Saturday, June 21, 2014

Argentina/US: Update--President Fernández May Not Realize That US Court Rulings are Not "Negotiable"

According to The Latin American Tribune, President Cristina Fernández said Friday (June 20) that Argentina is willing to meet its obligations to holdout bondholders after this week’s legal setback in decision ordered by the US Supreme Court, but asked for “fair and reasonable” conditions in debt talks.

COMMENT: Although the Argentine president seemingly believes that all subjects of a negotiation are negotiable, what she seems to not fully understand is that the High Court does not "negotiate" its rulings.

What President Fernández may not realize is that her populist doctrines have resulted in conscious decisions she made on behalf of her government.

Unfortunately, even though she "characterizes NML and other entities as 'vulture funds,'" the reality is that if she doesn't comply, Argentina may no longer be eligible to utilize the US banking system.

Plaintiffs won a November 2012 US court judgment ordering Buenos Aires to repay more than $1.3 billion in defaulted debt. Including interest, the full amount owed to those litigating bondholders is roughly $1.5 billion.

On Monday (June 16), the US Supreme Court refused to hear the Argentine government’s challenge of that decision by US District Judge Thomas Griesa.

Two days later, the 2nd US Circuit Court of Appeals in New York lifted its stay of an injunction issued by Griesa that bars Argentina from making a scheduled payment at month’s end to holders of restructured bonds via US banks unless it simultaneously makes payment in full to the holdouts.

The US rulings put Argentina in a serious bind because it will enter into a technical default if it does not make payment to the holders of the restructured bonds on June 30.

Argentina also says implementation of Griesa’s order would push the country into default because other holdout bondholders that were not part of the litigation could also demand full repayment on the defaulted debt.

Buenos Aires says those potential claims would bring the total owed to the holdouts to some $15 billion, equivalent to half of Argentina’s foreign-exchange reserves.

Denounced by Argentina as “vulture funds,” NML and other entities acquired risky Argentine bonds at high interest rates when Buenos Aires defaulted on roughly $100 billion in debt in December 2001, the largest sovereign default in world history.