Argentina confirmed it would default on its sovereign debt again 13 years after its first default in 2001 following a breakdown in talks with a group of bondholders.
The bondholders have been demanding full payment of money owed and refusing Argentina’s request to restructure the debt, thereby putting the country into default once again.
While such a default could set off alarm bells if it happened in some other countries, and create a situation where deteriorating market sentiment causes further defaults, that is not seen as a likely scenario in the case of Argentina.
“We expect contagion to other markets to be fairly limited. This is a highly technical legal case and a selective default,” said Steve Ellis manager of the Fidelity Emerging Market Debt fund. “Argentina was isolated from international capital markets for years so we don’t expect the default to distort any global capital flows,” he added.
Ellis said that there will be remaining risks around a longer term default however, which would have negative impacts on the Argentine economy.