November 28, 2014
Playing an open hand
The scepticism of the United States Supreme Court in yesterday’s hearing as to whether breaching the confidentiality of Argentina’s assets abroad went “beyond the bounds of federal law” does not necessarily condemn the Cristina Fernández de Kirchner administration to defeat in its eventual showdown with holdout creditors spearheaded by billionaire Paul Singer over the 2001 default — what it does do is to make even less viable Economy Minister Axel Kicillof ‘s bid to press ahead with other foreign debt negotiations while resisting International Monetary Fund monitoring (Article IV). The more Argentina gives the impression it has something to hide (at the same time, without implementing those unhealthy policies on which the IMF insists), the more curiosity there will be and hence the more sympathy with Singer’s bid to force banks to provide details about Argentine assets worldwide (which at least a few justices seemed to share yesterday). Whether the bondholders are entitled to collect those overseas assets under the terms of the US Foreign Sovereign Immunities Act is another question but the Supreme Court yesterday apparently did not understand that legislation as excluding asset disclosure or other information related to a legal claim (unless military secrecy is involved).
Yesterday’s hearing can be seen as a prelude to the main issue — Argentina’s bid to appeal to the US Supreme Court the pari passu ruling of a Manhattan judge upheld by an appeals court and obliging the country to pay owners of the repudiated bonds in full. Since this would complicate payments to the 92 percent of creditors accepting the 2005 and 2010 haircuts, the failure of this bid would threaten a technical default at the very least. Due to the negative implications for debt restructuring worldwide, the Barack Obama administration is reportedly backing Argentina’s case although sometimes it seems to have strange ways of showing this support. While this concern for global restructuring precedents favours Argentina, the same logic also justifies what would otherwise be a totally unusual position for US courts — namely, defining another country’s financial future.
The US Supreme Court’s decision on the main case is not expected until midyear. This makes the next 10 or so weeks crucial for advancing on the Paris Club and other debt negotiation fronts in order to maximize Argentina’s transparency and credibility with global markets and minimize the mystery and the perceived need for information. The more open Argentina is in general, the less pressure will there be for disclosure.