With talks between Buenos Aires and holdout bondholders seemingly having stalled, it appears increasingly likely that Argentina will be prevented from making an interest payment that is due on previously restructured debt later this month – and will thus be pushed into a default. In practice, we expect that the authorities will take steps to demonstrate a willingness to pay restructured bondholders – for example, by transferring the necessary funds to an escrow account. But even so, with most investors still apparently expecting common sense to prevail – and the government and the holdouts to reach an agreement – a default could still cause significant disruption in financial markets. What’s more, a prolonged stand-off could also cause substantial damage to an economy that already fell into recession at the start of this year.
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