(Corrects typo "clocked" in second paragraph)
* Settlement talks in New York end without agreement
* Plan for Argentine banks to buy debt from hedge funds
* Kicillof lays blame on holdouts, judge for lack of deal
* Pollack says Argentina default 'imminent'
By Richard Lough, Eliana Raszewski and Daniel Bases
BUENOS AIRES/NEW YORK, July 30 Argentina will
default on its debt within hours after talks with holdout
creditors broke down on Wednesday.
As the clock ticked toward a midnight (0400 GMT) deadline,
Economy Minister Axel Kicillof stuck firmly to the government
line, repeatedly denigrating the holdouts as "vultures" after
two days of intense negotiations.
Argentine banks scrambled to put together a proposal to buy
out the non-performing debt held by hedge funds and avert a
default. But that deal collapsed, a senior banking executive and
a second source from the financial market said.
"It all fell through," said the banking executive.
A default will hurt an economy already in recession, fueling
risks to consumer prices in a country with one of the world's
highest inflation rates and putting more pressure on a peso that
was devalued sharply early in the year.
It also marks a set-back to the Buenos Aires government's
attempts to return to global credit markets. Argentina has been
isolated from international financial markets since its record
$100 billion default in 2002.
The default results from Argentina's failure to comply with
a court order that holdout bondholders be paid at the same time
as a $539 million coupon payment to those who accepted reduced
payments in two prior restructurings.
"Unfortunately, no agreement was reached and the Republic of
Argentina will imminently be in default," Daniel Pollack, the
court-appointed mediator in the case, said in a statement on
Mark Brodsky, chairman of Aurelius Capital Management, one
of the two leading hedge funds opposing the deal, referred calls
to his spokesman, who said the firm had no immediate statement.
Calls to the other leading holdout, NML Capital, a unit of
Elliot Management Corp, were not immediately returned.
Kicillof told reporters in New York that Argentina had
offered the holdouts the same terms as the bond swaps issued in
2005 and 2010. The funds rejected those terms, Kicillof said
before preparing to fly back to Argentina.
"Argentina paid, it has money, it will continue to pay the
next installments because we want to do so and because the money
is available," he said.
"This money is there. If it were a default, there would be
U.S. District Judge Thomas Griesa in New York, who awarded
$1.33 billion plus interest to the holdout hedge funds, has
called Argentina's payment illegal and rejected its argument
that it has fullfilled its obligations.
Kicillof reiterated the country's position - that it cannot
pay the holdouts without triggering a clause that could leave it
open to claims worth hundreds of billions of dollars from
bondholders who accepted the restructured debt agreements
following the 2002 crisis.
"USED TO BAD NEWS"
Many Argentines took the news on the chin.
"We are used to bad news," said 34-year-old office worker
Mariano Garcia. "Every 10 years or so there is some cataclysmic
event. It's a shame."
The sanguine reaction is a far cry from the chaos that
erupted during the country's economic crash in 2001-2002.
Millions of Argentines lost their jobs, the economy collapsed
and dozens of people were killed in protests that lasted months.
This time the government is solvent. The country's
commercial banks are solid, with low capital ratios, and
Argentina still boasts a trade surplus, albeit a shrinking one,
thanks in large part to high prices for soy.
How much pain the default inflicts on Latin America's
third-biggest economy will depend on how swiftly the government
can extricate itself from the mess.
"To go home carrying a default in their hands just doesn't
make sense," said Kathryn Rooney Vera, senior macroeconomic
strategist at Bulltick Capital in Miami.
"If this is resolved over the next few days, the impact is
very limited. But if it sticks, it's a very different story."
In a sign of how markets might respond on Thursday,
U.S.-traded shares in Argentina's energy firm YPF
slumped 7.7 percent in after-hours trading while Banco Macro
plummeted 12.7 percent.
Argentina had pushed hard for a stay of the ruling by Judge
Griesa that set Wednesday's deadline for the Buenos Aires
government to pay the holdouts.
It has consistently argued that a so-called Rights Upon
Future Offers, or RUFO, clause prohibits it from settling with
the holdouts on terms better than those received by holders of
the restructured debt. That clause expires at the end of 2014.
Argentina tried making a $539 million interest payment in
late June, but Griesa blocked the funds' onward transfer to
creditors. The money remained in limbo in the Buenos Aires
account of trustee agent Bank of New York Mellon on Wednesday.
U.S. ratings agency Standard & Poor's downgraded the
country's long- and short-term foreign currency credit rating to
"selective default". The default rating will remain until
Argentina makes its overdue June 30 coupon payment on its
discount bonds maturing in 2033, the agency said.
Prior to the collapse of the talks, Argentina's markets had
rallied on optimism for a deal. Yields on Argentina's key dollar
bond due 2033 fell to its lowest level in about three and a half
years on Wednesday, and its MerVal index hit a record.
Markets are likely to reverse those moves on Thursday.
"We'll give up today's gains and then some on Thursday. We
have to start pricing for the risk that this may not be a
negotiation tactic or legal tactic," said Siobhan Morden, head
of Latin America strategy at Jefferies in New York.
"If the private sector solution is not real, I'll have to
reassess for a much lower target than 68 (cents on the dollar)
on the Discount bonds."
(Additional reporting by Alejandro Lifschitz and Sarah Marsh in
Buenos Aires, Carolyn Cohn in London and Rodrigo Campos and
Luciana Lopez in New York; Editing by David Gaffen, Jonathan
Oatis and Ken Wills)