Axel Kicillof, Argentina's economy minister
Axel Kicillof, Argentina's economy minister Reuters

Argentina is likely to fall into its second default in 13 years in the absence of a last-minute deal with holdout creditors, and experts say that countries such as Grenada and Congo could face the same fate in future.

Argentina has sufficient funds to pay the holders of its restructured bonds after its default in 2001, but it cannot make the payment as US District Judge Thomas Griesa ruled that the country cannot pay the restructured bond holders unless it also pays hold-out predatory hedge funds in full.

Following the adverse order from Griesa, Argentina claimed that if the country paid the suitors on their terms, it would lead to claims from other holdouts of around $15bn (£8.8bn, €11bn) in debt.

The government's coupon payment to restructured bondholders through a New York bank had earlier been blocked by Griesa. As a result, the country is facing a technical default by the end of July if it does not make a settlement with the holdout funds.

Argentina is the first victim from the court's ruling. It looks like Grenada and the Democratic Republic of Congo may be the next victims.
- Eric LeCompte, executive director of Jubilee USA Network

Despite many rounds of talks with court-appointed mediator, Daniel Pollack, the parties are yet to reach an agreement. Argentina's Economy Minister Axel Kicillof arrived on 29 July at the Manhattan offices of Pollack to try to strike a deal by midnight on 30 July.

Argentina is still not willing to meet face-to-face with the holdout funds, whom it labelled as "vultures".

"Argentina is hours from default," Eric LeCompte, executive director of the religious financial reform organisation, Jubilee USA Network, said in a statement.

"At this point, a deal seems unlikely. Argentina may decide that the cost of default is less than the cost of compliance."

The International Monetary Fund earlier noted that the court's ruling could make it more difficult for countries to restructure their debts by making it more attractive for creditors to hold out.

The US government also filed a brief on behalf of Argentina before the US Circuit Court of Appeals, arguing that a ruling in favour of the holdout creditors would harm core US debt policy. The government noted that the ruling against Argentina would harm New York's position as a global financial centre, as countries in future would seek to sign debt contracts elsewhere to avoid similar situations.

In June, the US Supreme Court refused to hear an appeal on the case. The court ruling could also impact related cases in New York concerning Grenada and the Democratic Republic of Congo.

Grenada, an eastern Caribbean island nation, is looking to resolve a year-old default on $193m of bonds. Meanwhile, African nation, Congo, remains highly indebted.

"The impact of this case is global," added LeCompte, who serves on expert groups related to the case at the UN.

"Argentina is the first victim from the court's ruling. It looks like Grenada and the Democratic Republic of Congo may be the next victims."