After official talks ended Friday, Argentina and the holdout creditors are said to be far apart in negotiations as the Latin American nation is said to be playing its cards as planned. Sources favoring Argentina in the dispute don’t anticipate an agreement and say the likely result is a default under Argentine law, as previously reported in ValueWalk.

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Argentina’s reverses small for paying holdout creditors

The key issue is said to be the realistic amount Argentina can afford to pay holdout creditors. If the creditor’s get their way Argentina will be required to pay an additional $135 billion to those who already negotiated a lower settlement, an amount outside the country’s ability to pay. Argentina has only $29.5 billion in reserve.

Eric LeCompte, Executive Director of Jubilee USA, which spoke to the Vatican on the issue as reported in ValueWalk, says there are really three possibilities.

Reach Agreement: Argentina could reach some agreement with the hedge fund holdouts that would keep the settlement low enough for Argentina to pay and would cap the upside. This would require the hedge funds to significantly alter their current negotiating stance. In a statement Friday Aurelius Capital, one of the major holdout hedge funds, said they have “done everything it can to negotiate with the government of Argentina, to no avail.  Argentine officials refuse to meet with us or even negotiate with us indirectly. Sadly, this approach gambles with the livelihoods and futures of the Argentine people.”

Argentina outlined payment in negotiations

Speculation is Argentina outlined in negotiations an amount they could afford to pay and were unwilling to discuss anything much different, a stance roundly rejected by the holdout hedge funds.

BNY Mellon Payment: The second likely strategy is to argue that Argentina made the payment to the The Bank of New York Mellon Corporation (NYSE:BK) and that they are not in technical default but it is the bank in breach.  Sources indicate this is a tenuous argument that, even if successful, only buys Latin America’s third largest economy another month.  During that time the negotiating stance is not likely to change and will result in a similar standoff one month down the road, sources indicate.

Default: The third path is Argentina passes July 30th and embraces a technical default, obliterating the claims of all creditors, so it can then restructure the 92 percent of already restructured debt under Argentine law or another friendly law such as English law.  This is the path that is the most probable to date as giving in to the holdout hedge funds also require higher payments to those who negotiated at lowered amounts.

Argentina first of several countries to take this precarious road

LeCompte said that Argentina is likely to be the first of several countries to take this precarious road. LeCompte expects some of the worst affects to be felt across Eastern Europe, Sub Saharan Africa and in the Caribbean, most notably Grenada and the Democratic Republic of Congo initially.

“The Taiwan Export-Import Bank loaned Grenada $28 million in the 1990’s for a failed Cricket stadium (poorly constructed took out by a hurricane),” LeCompte noted.  “The bank has a very similar case to NML Capital and now it has has a precedent in its corner that strengthens its claims. The New York judge has the case on hold while Grenada goes through debt restructuring with almost all of its other creditors.”