| BUENOS AIRES, July 31
BUENOS AIRES, July 31 Argentina may have
defaulted on its debt for the second time in 12 years on
Thursday, but the packed elegant cafes in Buenos Aires show
little sign of distress and shoppers rather than protestors fill
Jose Bini, a 27-year-old Argentine entrepreneur, shrugged
off the news of the default with resigned laughter, saying he
was used to economic crises. At least this was not as bad as the
2001/02 crash in Latin America's No. 3 economy, he said.
"We are used to living like riding a roller coaster," said
Bini, who will not change his plans to expand his microbrewery
because of the default. "I have lived through two defaults,
hyperinflation, an economic crash, stagflation and I'm only 27."
Argentina, which is already mired in recession, failed on
Wednesday to strike a deal with "holdout" hedge funds suing the
nation for full payment of their defaulted bonds in time for a
But unlike during the last default when the state went
bankrupt, triggering bloody protests and plunging millions into
poverty, this time around Argentina is solvent.
It simply cannot get coupon payments to bondholders due to a
U.S. court ruling, meaning it is in "technical default."
News of the default prompted Argentine stocks and bonds to
reverse recent gains on Thursday but did not cause a rout. The
peso fell 2.52 percent to 12.570 per dollar and currency
traders on the streets of Buenos Aires said there had been no
rush to buy safe-haven dollars.
The streets of Buenos Aires were calm on Thursday and many
said they did not understand how the default might affect them.
"It creates a lot of uncertainty but I don't know how it
will impact me," said Silvina Ferreyra, 33, a saleswoman for an
airline, who said she followed the news but did not understand
"I have a secure job, but I don't know what will happen.
It's difficult to invest in your life, for example buy a house,
with so much uncertainty. But what can you do? Life goes on."
The increased uncertainty will weigh on already weak
consumption, said 55-year-old shopkeeper Liliana Suaya. Sales
already fell 40 percent this year due to inflation that
economists forecast will reach 30 percent to 40 percent by the
end of the year.
"People will likely be more worried about losing their jobs
and inflation accelerating," said Suaya, who has sold clothes in
the working-class district of Once for more than two decades.
"Lots of shops around here have been closing recently."
Many buildings standing empty in Once are taken over by
squatters and Suaya is worried about rising crime.
But Suaya said she was used to economic ups and downs and
like many, had saved during Argentina's stellar recovery in the
2000s. Sales rose just as fast then as they are falling now.
How much pain a default inflicts on Argentines will depend
on how swiftly the country can extricate itself from it.
A prolonged crisis will raise borrowing costs, accelerate
one of the world's highest inflation rates and weaken the peso.
With the country still banned from international credit
markets, the government will likely further tighten import and
capital controls in order to protect dwindling foreign reserves.
"It seems to be business as usual right now," said
entrepreneur Bini, who says many of his friends had already left
the country to look for better prospects. "Argentines will get
to feel the default but not just yet."
Some Argentines said they were afraid the default would push
them from a precarious situation into outright poverty. The
government estimates the poverty rate at 5 percent but private
analysts say it is at least five times higher
"I'm worried more people will go hungry in 2015," said
Daiana Valdez, 19, adding that many people in her provincial
home town lived in shanty houses and did not have enough to eat.
But many Argentines' worries, especially among the middle
classes, were tempered by optimism that either the government or
third parties would reach a deal eventually with the holdouts.
"The impression is that there will be a solution, so people
are not taking it all too seriously," said Osvaldo Cornide, head
of the CAME chamber of mid-sized companies.
So far, the debt crisis does not seem to be heightening
discontent with the government. Instead, many approve of its
stand-off with the funds it calls "vultures" for buying
Argentine debt at a discount and demanding payback in full.
"Argentina does not cave into extortion" and "Argentina
rejects vultures' pressure" read the headlines of Argentina's
pro-government newspapers on Thursday. Even anti-government
dailies did not place the blame for the default on President
And as long as the extra economic impact of default remains
intangible for most, this looks set to remain the case.
Andrea Yohai, a 59-year old massage therapist, said she
approved of the way the government had handled the crisis. "They
are just defending Argentina's interest."
(Additional reporting by Eliana Raszewski; Editing by Simon
Gardner and Lisa Shumaker)