Non-deliverable forwards that show traders’ expectations for the peso over the next 90 days fell to 9.15 per dollar on Friday, the weakest in six months, after the country missed a July 30 deadline to pay $539m (€400m) of interest on restructured bonds. In the spot market, where the peso’s level is managed by the central bank, the currency traded at 8.2357.
JPMorgan Chase & says Argentina may act to bolster the peso should it weaken because of the country’s dispute with hedge funds led by Elliott Management.
While Argentina has the money to pay the interest it owes, a US judge’s ruling bars it from passing the funds to holders before settling with the so-called hold-out creditors that won an order for full repayment on defaulted debt from 2001.
Argentine officials say the plaintiffs have rebuffed all offers for a deal. The judge in the case has ordered more talks.
“Traditionally, debt problems are highly correlated with devaluations,” Vladimir Werning, an economist at JPMorgan, said. “The government’s stance on the hold-out conflict raises risks to both domestic financial stability and macroeconomic performance if an agreement with hold-outs is not reached.”
The government will probably support the peso more aggressively to help bolster its case that the default is the result of a legal impasse and not a lack of funds, according to JPMorgan. That may mean increasing capital controls, raising interest rates, or delaying imports, Mr Werning wrote.
At last Friday’s hearing, the US judge overseeing the court battle with the hedge funds, which rejected offers of 30 cents on the dollar in debt restructuring in 2005 and 2010, ordered the parties to continue talking. Argentina held four weeks of negotiations with a court-appointed mediator and two days of face-to-face discussions with the holdouts that failed to produce an accord.
Argentina will ask Judge Thomas Griesa to replace mediator Daniel Pollack since he’s been biased in favour of the holdout funds and “incompetent,” Cabinet chief Jorge Capitanich said yesterday.
The government will also seek information from the Securities and Exchange Commission as part of a probe into whether Elliott profited off the blocked debt payment by collecting on credit-default swaps, he said.