Argentina gets debt reprieve
Argentina got some breathing room Wednesday in its billion-dollar debt show-down as an appeals court indefinitely suspended a federal judge's ruling that threatened to push the country into default.
The two-paragraph appellate court order sets a February 27 date for oral arguments in the case, averting a December 15 deadline for a US$1.3-billion payment that Argentina has refused to make despite losing its case against NML Capital Limited, an investment fund that specialises in suing over unpaid sovereign debts.
Judge Thomas Griesa had ordered the government of President Cristina Fernandez de Kirchner to pay the money into an escrow account even as it pursued its final appeals.
The 2nd US Circuit Court of Appeals gave no explanation for staying the order, but all parties in the case now have two more months to prepare for hearings.
Fernandez had called the ruling by Griesa "judicial colonialism" and said she won't pay anything to what she calls "vulture funds".
She said that if it was allowed to stand, the judge's ruling would give financial speculators a huge advantage over countries that need to restructure debts and protect their citizens as they grow their way out of economic crises.
Griesa ordered the Bank of New York to stop Argentina's December 15 payment to the vast majority of its other bondholders if the government didn't pay the plaintiffs by then, a draconian remedy that threatened to set off a fiscal crisis.
If the ruling stands and the plaintiffs get paid, then other groups holding more than US$11 billion in defaulted Argentine debt would pounce on the precedent and demand immediate payment as well. But if Fernandez keeps her word and refuses to pay, then Argentina would fall into default on all the rest, and more than US$20 billion would come due.
Lawyers for NML Capital declined to comment on the stay. Argentine officials offered no immediate reaction.
Argentina has more than US$45 billion in foreign currency reserves, but that money is committed to a slew of government subsidies and economic stimulation programmes.
O'Shea said he was certain Argentina's bonds would rally now that the markets have certainty that the country's December debt instalments will be paid. "The market will realise calmer heads have prevailed," he said.
Economy Minister Hernan Lorenzino said earlier Wednesday that the government was considering asking Argentina's congress to reopen the 2005 and 2010 debt exchanges, but only to offer the holdouts yet another opportunity to accept the same steep 'haircuts'.
That's a more flexible position than Argentina has shown in years, but hardly enough to satisfy the plaintiffs now that the judge has ordered them to be paid 100 per cent plus interest for the debt that many of them bought for pennies on the dollar in 2002, when Argentina's economy was in ruins.
And since clauses in these bond contracts say that everything Argentina owes could come due immediately, and in full, if the government "voluntarily" changes the terms of its debt restructurings, Lorenzino stressed that Argentina won't make any move without a definitive order from the US courts.