Picture: Alessandro Garofalo

Washington - Ratings agency Fitch declared Argentina in default on its bonds for the second time in 13 years on Thursday after talks between Buenos Aires and hedge fund creditors ended with no deal.

Fitch called the country in “restricted default” on its foreign currency debt, because, hobbled by a New York court order, it only missed a payment on one class of debt and has paid other creditors.

The sovereign rating downgrade came after marathon negotiations with hedge fund creditors in New York on Tuesday and Wednesday failed to reach a deal by the time the payment was due.

Argentina had deposited the $539 million (R5.8 billion) interest payment due to exchange bond holders - creditors who had accepted a restructuring deal after the previous default - in a bank account when it was due at the end of June.

But a New York judge blocked the bank from forwarding the payment to the restructured creditors unless it also paid two US hedge funds - which had rejected the restructuring - the full value of their bonds, $1.3 billion, at the same time.

“Argentina has not been able to cure the missed coupon payments on its discount bonds issued under foreign law after the expiration of the 30-day grace period on July 30,” Fitch said.

Late Wednesday, S&P called Argentina in “selective default”, equivalent to Fitch's restricted default label, for the same reasons.

Fitch also cut the ratings on other grades of Argentina debt and obligations, including local currency debt, saying the country's economy will suffer from greater uncertainty and financial volatility after the default.

“The Argentine economy is already in recession and this is likely to worsen as the default event affects confidence and potentially further constrains foreign exchange flows to the country,” it said. - Sapa-AFP