before a deadline expires late on Wednesday, the nation may trigger bondholder claims of as much as $29 billion -equal to all its foreign-currency reserves.

If the overdue interest on the securities due 2033 isn't paid by July 30, provisions in bond indentures known as cross-default clauses would allow the nation's other debt holders to also demand their money back immediately. The amount corresponds to Argentina's debt issued in foreign currencies and governed by international laws.

US District Court Judge Thomas Griesa blocked Argentina's attempt, last month, to transfer the $539 million in interest after the nation didn't set aside money for holdout creditors who won a ruling that entitled them to full repayment of obligations that Argentina repudiated in 2001. While Citigroup says there's little chance investors will invoke the pay-back clauses in coming weeks, potential claims are large enough to exhaust the country's reserves.

“It would mean that Argentina is in default on most all of its debt and presum ably everybody would be in the same boat,“ Anna t Gelpern, a fellow at the t Peterson Institute for International Economics g and a law professor at Ge c orgetown University , said t in a telephone interview. d Wednesday is the last f day Argentina has to p avoid its second default in p 13 years by making the in e terest payment to holders of $13 billion of bonds be fore a 30-day grace period expires. In a default -even a temporary one -the Argentine economy will contract and the odds of a crisis are high, according to Marcos Buscaglia, an economist at Bank of America. Money demand will become unstable as Argentines scramble for dollars, causing the peso to slump, he wrote in a report today.

“Argentina's current weak fiscal, monetary and external conditions make the probability of the situation spinning out of control quite high,“ he wrote. “Argentina's payment capacity should not be taken for granted if it defaults.“

Even though trading in the bonds suggest investors don't foresee an imminent catastrophe, the nation could still be on the hook for billions of dollars in immediate repayment. Based on the cross-default clauses, Argentina would have to pay back the entire balance -plus unpaid interest -of any security if holders of at least 25 percent of that debt demand that their money be returned.

While Argentina deposited the interest due on the 2033 bonds last month, Griesa has prevented the custodian firms from transferring the money until Argentina pays the holdouts led by billionaire Paul Singer's Elliott Management Corp.