Argentina has taken the United States to the International Court of Justice in the Hague over a U.S. federal judge’s actions in a dispute about bond payments. Meanwhile, the judge in that case, Thomas Griesa of the Federal District Court in New York, has threatened to hold Argentina’s government in contempt of court because of statements made about the case by President Cristina Fernandez de Kirchner and other officials.
The case is about claims by U.S. hedge fund firm NML Capital Limited, a Cayman Islands branch of Elliot Management Corporation, plus another hedge fund, relating to Argentina’s 2002 default on payments of its sovereign debt. Since the original default, Argentina had reached agreement with 93 percent its original creditors whereby they would be reimbursed, via a bond swap, for about 30 percent of the value of the original bonds. This allowed Argentina to re-enter the bond market and protect its poorest citizens.
Long after the original default, the two main holdout hedge funds, not part of the original group of creditors, bought up some of the bad debt at fire sale prices, and then sued Argentina for their whole original value plus interest. Thus the hedge funds and the main investor in Elliot, U.S. billionaire Paul Singer, stand to make a killing of 1,600 percent of their investment.
In 2012, Judge Griesa awarded the holdouts the full value of the original bonds, $1.3 billion, plus interest. The Court of Appeals backed Griesa. This year the U.S. Supreme Court declined to hear Argentina’s appeal, and also gave Elliot Management permission to find out where all Argentina’s assets, and those of senior Argentine officials, are held, so it could move to seize them.
If Argentina were forced to pay the holdouts, the bondholders who had accepted the reduced payments could then demand payment in full on the basis of the original value of their bonds, destroying Argentina’s entire debt restructuring and jeopardizing half of the country’s reserves.
Griesa ruled that Argentina cannot continue to pay the non-holdouts without paying the full sum to the holdouts. Argentina has just deposited $539 million to pay the non-holdouts with Mellon Bank in New York.
Judge Griesa has forbidden Mellon to pass this money on to the creditors, threatening to find the bank in contempt, and has now threatened the Argentine government with contempt of court if it continues to state that it is not in default. So Argentina can’t pay anybody unless it pays the holdouts the amount Griesa awarded them. Efforts to negotiate an agreement have so far failed, which led the Standard and Poors bond rating agency to declare Argentina in default as of July 30.
Argentine President Cristina Fernandez de Kirchner calls the holdout hedge funds “vulture funds”, and has bought ads in U.S. newspapers to explain Argentina’s position. This is what led Judge Griesa to threaten Argentina with contempt of court. Argentina argues that its timely deposit of the funds in Mellon Bank shows that it did not default, and that a U.S. federal judge can’t treat a sovereign country of 43 million like a parking ticket scofflaw.
The main investor Elliot Management is Paul Singer, a major contributor to Republican Party causes and candidates, including Mitt Romney. He has created a lobbying group whose sole purpose is to get the support of Congress for his claims against Argentina. Investigative reporter Greg Palast points out that Singer has done this to the Congo Republic (“Congo Brazzaville”) and Peru.
In the Congo case, Singer’s company bought toxic bonds for a song and then forced this extremely poor African country to pay him using, in part, funds that had been donated internationally to help improve its public health system. On a $10 million purchase, Singer realized $127 million.
So Argentina, as well as complaining to the U.S. Security and Exchange Commission, has gone to the World Court. The International Court of Justice cannot act on Argentina’s suit unless the United States agrees to be sued.
Many observers in the United States find this situation extremely alarming. For the sake of Mr. Singer’s bottom line, there is a threat of a disruption of U.S. diplomatic relations with Latin America and of the entire world financial system, because if applied generally it would make it impossible to carry out debt restructuring in any country. If just one creditor failed to accept a restructuring offer, payments to all others would be endangered.
Latin Americans are very aware of the things they share with Argentina, including its past of a U.S. supported military dictatorship which incurred some of the original debt.
The Argentina situation gives greater urgency to the efforts of poorer countries to disentangle themselves entirely from U.S. financial institutions. This prospect has U.S. banks worried, so at writing they were scrambling to find a way to appease Mr. Singer.
Greg Palast states that the Obama administration, which has taken Argentina’s side with an amicus brief, could stop this nonsense by simply invoking our constitution’s “separation of powers” which gives the executive branch exclusive control over foreign relations.
Photo: In this June 17, 2014 file photo, Argentina’s Economy Minister Axel Kicillof talks to the media during a news conference. Eduardo Di Baia/AP