The collapse of talks with US creditors sent Argentina into its second debt default in 13 years and raised questions about what comes next for financial markets and the South American nation's staggering economy.
A midnight deadline to reach a deal with holdout bondholders came and went with Argentine Economy Minister Axel Kicillof holding firm to his government's position that it could not accept a deal with US hedge fund creditors it dismisses as "vultures."
Kicillof said the funds refused a compromise offer in talks that ended several hours earlier, although he gave no details of that proposal.
"We're not going to sign an agreement that jeopardizes the future of all Argentines," Kicillof said after he emerged from the meeting with creditors and a mediator in New York City. "Argentines can remain calm because tomorrow will just be another day and the world will keep on spinning."
The government remained defiant, with Cabinet Chief Jorge Capitanich dismissing what he called a "supposed technical default" as an "absurd farce" aimed at forcing Argentina into an unacceptable debt-restructuring plan.
Court-appointed mediator Daniel Pollack said a default could hurt bondholders who were not part of the dispute as well as the Argentine economy, which is suffering through a recession, a shortage of dollars and one of the world's highest inflation rates.
"The full consequences of default are not predictable, but they are certainly not positive," Pollack said.
An earlier US court ruling had blocked Argentina from making US$539 million (NZ$635m) in interest payments due by midnight Wednesday to other bondholders who separately agreed to restructuring plans with the country in 2005 and 2010.
The holdouts, led by NML Capital, blamed Argentina for the failure to reach an agreement. In a statement, the hedge fund run by New York billionaire Paul Singer said the mediator had proposed "numerous creative solutions," to resolve the standoff.
"Argentina refused to seriously consider any of them, and instead chose to default," it said.
The hedge funds refused to participate in the debt restructurings and won a US court judgment that they be paid the full value of their bonds plus interest - now estimated at roughly US$1.5 billion.
Kicillof dismissed a decision by ratings agency Standard & Poor's to downgrade Argentina's foreign currency credit rating to "selective default" because of the missed interest payments.
"Who believes in the ratings agencies? Who thinks they are impartial referees of the financial system?" he said.
Argentine President Cristina Fernandez long had refused to negotiate with the hedge fund creditors, often calling them "vultures" for picking on the carcass of the country's record US$100b default in 2001.
The holdouts spent more than a decade litigating for payment in full rather than agreeing to provide Argentina with debt relief. They also sent lawyers around the globe trying to force Argentina to pay its defaulted debts and were able to get a court in Ghana to temporarily seize an Argentine naval training ship. The threat of seizures forced Fernandez to stop using her presidential plane and instead fly on private jets.
Restoring Argentina's sense of pride and sovereignty after the 2001-2002 economic collapse has been a central goal of Fernandez and her predecessor and late husband, Nestor Kirchner.
Argentina has made efforts to return to global credit markets that have shunned it since the default. The government paid its debt to the International Monetary Fund and agreed in May with the Paris Club of creditor nations on a plan to begin repaying US$9.7b in debts unpaid since 2001. It also agreed to a US$5b settlement with Grupo Repsol after seizing the Spanish company's controlling stake in Argentina's YPF oil company.
Analysts say a new default undermines all of these efforts.
"This is unexpected; an agreement seemed imminent," said Ramiro Castineira of Buenos Aires-based consultancy Econometrica.
"Argentina would have benefited more from complying with the court order in order to get financing for Vaca Muerta," he added, referring to a massive Argentine deposit of shale oil and gas in the country's south.
Only a few international companies have made commitments to help develop the fields as many fear the government's interventionist energy policies. The government also has struggled to get investors because it can't borrow on the global credit market.
Prices for Argentine bonds had surged to their highest level in more than three years on the possibility that Argentina would reach a deal with the holdout creditors. Argentina's Merval stock index also climbed more than 6.5 percent in midday trade on a likely deal.
Optimism had been buoyed by reports Wednesday that representatives of Argentina's private banks association, ADEBA, were set to offer to buy out the debt owed to the hedge funds. In return, the reports said, the US court would let Argentina make the interest payments due before midnight and avoid default.
The deal failed to materialise.
"It is an unfortunate situation which is pushing the country into another default. As defaults go, we all know when we get into one but it is very unclear when and how to get out of it," said Alberto Ramos, Latin America analyst at Goldman Sachs.
"We just added another layer of risk and uncertainty to a macro economy that was already struggling," Ramos said.