Argentina has defaulted on its debt - for the second time in 13 years - after last-minute talks in New York with a group of bond-holders ended in failure.
So-called "vulture fund" investors were demanding a full pay-out of $1.3bn (£766m) on bonds they hold.
Argentina has said it cannot afford to do so, and has accused them of using its debt problems to make a big profit.
A US judge had set a deadline of 04:00 GMT on Thursday for a deal. The crisis stems from Argentina's 2001 default.
Late on Wednesday evening, Argentina's Economy Minister Axel Kicillof said the investors had rejected the government's latest offer.
"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.
The latest default is expected to exacerbate problems in Argentina's recession-hit economy, analysts say.
However, the effect will not compare with the consequences of the country's economic meltdown in 2001-02, when savers' accounts were frozen to stop a run on the banks and violent street protests led to dozens of deaths.
"The full consequences of default are not predictable, but they certainly are not positive," Mr Pollack said.
Speaking at a news conference in New York, Mr Kicillof said Argentina would not do anything illegal.
The investors, also known as "hold-outs", are US hedge funds that bought debt cheaply after Argentina's economic crisis.
They never agreed to the restructuring accepted by the majority of bond-holders.
President Cristina Fernandez de Kirchner has described as vultures the minority bond-holders - including Aurelius Capital Management and NML Capital.
She accuses them of taking advantage of Argentina's debt problems to make large profits.
Ratings agency Standard & Poor's (S&P) downgraded the country to "default" earlier on Wednesday, although the price of the bonds did not react.
S&P noted that it could revise the rating if Argentina were to find some way to make the payments.
The hedge funds are demanding Argentina make interest payments on debt which it defaulted on in 2001, even though it was bought at less than face value.
The US courts have blocked payments to other bondholders who agreed a separate deal with Argentina, until agreement with the "hold-outs" is reached.
Mr Kicillof said he planned to return to Argentina after the news conference, saying the country would do what is needed to deal with what he called an unfair situation.
He reiterated that Argentina could not pay the hedge funds without triggering a clause that would force it to renegotiate with bondholders who accepted new debt agreements.