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11th Hour negotiations to avoid Argentina default

Argentina has until Wednesday to avoid its second default in 13 years. President Cristina Kirchner’s government and bondholders have been locked in a standoff that took the parties all the way to the U.S. Supreme Court.

Tuesday, representatives of the Argentine government are meeting with a court-appointed mediator in New York for another round of negotiations in a last-ditch effort to resolve a standoff with creditors over debt payments.

If no agreement is reached, Argentina will be in default as of Wednesday. The biggest sticking point so far has been one group of creditors that is refusing to accept $0.30 on the dollar on Argentina’s debt obligation. Argentina claims it cannot afford the $15 billion it faces in potential debt payments.

Argentina wants a stay of a 2012 ruling by U.S. District Judge Thomas Griesa which ordered Argentina to pay the holdouts $1.33 billion plus interest. Late Monday, Griesa approved a one-time payment on some of its bonds, according to The Wall Street Journal. Previously, the judge had ruled that Argentina could not make payments on any of its exchanged bonds, until it reaches an agreement with all creditors, including the holdouts.

General consensus is that a deal is not likely. Investors showed their skepticism by dumping Argentine bonds Monday, sending them to a one-month low.

What happens if Argentina defaults?

If the country goes into default, it will kick off a ripple effect of negative events that ultimately will affect the country’s debt, currency and its people.

“What happens if they default… is they lose access to global capital markets for a while; the trading value of their existing debt goes down and it becomes a tremendous burden locally on the Argentine citizens and probably a further devaluation of the currency,” says Yahoo Finance Senior Columnist Michael Santoli.

However, Santoli says that while bad things happen when you default, if Argentina can pull off a managed default, it may not be a complete disaster for the country.

That is the balancing act President Kirchner is trying to negotiate right now. Santoli says she is trying to delay payments until the end of the year when circumstances will work more to Argentina’s favor.

“Argentina seems to want to stall things and get a stay because they don’t want to adjust the terms to certain bondholders and then have to adhere to those same terms for all bondholders,” says Santoli. “By January, they won’t have to basically have universal treatment of all the bondholders."

Global Impact

The overall impact on the world markets will be minimal in Santoli's view. The situation has been well-known and closely watched now for years and it's unfolding in a small market.

"It's a one-off situation," he says. "It's not something that's a contagion risk."

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