Argentina missed a midnight Wednesday deadline to come to a deal with holdout bondholders and has slipped into a default situation on its national debt for the second time in 13 years. Argentine Economy Minister Axel Kicillof stuck to his guns in negotiations with holdout bondholders, and could not reach a deal with U.S. hedge fund creditors Argentina’s president has called “vultures.”

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The specific consequences of a selective default remain unclear, but court-appointed mediator Daniel Pollack mentioned a default may have a negative impact on other bondholders as well as the long-suffering Argentine economy. A U.S. court ruling also prevented Argentina from making interest payments to bondholders who had agreed to a restructuring.

Argentina is currently experiencing a lingering recession, a shortage of foreign reserves (esp. U.S. dollars) and an extremely high inflation rate.

There has been no comment from the holdout bondholders (led by New York billionaire Paul Singer’s NML Capital), who refused debt restructurings and won a U.S. court decision saying they are owed the full value of their bonds plus interest — around $1.5 billion.

Statement from Argentine Economy Minister Axel Kicillof

“We’re not going to sign an agreement that jeopardizes the future of all Argentines,” a clearly stressed Kicillof said after the meeting with creditors and a mediator in New York City. “Argentines can remain calm because tomorrow will just be another day and the world will keep on spinning.”

Kicillof also mentioned the hedge funds refused yet another compromise offer, although he provided no details regarding that offer.

S&P downgrades Argentina

Ratings agency S&P also announced that it was downgrading Argentina’s foreign currency credit rating to “selective default” because of the failure to make interest payments on the restructured bonds.

Kiciloff brushed off the move by the ratings agency. “Who believes in the ratings agencies? Who thinks they are impartial referees of the financial system?” he said.

Default undoes efforts of last several years

Improving economic status and sovereignty following the 2001-2002 economic collapse has a been a key goal of the Argentine government for a number of years.Related to this, Argentina has made a number of efforts to return to good graces in the global credit markets. The government paid its debt to the International Monetary Fund, and came to an agreement with creditor nations on a plan to begin repaying $9.7 billion in default since 2001. The country also recently reached a $5 billion settlement with Grupo Repsol after nationalizing the Spanish firm’s majority stake in Argentina’s YPF oil company.

However, analysts argue that this new default threatens all of these efforts. “This is unexpected; an agreement seemed imminent,” said Ramiro Castineira of Buenos Aires-based consulting firm Econometrica.

“Argentina would have benefited more from complying with the court order in order to get financing for Vaca Muerta,” he continued, in reference to developing a region that has large deposits of shale oil and gas.