December 12, 2013
Sentence without a full stop
If the headlines in Saturday’s newspapers read “Court rules against Argentina in bond case” or words to that effect, the underlying reality does not point to a clearcut victory for holdout creditors. The main suspense had always been not so much whether the New York federal appeals court would ratify judge Thomas Griesa’s ruling as when — both questions have now been answered. But the long wait merely sets the stage for another long wait because the court’s decision to maintain a stay ensures that the United States Supreme Court can review the case — since the option of Supreme Court appeal was by no means automatic, this prevents the setback for the CFK administration from being total and buys some time. Furthermore, there is a potential ambiguity in the terms of Friday’s ruling — the US Second Circuit Court of Appeals in New York ruled that if Argentina pays holders of its other bonds in full, then it must also pay two hedge funds (“vulture funds” in Argentine government parlance) the 1.3 billion dollars they are owed in principal and accrued interest since a default now almost 12 years ago. But no creditor within performing bonds has been paid in full — all have been subjected to the 2005 and 2010 haircuts (an offer extended to the holdouts earlier this year), which govern around 93 percent of the total debt.
Yet if Friday’s ruling does not mark the end of anything, it cannot be seen as anything less than at least some kind of setback. Even against the unsavoury “vulture funds,” Argentina seems to have earned little enough sympathy abroad in its own right — the main argument in Argentina’s favour (voiced by some International Monetary Fund officials at one point) was that if the holdout creditor criterion of full payment prevails, this could be a disastrous precedent for the debt-restructuring efforts of many other nations (some of them in the European Union). Nor did CFK help Argentina’s case against fuller debt payment in midweek when she boasted about the superior solidity of its Central Bank reserves (among other indicators) in comparison to Australia and Canada, accounting for 7.8 percent of Gross Domestic Product as against 3.3 percent for Australia and three percent for Canada.
Another phase of Argentina’s struggle with its creditors thus runs its course but within the 12-year saga since default, Friday’s ruling may end up being no more than a footnote.