Default is a major disaster for a government, but not much will happen right away now that Standard & Poor’s has declared Argentina to be in “selective default.”
S&P (MHFI) took the action today after Argentina’s talks with holdout creditors continued past the end of the 30-day grace period for a $539 million bond payment.
The more meaningful impact of the missed deadline is likely to be on credit default swaps, which provide investors with protection against default. It’s up to the International Swaps & Derivatives Association to determine whether a default has occurred. If it does, holders of the credit default swaps are entitled to a big payment. People can buy swaps to speculate on a default even if they don’t own any Argentine bonds. There is a small possibility that ISDA will disappoint those speculators by not declaring a default, since a deal could be worked out any day now.
Governments that default on their debt tend to have trouble borrowing on the international market. That’s nothing new for Argentina—it has been cut off ever since its 2001 default. Still, the longer this new default drags on, the harder it will be for Argentina to get renewed access to the world’s capital markets.
Full article: What Happens Now That Argentina Is in ‘Selective Default’ (Bloomberg Businessweek)