Argentina's economic crisis triggered riots last week
But the default, the biggest in history, is unlikely to trigger a global financial panic on a par with the emerging markets meltdown of 1997-98.
Most international lenders and investors have moved to limit their exposure to Argentina during the past year in response to the country's deepening crisis.
"Everybody was expecting this or something like this to happen anyway," a spokesman for the Bank of England said on Sunday, adding that the UK's commercial banks are in a "robust" position in relation to Argentina.
Earlier on Sunday, the South Korean government said it had set up a task force to deal with a possible Argentine default.
South Korean businesses - many of them still recovering from a protracted downturn in the late 1990s - have loans and investments in Argentina worth over $200m.
Banks take cover
Similarly, many of Argentina's private lenders have moved to reduce their stake in the country's fragile economy.
Dutch bank ING said last week that most of its 750m euro exposure to Argentina is secured, while UK investment bank HSBC said its Argentine interests account for less than 1% of its assets.
The European country most at risk is Spain, where banks, corporations and utilities have all invested heavily in Argentina in recent years.
Spanish banking and utility shares fell sharply earlier this month due to concerns over Argentina, but staged a recovery late last week as investor confidence returned.
Stock markets in most European countries are closed until Wednesday.
But banks' confidence in advancing money to emerging market economies will take a severe knock, making it far harder for fast-growing countries such as Turkey and Indonesia to raise urgently-needed investment.
In the short term, Argentina's immediate neighbours - especially regional economic giant Brazil - are likely to suffer as nervous investors withdraw.
Argentina's decline will also hit the export performance of virtually all its neighbours.
More trouble ahead
Confidence in the global mechanism for monitoring international debt - run by the International Monetary Fund and the World Bank - will also be shaken.
The IMF has already been heavily criticised for allowing Argentina to rack up such heavy debts in the first place.
For Argentina itself, the default will only bring more economic hardship.
The country will save hundreds of millions of dollars in debt repayments this month alone, but it also loses all chance of further support from the IMF or private lenders.
Currency uncertainty
The outcome of the crisis hinges to a large extent on the success of the Argentine government's plan to issue a "third currency" - to be known as the Argentino - to circulate alongside the dollar and the dollar-linked peso.
Full details have not yet been announced, but the Argentino is expected to take the form of a non-exchangeable peso which, unlike dollar-linked pesos, will not have to be backed by hard currency in central bank vaults.
This means that the government will have greater freedom to print non-convertible peso notes and use them to pay salaries and pensions, while continuing to divert hard currency towards debt repayments.
The new pesos will carry only a fraction of the purchasing power of dollars or dollar-linked pesos, increasing the economic hardship facing the Argentine people.
But the government is likely to protect the interests of foreign-owned Argentine businesses by allowing them to carry out dollar-denominated investment projects at a favourable exchange rate.
It may also try to boost its own dollar reserves by forcing Argentine exporters to convert hard currency for Argentinos at a less favourable rate.
"For most of the population, this will be a devaluation," Paul Donovan, economist at UBS Warburg told BBC News Online.
"But Argentina didn't have much of a choice. Devaluation and a default have been on the cards for some time, and this was the coup de grace."
Acting President Alfonso Rodriguez Saa had been expected either to devalue the peso by breaking its one-to-one link with the dollar, or to opt for the more radical alternative of complete dollarisation.