Friday, August 22, 2014

Argentina/US: Update--The Next Step for Buenos Aires: Contempt of Court

According to The Associated Press, a federal judge in Manhattan on Thursday (August 21) said Argentina's plans to evade his orders by failing to make required payments to US bondholders is illegal and cannot be carried out, but he stopped short of finding the South American nation in contempt of court.
At a August 8 hearing, US District Court Judge Thomas Griesa had threatened Argentina with contempt, saying the nation's leaders were making "false and misleading" statements as they ignored obligations to pay the hedge funds.
Since then, Argentina's public statements have grown more defiant. President Cristina Fernández this week announced plans to make interest payments to other bondholders through her nation's Central Bank rather than US banks that are subject to Judge Griesa's orders.
COMMENT: In a statement late Thursday, President Fernández's office accused Judge Griesa of being contemptuous of Argentina's sovereignty in his attack on the president's plan to have her country's lawmakers adopt legislation setting up the alternate repayment system. Griesa is trying to "impose conditions on the Congress, the highest legislative body of the nation."
Fernández has repeatedly decried the judge's ruling that Argentina must repay US hedge funds that hold some of the Argentine bonds that were defaulted on after the country' 2001 economic collapse.
The funds led by New York billionaire Paul Singer's NML Capital Ltd. bought the bonds on the cheap after the default and are now demanding payment. Argentina's leaders call the funds "vultures" because they refused to participate in swaps in 2005 and 2010 in which over 90% of Argentina's bondholders agreed to accept lesser-valued bonds.
"Far from delivering justice and bringing equal conditions among the parties, the judge only looks to favor the vulture funds," Argentina's statement said.
Argentina attorney Jonathan Blackman has repeatedly told the judge that the country is left with few options because any deal it reaches with US bondholders owed about $1.5 billion would obligate it to pay over $20 billion to other bondholders.
In a letter to the judge Wednesday, attorney Robert A. Cohen on behalf of the US bondholders said Argentina's new proposal would offer his clients the same "stingy terms" that the hedge funds had declined twice before and force them to submit to Argentina's "puppet bank" or "Argentina's patsies" for payments.
At Thursday's hearing, Cohen said a finding of contempt would send a stern message to top Argentine officials as well as to any financial institutions that might want to help Argentina avoid its obligations to US bondholders.
Attorney Carmine Boccuzzi, representing Argentina, said a contempt finding would not aid efforts to negotiate a resolution with help from a court-appointed special master and would lead to harsher rhetoric. He also said it was premature, since Argentina had not yet changed rules for how bondholders would be paid.
The judge may have passed on a contempt finding in part to send the message that he doesn't do everything the funds request as Argentina has alleged, said Daniel Kerner, Latin America director at the Eurasia Group in Washington.
Yet, if Argentina goes through with a plan to replace foreign bonds with new local issues to side-step Griesa, the judge likely to find the nation in contempt of court, he said.
Griesa said Argentina's refusal to pay US bondholders is like a man showing up at a closing with only $80,000 to buy a $100,000 property and insisting "$80,000 is a lot of money and my family is ready to move in."
Griesa added that "He would be laughed out of the neighborhood."