BUENOS AIRES, Argentina (AP) -- Argentina entered economic limbo Thursday, forced into a default that could undermine an already frail economy if a dispute with U.S. creditors is not resolved soon.
President Cristina Fernandez and her economy minister both insisted they were open to more discussions with holdout creditors, but also maintained an air of defiance and denied that the situation Argentina finds itself in really amounts to a default.
Fernandez in a rousing and emotional speech dismissed the effects of the default, the country's second in 13 years.
"In the first place, we are here on the 31st of July and the world continues and so does the Republic of Argentina, which we can all say is very good news," she told a cheering audience. "Tomorrow is the beginning of August and with that we can all continue with our lives."
Argentina entered into default because a U.S. judge, in a decision upheld by the Supreme Court, said it could not make a $539 million interest payment due July 30 until it first settled with a small group of creditors who refused to accept lower-value exchange bonds in the wake of the country's 2001 default and now say they are owed $1.5 billion.
Argentine officials say this isn't really a default because they paid the interest but the banks were prohibited from paying it out. "To prevent someone from paying is not default," Fernandez said.
However it was triggered, analysts say the default will continue deepening Argentina's recession by further draining the country's dwindling foreign reserves and stoking what is already one of the world's highest inflation rates.
The country's Merval stock index closed down more than 8 percent a day after Argentina walked away from talks in New York, where a court-appointed mediator led negotiations with the U.S. hedge funds demanding the $1.5 billion.
Argentine shares had rallied on Wednesday when a group of private Argentine bankers announced it would offer to buy up the disputed debt. Such a deal would have enabled Argentina to make a late interest payment owed to a separate group of bondholders, which would have allowed it to avoid default.
Fitch Ratings cut its credit ratings for Argentina on Thursday following the lead of Standard & Poor's. But the eighth default in Argentina's history did not seem to rattle global markets, largely because investors have been well aware of Argentina's problems since its record $100 billion default in 2001. Traders had also been preparing for a worst-case scenario before the talks fell apart, and many still hope a deal will be struck.
"The markets already sold off a fair amount before the news late yesterday night that we were definitely going into a default scenario," said Alberto Ramos, who analyzes Argentina for Goldman Sachs. "But now, there's still the possibility that some deal is reached between the holdouts and some private entity."
If a private group were to buy the debt, he said, that could lift a court order blocking Argentina from paying holdout bondholders "and the default can be cured rather rapidly."
Argentina's options to satisfy the hedge funds are limited until at least the end of the year. That's when a clause in its 2005 and 2010 debt-restructuring agreements will expire, freeing it from an obligation to pay those earlier bondholders terms equivalent to whatever deal it may reach with the hedge funds. Violating that clause, Argentina says, could make it liable to claims of more than $109 billion.
Ordinary Argentines seemed to take the default in stride, having grown used to difficulty. Although they feel the pressure on the frail economy, they say it's not as bad as the crisis of 13 years ago, when one of every five Argentines was out of work and some reported going hungry. At least 27 people died in protests and Argentina saw a revolving door of five presidents in two weeks.
"Until the end of the year, it's going to be a very bad period and after that I think at least that they will have come to some agreement ... But, well, here we are used to it," said Antonio Emilio a 68-year-old resident of the capital.
The judge presiding over the legal dispute in New York had scheduled a meeting for Friday and Fernandez and Economy Minister Axel Kicillof said they were open to talks with the New York hedge fund investors they both routinely refer to as "vultures."
Argentina, Kirchner said at one point, will pay all its debts. But she added: "I want to pass into history as a president who defended the interests of all Argentines."