By Mick Krever and Ken Olshansky, CNN
A country that just weeks ago was at the heights of world cup fever could be facing an economic crash.
But this is not a case of ill-advised economic policy or financial malfeasance.
Indeed, economic journalist Felix Salmon told CNN’s Hala Gorani, in for Christiane Amanpour, it is a crisis that appears to be unprecedented.
“Inflation is high, unemployment is bad, but we’re not anywhere close to Armageddon,” Salmon, senior editor at Fusion, said.
“Argentina has the means to pay its debts and it has the willingness to pay its debt. The only reason why it’s not paying its debts is because the U.S. courts aren’t allowing it to do so.”
You would be forgiven for doing a double-take there. Yes, a U.S. Federal Court in New York may cause Argentina, a hemisphere away, to default on its debts.
A billionaire American investor, Paul Singer, holds a large amount of Argentine debt, which he bought up after Argentina’s last financial disaster, a decade ago.
In negotiations over how much of its debt Argentina could afford to pay back, Salmon said, all the other people and organizations that held Argentine debt agreed on a middle ground, taking some fraction of the bonds’ face value.
But Singer, Salmon said, is demanding the full value of the debt, and a New York judge, Thomas Griesa, agreed with him.
“He has ordered the Bank of New York” – which is holding the money Argentina is willing to pay back – “not to pay a penny to any of the bondholders unless and until Paul Singer, the vulture investor, the hedge fund investor, gets paid off in full the one point five billion dollars that he’s owed.”
The result is that Argentina cannot make any deal, and will likely be forced to default tomorrow, Wednesday, when a grace period to pay back its debts expires.
“We’ll have an official default tomorrow, and then everyone will be in default. Paul Singer has been in default for a decade now, basically, and now everyone else will be in default as well. So it will, to use a technical term, be a mess.”
At the center of it all, he told Gorani, are “two incredibly strong personalities.”
“Cristina Fernandez de Kirchner is this hard-charging, populist, woman of the left, champion of her people, who has made a political career in large part out of demonizing what she calls the ‘vulture funds,’ who are epitomized by this man, Paul Singer, multi-millionaire hedge-fund manager who bought up Argentine debt at pennies on the dollar and now wants to get well over face value for his debt.”
Argentina, of course, has defaulted before. But in 2002, Salmon said, it was because it simply did not have the money to pay off its debts.
Now, we are in “completely uncharted territory,” where a judge – not the markets – will determine Argentina’s economic future.
“Argentina has defaulted before. Virtually every other country in Latin America has defaulted before. The bond markets and the international capital markets know how to deal with sovereign defaults in principle and in general.”
“But this one is so different because it’s entirely a U.S. jurisprudential issue.”