Argentina a 'selective default'

In this world of ever increasing debt, the possibility of a default is always around the corner. And if the defaulter in question happens to be a sovereign government, then the result could be catastrophic. This is exactly what has happened in Argentina. The South American nation which has a long history of sovereign defaults has done it again. Back in 2001, the Argentina had defaulted on its foreign debt for the seventh time in its history, amounting to US$ 82 bn. In the restructuring exercise that followed, some of the country's creditors held out. They demanded that they be repaid in full. This group of creditors has now received a court order to that effect and this has triggered a fresh crisis. Argentina has refused to pay up. S&P has called it a 'selective default'. So what happens now?

As Argentina has been shut out of the global markets since 2001, there will be little impact felt immediately. However, the longer this saga drags on, the more nervous global markets will become. FIIs may not press the panic button just yet but if last minute negotiations do not result in a settlement, large outflows from the Indian markets cannot be ruled out. At such times, it is best if investors remain cautious and remain invested in companies with excellent fundamentals.