Argentina has defaulted on its debt within hours after talks with holdout creditors broke down on Wednesday.
Before the midnight deadline passed, 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 Wednesday evening.
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.