The US Supreme Court gave hedge funds another month to present their reply following on the request from the Argentine government to review the sentence handed down by Judge Thomas Griesa and partially supported by the Appeals Court.
The news which only became public last Friday means that hedge funds NML, Aurelius and Olifant have an additional thirty days to contest the ‘writ of certiorari’ (appeal) from Argentina until August 26, instead of July 26.
Last 24 June Argentina requested the US Supreme Court to consider the 26 October 2012 decision from the Appeals Chamber, which partially supported Judge Griesa’s ruling.
The Appeals Chamber interpreted that Argentina had violated the ‘paripassu’ which demands equal treatment for all creditors, but did not decide on how payments should be made and is the matter currently under consideration.
Last Tuesday it became public that the IMF board would decide on whether to file an amicus brief to the Supreme Court in support of Argentina, as was proposed by Managing Director Christine Lagarde.
According to an IMF paper voted last May by the board, the default trial against Argentina could harm the functioning of the IMF, affect the flow of international payments and of future sovereign debt restructuring, among other issues.
According to the IMF paper if the hedge funds position were to prevail “it would discourage creditors from participating in voluntary restructuring of debts” and at the same time “increase the risk that bondholders would multiply and creditors, who in other circumstances would be more inclined to a restructuring, could end less willing to do so given concerns about the option of equal terms for all creditors involved if they wait the sufficient time”.
IMF sources said that the multilateral organization decided to intervene in the case, at the Supreme Court level, given the political consequences that would adversely affect debt restructuring processes.
The IMF decision is a clear sign of the importance of the Argentine case for the world financial system, and has become a ‘leading case’ and a significant change for the board which until now had remained on the sides of the litigation.
One of the reasons for the IMF interest is the European debt crisis and the fact that the many and repeated rescue plans have failed or have been insufficient to prop the different countries back on a sustainable growth path.
In effect one of the solutions under consideration is that the IMF awards loans in exchange for the restructuring of debts where the private sector also pays a cost. These ideas are under debate in the IMF because of the ongoing international crisis.
The Argentine appeal argues that the ruling violates the US sovereign immunity bill.
According to Argentina the Appeals Chamber decision merits review because it represents an unprecedented intromission in the activities of a foreign state in its own territory which triggers concerns about US foreign relations.
Likewise Argentina in its June presentation before the Supreme Court said that on compromising payments to those who accepted the bonds exchange to pay the hedge funds, “it also imperils the voluntary sovereign debt restructuring process which has the support from the US as well as from the rest of the world financial community”.