U.S. courts have ruled repeatedly that Argentina pay back defaulted debts in full to American bondholders, but the country, under the leadership of President Cristina Fernández de Kirchner, continues to refuse while sitting on $45 billion of cash.
Argentina faced an economic crisis in the late 1990s that ultimately resulted in a default on their debt to the tune of $82 billion. At that point, Argentina just stopped making payments on its debt.
In 2005, and again in 2010, Argentina offered debt swaps to the defaulted bondholders, paying pennies on the dollar of the original value, creating new bonds. Ninety-three percent of bond holders accepted the restructure, taking a substantial loss on their investment.
The remaining bondholders, known as the holdouts, refused these deals and to this day have yet to receive a single payment.
The holdouts have brought their case up through the U.S. court system, which has continually ruled in their favor, demanding that Argentina make good on their payments.
Argentina currently has two judgements against them that would require the old bondholders to be paid the same as the new.
The legal battle has been fought by the holdouts entirely on their own dime. And the U.S. courts have almost entirely sided with them, requiring Argentina to pay up. Argentina however, continues to contend that “[t]he government is barred by law from making them any better offer,” Financial Times reports.
“[It is] a little bit disingenuous for Argentina now to be complaining that its sovereignty is being violated and that the decision in some way violates the terms of the Foreign Sovereign Immunities Act because in fact in order to get the money in the first place Argentina agreed to waive all of those arguments,” said Professor John Baker, a Visiting Fellow at Oriel College University of Oxford, during a teleconference for the American Task Force Argentina.
“It’s a different mentality one and two, this is not the only area where Argentina’s been sued…[B]ut they’ve had some wins there. So they think they can just continue to litigate and through attrition gain some ground.”
The question that has arisen out of this dispute is whether or not the U.S. government will enforce these contracts and demand that foreign states make good on their obligations. Although the courts have ruled against Argentina, the Department of Justice filed an amicus brief Friday expressing its concern over the impact on the financial markets of the latest ruling in the case.
“Simply reopening the exchange is unlikely to satisfy the court’s concerns. The holdouts will not accept a reopening. A reopening is simply a way to show that the holdouts have not been disenfranchised of their rights,” Adam Lerrick, a scholar at the American Enterprise Institute think-tank and former chief negotiator of the Argentine Bond Restructuring Agency, the nation’s biggest creditor in the 2005 swap, said to the Financial Times.
The Argentinian government has insisted that they would be willing to take the issue all the way to the U.S. Supreme Court, though the likelihood of that happening appears slim.
“[T]he 2nd Circuit for years has been considered the top authority on many of these financial issues and the U.S. Supreme Court is very often willing to defer to whatever the 2nd Circuit says and therefore rarely reviews its decisions,” said Richard Samp, Chief Council of the Washington Legal Foundation, in a teleconference last week.
Congress has considered legislation aimed at preventing foreign governments “from inflicting further economic injuries in the United States, from undermining the integrity of United States courts, and from discouraging responsible lending to poor and developing nations” by undermining the more prominent sovereign debt markets. The bill has been stuck in committee since May 2011.
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