MercoPress, en Español

Montevideo, September 29th 2023 - 10:37 UTC



As the US before IMF lines up behind Argentina in the litigation with hedge funds

Friday, May 24th 2013 - 07:10 UTC
Full article 34 comments
IMF fears the negative impact on other sovereign debt restructuring processes IMF fears the negative impact on other sovereign debt restructuring processes

For the first time since the litigation of hedge funds against Argentina the International Monetary Fund warned about the ‘risks’ which would entail ratifying Judge Thomas Griesa ruling condemning Argentina to pay over a billion dollars plus interests to the so called ‘vulture funds’.

A decision of that kind could create ‘problems’ to other debt restructuring processes and discourage creditors to participate, according to a document from the IMF legal department.

The document points out to two main problems that would be of two kinds, but all of them stemming from the ‘power’ that such ratification would give the so called ‘holdouts’. That is bond holders who refused to accept the exchange offered by Argentina in 2005 and 2010, and which finally included 93% of creditors with defaulted sovereign bonds from the 2001/02 crisis.

From such a ratification, according to the IMF, it would become evident that the possibility of obtaining a better deal than those who accept an early restructuring process, or, come the case, the possibility of altering the whole process (turning back the bonds exchange) and thus forcing the country to again default.

This does not mean that the IMF is taking sides on the litigation but warns on the additional ‘problems’ in the event of a ratification of the ruling would have for other and future debt restructuring processes.

Judge Griesa ruling is on hold while the New York Circuit Court of Appeals studies the case and decides how to proceed, something which is expected any moment.

The government of President Cristina Fernandez has already advanced that if the ruling is ratified ‘it will not abide by it’ and warned that such a decision would force Argentina to a new default as happened in 2001. Argentina’s solicitors have repeatedly argued on the ‘noxious effect’ that the confirmation of Judge Griesa’s ruling could have on other debt structuring processes world wide.

A year ago the United States government filed an ‘amicus curiae’ or friend-of-the-court brief, asking that the 2nd U.S. Circuit Court of Appeals reverse Griesa's rulings, contending the 2nd Circuit's decision ran “counter to longstanding US efforts to promote orderly restructuring of sovereign debt”.

The judge's orders ”could enable a single creditor to thwart the implementation of an internationally supported restructuring plan, and thereby undermine the decades of effort the United States has expended to encourage a system of cooperative resolution of sovereign debt crises,“ US lawyers wrote.

This is the first time that the IMF as such opines about the ongoing litigation. Even former top official of the IMF, Anne Krueger, at the time of the default extremely critical of Argentina has supported the current Argentine stance.

Argentina and holders of its restructured bonds say granting the holdouts 100 cents on the dollar could complicate future sovereign restructurings around the world. Argentine Vice President Amado Boudou while in New York for the court hearings repeated that Argentina would continue repaying investors who participated in the restructuring no matter how the U.S. court case is resolved.

”One way or another, Argentina will pay,” he said.

Top Comments

Disclaimer & comment rules
  • Redrow

    An interesting test for the independence of the judiciary. Do you apply the law, or make judgements based on political expediency? I hope it's the former regardless of whether they find for or against Argentina.

    May 24th, 2013 - 07:49 am 0
  • Biguggy

    A very good point.

    May 24th, 2013 - 09:18 am 0
  • Captain Poppy

    There is a very good possibility that Argentina can once again squeak by. Our law here is not codified without exception. If someone is arrested for stealing from a grocery store, they may not feel the full effects of the law when circumstances are accounted for. Let's say for argument purposes....the man lost his job, his home.....and was stealing to feed his family. So if one does this, that is your sentence does not always apply. That is not to say I support Argentina with getting off, I want to see them hang. There is always the possibility that the court can rule against Argentina and qualify their opinion on the premise that because the defendant is a sovereign state, this matter is applicable to and only to this case and similar matters must be handled on a case by case basis.
    Personally I do not agree with the premise of the way funds operate like MNL, basically buying bankrupt countries bonds for pennies on a dollar and enforcing collection of the full amount. However, that being said it is not illegal so until the practice is modified I cannot lobby against it. Perhaps the time has come to develop an international process to allow countries to formally go bankrupt, like individuals, but not retro-actively.

    May 24th, 2013 - 10:25 am 0
Read all comments

Commenting for this story is now closed.
If you have a Facebook account, become a fan and comment on our Facebook Page!