海角大神

The stakes couldn鈥檛 be higher for Argentine President Cristina Fern谩ndez de Kirchner as a legal tug-of-war with a $20 billion US hedge fund plays out in a New York case that has sent nationalist sentiment soaring in Argentina and raised concerns about the impact on future efforts to help debt-ridden countries recover.

NML Capital, part of American billionaire Paul Singer鈥檚 Elliott Management, is among a handful of creditors demanding full repayment of bonds that Argentina defaulted on in 2002, rather than the partial repayment to which most creditors agreed.聽They were buoyed by the Nov. 21 ruling of United States District Judge Thomas Griesa, who, arguing that Argentina must treat all its creditors equally, said the Southern Cone country must pay $1.33 billion to NML 鈥� as well as satisfy the demands of other creditors 鈥� by Dec. 15, or potentially face a second, 鈥渢echnical鈥� default.聽

A US court of appeals, however, issued a stay on Griesa鈥檚 order, sending it back to let the court figure out the mechanics by which it would force Argentina, a sovereign nation, to submit to local courts.

Legal experts are watching the NML case closely because of implications they say it could have elsewhere in a scantly regulated area of international finance. President Kirchner, whose聽approval ratings arein a slump as the commodities-heavy economy slows, has seized the moment to shore up national sentiment among a population that remains wary of foreign creditors after Argentina鈥檚 $100-billion sovereign debt crash, the largest in history.聽Kirchner has used the conflict to cast Argentina as the victim of predatory 鈥渧ulture funds鈥� seeking to impose 鈥渏udicial colonialism.鈥�

鈥淥ne judge wants to frustrate Argentina鈥檚 greatest achievement,鈥� Kirchner told crowds in Buenos Aires鈥檚 Plaza de Mayo Sunday, during an event to commemorate Argentina鈥檚 return to democracy in 1983. The crowd responded with hisses and boos.

In recent months, the government鈥檚 inability to settle with a handful of holdouts led by NML has resulted in one of its Navy tall ships being impounded in Ghana and an expensive court case in New York.

Young Argentines who grew up in the shadow of former President Carlos Menem鈥檚 free-trade indebtedness in the 1990s argue that refusal to pay is a way to avenge previous wrongs 鈥� and perhaps even make a statement to the world that Argentina is skeptical of globally managed economic action.***

鈥淭hey had opportunities, but they are not interested in our national project to pay off the debt. They鈥檒l make more money if we fail,鈥� says Maximiliano Oliva, a taxidriver and psychology student from provincial Quilmes.

American entities are concerned as well. If Griesa鈥檚 ruling is upheld, it could throw a wrench into global bond markets, the New York Federal Reserve said earlier this month. For example, Greece reached a restructuring agreement with private bondholders last February to accept a 74-percent "haircut" 鈥� in other words, only getting 26 percent of their money back. But, some ask, if the Griesa ruling holds, who鈥檚 to say once-cooperative bondholders won鈥檛 raise their own suit, citing this ruling as precedent for why they deserve more?

University of Texas bankruptcy expert Jay Westbrook says the case鈥檚 major tension鈥� and why it could easily wind up before the US Supreme Court 鈥� is that the sovereign-bond market is not equipped to handle this dispute. The introduction of collective-action clauses, which force bondholders to accept the terms of a majority-supported deal, were not introduced until the mid-2000s, long after Argentina and other countries had inked sovereign-debt contracts with investors like NML.

2005 restructuring

During the administration of former President Nestor Kirchner, who died in October 2010, Argentina reached its first restructuring agreement in 2005 with 76 percent of creditors, who agreed to a swap of the defaulted bonds for new bonds worth about 35 cents on the dollar.

It reopened the debt exchange in 2010 and won over all but 7 percent of remaining creditors, including NML and some Argentina and Italian individual bondholders.

鈥淭he thinking then was that Argentina would never go back to the external-debt markets,鈥� says Sergio Berensztein, president of the Buenos Aires-based independent think tank Poliarqu铆a, and thus did not need to worry about the holdouts.

Since Kirchner came to power in 2003, and in the subsequent administrations of his wife, Argentina has taken a radical turn away from the liberal economic policies of previous administrations, moving toward more state control of markets and partnerships with other leftist leaders, including聽Ecuador鈥檚 Rafael Correa and Venezuelan President Hugo Ch谩vez.

Such a move could hinder Argentina in fundraising efforts, for example with YPF, the oil and gas company nationalized through expropriation from the Spanish company Repsol last April.

鈥淎rgentina had the luxury to not need to have to ask for outside funding without any major consequence, but with YPF, it鈥檚 obligated to look for foreign investments,鈥� Berensztein says.

More leverage to holdouts

If sovereign nations were treated as companies, a bankruptcy court could divvy up assets to satisfy claims, forcing bondholders to come to accept terms by majority rule.

In the case of the US, contracts regulating government sovereign debt establish that the US retains irrevocable rights that shelter it from foreign jurisdictions.
Nevertheless, laying claim to sovereign assets has been done before. Besides the Navy frigate held by order of a court in Ghana, in previous years, Chilean and Zimbabwean aircraft have been seized at foreign airports in lieu of debt repayments.

Argentina has asked its Congress to reopen the 2010 exchange for outstanding creditors.

However, having rejected the deal in 2010, arguing that Argentina has the capacity鈥� if not the will 鈥� to pay its debts in full, NML Capital is not likely to accept those terms now.

Strengthened by global commodity prices and a hugely depreciated peso, Argentina鈥檚economy grew at an average annual rate of 7.7 percent from 2004 to 2010. Tempered by the economic crises in Europe and the US, however, Argentina is employing an import-substitution strategy to save its reserves of US dollars for paying off the聽country鈥檚 debt.

In NML's case against Argentina in Ghana, Argentina appealed to the court on the basis of a 1976 sovereign immunities act, but a judge ruled that the country had explicitly waived its sovereign rights in the language of the contract it signed with NML in 1994. Argentina has since brought a separate case before the United Nations International Sea Tribunal in Hamburg, Germany.聽

On Dec. 15, Argentina is scheduled to pay $3 billion on warrants issued as part of its regularly scheduled payment to creditors who participated in the restructuring. Griesa鈥檚 ruling sent credit-default swaps of Argentine debt on a tear, but the markets normalized after the country won its appeal, quelling investor concerns about a default 鈥� at least for now.

The Fitch ratings agency downgraded Argentina鈥檚 sovereign debt to junk status last month, calling the risk of default 鈥減robable.鈥� Argentina鈥檚 foreign minister Hernan Lorenzino questioned the agency鈥檚 credibility, citing the global credit crunch of 2008, and said the strength of Argentina鈥檚 reserves ($45.4 billion) demonstrate the country鈥檚 capacity to pay.

Whether it is willing is a question creditors do ask, says Berensztein.

鈥淭here鈥檚 a difference between can鈥檛 pay and won鈥檛 pay,鈥� he says.