The U.S. Supreme Court has rejected Argentina’s appeal of its case with holdout creditors, ordering the country to repay $1.5 billion to investors and raising fears of another default like the one that contributed to political and economic turmoil there in 2001.
The New York Times notes that the appeal rejection was one of two major blows delivered by the Court, the other being a 7-to1 decision which allows bondholders to use court orders to trace Argentine assets abroad. The ruling goes against the recommendations of the Obama administration, which argued that doing so would harm international relations and trigger reciprocal action against the U.S.
While President Cristina Fernandez has long fought against paying what she calls “vulture funds” that refused offers to negotiate debt, her options are limited moving forward. The ruling orders her administration to pay the holdouts in full before making payments to other bondholders, and a payment to the latter is due on June 30. From the Financial Times:
Argentina now faces four choices, analysts say. It could pay the holdouts, which it is loath to do, while also continuing to service holders of so-called exchange bonds. However, this seems unlikely, as “the government has indicated that it cannot afford to make such a payment in the wake of a sharp fall in foreign exchange reserves during the past year”, David Rees from Capital Economics, a London-based consultancy, said.
Alternatively, it could attempt a negotiated solution with the holdouts. The problem here is that a local law, called “the lock law” and which is binding until the end of the year, forbids Buenos Aires from offering better terms to holdouts. Third, it could try to reroute payments to exchange bondholders outside the US, thereby escaping US legal rulings, but this is difficult logistically.
Last of all, it could default on all its bonds.
In a nationally televised “cadena” speech yesterday evening, Fernandez said the country would not default on its restructured debt, though it was not clear how she would respond to the ruling. The president claimed she was willing to “negotiate,” but that she would not “submit the country to extortion.” While Fernandez said her country would honor commitments to make payments on its restructured debt, she characterized the terms of the U.S. Court ruling as “absurd and impossible to carry out,” La Nacion reports. She failed to give specifics about Argentina’s next move, however.
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