Argentina will default in just a few days unless the country can find a way to satisfy creditors that are owed roughly $1.5 billion U.S.
The country's only remaining option appears to be negotiations -- and a compromise. If a deal is not reached, the country could miss its next bond payment on July 30.
Argentina's problem is the result of a marathon legal battle with a small group of "holdout" creditors that have demanded full payment on bonds they picked up after the country's last default in 2001.
Most of the country's other bondholders agreed to debt restructurings, but the holdouts have waged a battle in court for full principal -- plus interest.
The countdown to default started in earnest last month when a U.S. judge ruled that if Argentina doesn't pay the holdouts, it can't make any more payments to its restructured bondholders.
The government of President Cristina Fernández de Kirchner is now playing a high-stakes game of chicken with the holdouts. The group says they're open to a compromise that would allow Argentina to avoid yet another default.
Argentina is worried that a deal with the holdouts could trigger billions of dollars in additional claims. The country's government also insists it doesn't have enough time to reach a fair resolution.
So far, the two groups appear to be making very little progress in the court-mandated negotiations. A court mediator said Thursday that Argentina had declined to enter direct talks with the holdouts, which include several American hedge funds.
Fernández, who has long opposed paying the holdouts, has said she won't accept any deal that threatens the country's future.
Still, there are powerful incentives pushing both sides toward a compromise.
Argentina is struggling through a recession that would almost certainly be made worse by a default. Foreign investment could dry up, and the government might be forced to devalue its currency further.
For the holdouts, a default would remove any leverage they have over Argentina to secure full payment.
If a deal does materialize, it's likely to happen at the last minute. The mediator said that he will be meeting with both parties in the coming days.
