The hedge fund firm of billionaire Paul E. Singer has about 300 employees, yet it has managed to force Argentina, a nation of 41 million people, into a position where it now has to contemplate a humbling surrender.
Argentina on Wednesday failed to make scheduled payments on its government bonds. The country has the money to pay the bonds. But a federal court in Manhattan has ruled that unless Argentina settles its debt dispute with Mr. Singer’s firm, Elliott Management, it is barred from paying its main bondholders.
After more than five hours of meetings on Wednesday, the sides failed to reach an agreement and the court-appointed mediator said that Argentina would “imminently be in default.” Because a $539 million interest payment was not made, the ratings agency Standard & Poor’s said that Argentina was in default on those bonds.
The government of Argentina now faces a stark choice: Try to restart negotiations with investors it has repeatedly called “vultures,” who have insisted on full repayment. Or it can remain ensnared in a default that could weigh on the country’s fragile economy and unsettle global markets.
After the talks collapsed, the economy minister of Argentina, Axel Kicillof, characterized the negotiations as extortion.
“We’re not going to sign any deal which compromises the future of Argentines,” he said at a news conference in Manhattan.
The campaign against Argentina shows how driven and deep-pocketed hedge funds can sometimes wield influence outside of the markets they bet in. George Soros’s successful wager against the pound in 1992 affected Britain’s relationship with Europe for years.
While Mr. Singer’s firm has yet to collect any money from Argentina, some debt market experts say that the battle may already have shifted the balance of power toward creditors in the enormous debt markets that countries regularly tap to fund their deficits. Countries in crisis may now find it harder to gain relief from creditors after defaulting on their debt, they assert.
“We’ve had a lot of bombs being thrown around the world, and this is America throwing a bomb into the global economic system,” saidJoseph E. Stiglitz, the economist and professor at Columbia University. “We don’t know how big the explosion will be — and it’s not just about Argentina.”