EspañolThese are uncertain times for Argentina, and we’re not talking about a poor World Cup performance. On Monday, the US Supreme Court declined Argentina’s appeal in the “vulture funds” case, forcing Cristina Kirchner’s government to pay its debt to the holdout bondholders. Kirchner called this decision an “extortion,” and said that only the bondholders who accepted a discount agreement between 2005 and 2010 will be paid.
With a ruling by the highest US court favoring the vulture funds — a term used by the Argentinean government to refer to the investors who did not accept the debt exchange agreement following the default in 2001 — the South American country now faces two possible scenarios, both with dire consequences. It can either accept the verdict and pay the vulture funds, or it can ignore the ruling and default once again.
Kirchner responded by saying, “Argentina will not default on its debts and is willing to negotiate, but our country is not willing to be extorted.” She added that her country would not submit to bullying, referring to the US Supreme Court ruling.
The president said on Monday night on national television that the court’s decision “is contrary not only to the interests of our country but also contrary to 92 percent of creditors who believed in Argentina and agreed to restructure the debt.”
She joked that the court instead adopted a position that defends only 1 percent of the reluctant debt holders.
“It’s absurd and impossible for a country to allocate more than half of its international reserves to a single payment to a creditor,” said Kirchner.
The US Supreme Court decided to uphold a November 2012 ruling issued by the Court of Appeals for the Second Circuit in New York. Judge Thomas Griesa ordered Argentina to pay US$1.3 billion in cash, plus interest, to the investment firms NML, Aurelius, and 13 other holders of Argentina’s outstanding debt.
In a second ruling related to the so-called “discovery case,” the Supreme Court ruled that the holdouts are allowed to access documents and bank records indicating the location of Argentina’s financial assets around the world in order to seize them. The court ruled that Argentina waived its sovereign immunity when it issued bonds that it later failed to repay.
Spokesmen for NML, part of Elliot Management group owned by Paul Singer, responded to the court’s decision by stating: “The highest US court has spoken. Now is the time for Argentina to honor its promises to its creditors, which would benefit Argentina’s economy and its international credibility.”
Griesa, the lower-court judge, will now decide when the payment is due. NML Capital has already asked the judge to expedite the process in order to seize assets for some US$900 million in bonds that expire on June 30. Griesa can decide to extend the deadline to allow for negotiations. In the meantime, Argentina can ask the Supreme Court to reconsider the ruling, and although unlikely, could potentially be granted a 25-day extension.
What Happens Next?
For the time being, Argentina must pay its creditors US$900 billion by June 30, unless Judge Griesa decides otherwise.
Daniel Canedo, an economic journalist, told the newspaper Clarín that “from a theoretical point of view, it makes no sense for Argentina to default on US$15 billion, an amount representing only 3 percent of GDP. Not complying with the ruling would take Argentina down a more difficult path to get the financing it needs to increase investment and make economic growth possible.”
Mientras : menos credito para YPF, Pcias, etc. Menos reservas, blue mas alto, un poco mas de recesion.
— Gabriel Rubinstein (@GabyRubinstein) June 17, 2014
Gabriel Rubinstein, a financial consultant and former director of the Buenos Aires Stock Exchange, thinks that Argentina may default, but said: “It would not have the consequences like the one that happened in 2001, but it would undoubtedly become a new bump in the road.”
According to the economic expert, Argentina should not have let it come to this by “trying to ignore the existence of legislation enforcing bondholders rights.”
Ruling Party Responds
“Those who celebrate this [ruling by the court] are like hyenas, eating feces and having intercourse once in a year, but laughing all the time without knowing why,” Deputy Héctor Recalde told Télam.
The US Supreme Court wasn’t spared. “One has to ask whether the United States is the owner of the world, if nine or eleven members of the Supreme Court have the right to override the sovereignty of all the countries in the world,” Recalde said.
Economist José Luis Espert told Infobae TV a different story than the president’s by noting that Argentina had voluntarily issued the bonds under another foreign jurisdiction. He added that “those to blame are the politicians who waste our revenues and put our country in debt” and that “Argentina acted recklessly with its bonds, that’s why it ended up losing in court.”
Eric LeCompte, CEO of Jubilee USA, a religious network fighting poverty, warned that this will set a precedent bound to impact the global financial system. He explained that for highly indebted countries this is “a devastating blow,” and that similar vulture funds will force them into submission.
Finally, former Treasury minister and one-time presidential candidate Roberto Lavagna voiced a more caution opinion, saying that we must abandon polarizing attitudes. “You must never negotiate on your knees. That’s not the way to negotiate, as one will end up giving in to all the creditors’ demands. But you also have to let go of the idea of ignoring the debt,” he said in an interview with Radio Mitre.