Market Watch

Tuesday, November 20, 2012

If a U.S. court decision pushes Argentina to default on its debt (again), it would cause the country’s economy to shrink dramatically, analysts at Bank of America Merrill Lynch said.

Mind you, they don’t think a default is the most likely outcome, but unfortunately it’s again possible from the country that defaulted on around $100 billion in debt in 2001 — the biggest sovereign default at the time.

Here’s the background: late last month, a U.S. court said Argentina has to pay all investors from its default when it makes payments to the investors who accepted restructured debt for pennies on the dollar. A small percentage of investors didn’t take that deal and Argentina doesn’t want to pay them. The ruling prevents Argentina from making payments to these investors unless it also pays the other group of investors who turned down offers of a debt swap, according to Dow Jones Newswires.

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