The WSJ reports, "as Argentina struggles with a poor economy and the risk of default, a consensus has emerged among Argentines, business groups and ruling-party lawmakers that the government should settle a $1.5 billion debt with holdout bondholders—and do so soon.
President Cristina Kirchner's administration, which begins negotiating with a small group of hedge funds on Monday in New York, has until the end of July to reach a deal or default on its debt for the second time in 13 years.
That prospect, harrowing for a country with an economy in recession with one of the world's highest inflation rates, is prompting both Mrs. Kirchner's allies and foes to urge her to abide by a U.S. court order. The U.S. Supreme Court last month declined to review an earlier district court ruling. The ruling said Argentina must pay the hedge funds that sued to collect on defaulted bonds at the same time it pays investors who own bonds issued after the country's 2001 default".
"The solution is to reach an agreement, and an agreement obviously means paying," Daniel Scioli, governor of Buenos Aires province and a leading figure in Mrs. Kirchner's Peronist movement, said in a recent televised interview.
For years, Mrs. Kirchner vowed never to pay the investors she calls "vulture funds"—investment funds led by Elliott Management Corp. and Aurelius Capital Management LP, which snapped up defaulted bonds on the cheap in hopes of getting paid full face value.
Argentina's legal setback in the U.S. coincides with growing economic and political troubles here, most recently after Mrs. Kirchner's vice president, Amado Boudou, was indicted on bribery and influence-peddling charges. Her approval rating has sunk to 26%, the Management & Fit polling firm reported recently, and two-thirds of Argentines expect the economy to worsen over the next six months.
Settling the case would give Mrs. Kirchner's cash-strapped country, which has seen reserves fall to $29 billion from $53 billion in January 2011, access to financial markets for the first time since 2001.
Mrs. Kirchner has said recently that her government wants to pay off its debts, but her aides have said that settling with the hedge funds could trigger claims that would cost billions more.
"For me it would be very easy to promise anyone the moon," the president said in a recent speech. "But don't count on me to just do anything, but rather to do what I should do in meeting with my commitments—never to raffle off the fatherland."
"If the government doesn't reach a deal with holdouts, its legacy falls apart," said Nicolas Solari, a political analyst. "The government took over during a profound debt and default crisis a decade ago and always bragged about solving those problems. Now it would risk leaving power in the middle of another default and economic crisis."
Those who favor a settlement say Argentina has no other option.
"One way or another, we have to normalize this situation," said Eduardo Buzzi, head of the Argentine Agrarian Federation, a leading farm group representing small-scale farms nationwide. "It puts the economy at risk. If the country defaults, it will raise financing costs and raise uncertainty about the exchange rate."
And it isn't just companies that believe it's time for the government to swallow its pride. The polling firm, Poliarquia, recently released a poll showing that 80% of respondents are worried about a possible default and 65% say Argentina should simply pay up.
Many here believe that there are ample signs that Argentina is prepared to enter into negotiations, despite contradictory and nationalist rhetoric from high government officials.
On Monday, Argentina is sending a delegation to New York to meet with Daniel Pollack, an attorney appointed by Judge Thomas Griesa, who made the initial ruling, to oversee negotiations between the two sides. The talks begin a week after Argentina missed a deadline to pay both the holdouts and the other bondholders, setting the clock ticking on a 30-day grace period that Argentina has to settle. A settlement would be in line with Argentina's recent efforts to end other long-standing creditor disputes. In November, Argentina agreed to pay about $5 billion in bonds to Spain's Repsol for seizing its controlling stake in the oil company YPF. Mrs. Kirchner's administration then agreed in May to settle a long-running dispute with the Paris Club group of creditor nations by paying $9.7 billion.
Lawyers representing the country in its dispute with hedge funds described those settlements as "breakthroughs" that reflect Argentina's desire to normalize ties with creditors.
"Argentina wants to emerge from the litigation that has burdened both it and the courts," the lawyers said in a recent letter.
A clear winner if Argentina settles is state-controlled oil firm YPF, which is seeking to develop huge oil and gas reserves in a desolate swath of the country's south. A default would raise YPF's financial costs just as its president, Miguel Galuccio, has been aggressively trying to court foreign investors.
But a deal in New York would cut borrowing costs by several percentage points, company officials say. A month ago, YPF sold 10-year bonds at an interest rate of 8.5%.
