BUENOS AIRES — Argentina has finally run out of wiggle room in a billion-dollar showdown over foreign debts unpaid since the country’s world-record default a decade ago.
Late Wednesday, a federal judge in New York ordered Argentina to pay immediately and in full everything it owes to what the Argentine president calls “vulture funds” that she blames for much of her country’s troubles. That adds up to $1.3 billion, due Dec. 15.
The judge also barred Argentina from paying other bondholders until it satisfies this judgment, putting the president’s back against the wall: if President Cristina Fernández doesn’t reverse her longstanding position and pay up, she risks setting off another Argentine debt default, this time totaling more than $20 billion.
“It is hardly an injustice to have legal rulings which, at long last, mean that Argentina must pay the debts which it owes,” Judge Thomas P. Griesa of Federal District Court concluded. “After 10 years of litigation, this is a just result.”
Argentina’s government did not immediately respond to Judge Griesa’s orders, delivered just before the Thanksgiving holiday.
Senator Agustín Rossi, who leads the ruling party’s bloc in the Argentine Congress, said in a local radio interview on Thursday that he believed Argentina’s government would be within its rights to reject the order, “on behalf of all the Argentines, after we’ve made such an enormous effort to get out of default.”
Argentina’s president and economy minister insisted earlier this week that they would not pay a single dollar to the plaintiffs, and said they would appeal to the Supreme Court of the United States.
But the judge gave President Fernández no room to maneuver in the interim, ordering that the money be put in an escrow account for the plaintiffs to collect.
“These threats of defiance cannot go by unheeded,” the judge wrote. “The less time Argentina is given to devise means for evasion, the more assurance there is against such evasion.”
If the president refuses to pay, the judge said that the Bank of New York, which processes Argentina’s bond payments, will find itself in violation if it does not hold up payments to all other bondholders.
“It’s a mess. This does not help Argentina. Default could happen,” Alberto M. Ramos, a Goldman Sachs analyst in New York, said on Thursday. “The markets will react negatively to this.”
The remedy also sent jitters through the legal departments of the most powerful financial institutions in the United States.
The Federal Reserve and the Clearing House, a trade group representing the world’s largest commercial banks, told the judge to make sure his order would not affect the funds transfer system, which automatically moves an average of $2.6 trillion a day in half a million transfers between more than 7,000 banks.
The entire system depends on transfers being “immediate, final and irrevocable” when processed. Requiring intermediaries to identify, stop and divert payments according to court orders “would impede the use of rapid electronic funds transfers in commerce by causing delays and driving up costs.”
The judge dismissed these concerns Wednesday night, saying among other things that “if Argentina complies with the rulings of the Court of Appeals, there will be no problem.”
As with so many other things involving Argentina, this case is rooted in the bloody dictatorship that ruled from 1976 to 1983. The military junta more than tripled the country’s foreign debts. By 2001, the burden had become unsustainable and the economy collapsed. Argentina’s $95 billion default still stands as a world record.
Sovereign debt is supposed to be paid no matter who runs a country, but President Fernández has always considered this defaulted debt to be illegitimate, forced onto the Argentines by dictators acting in concert with international financial speculators. She and her late husband and predecessor, Néstor Kirchner, who took office in 2003, have never made any payments on the defaulted bonds.
Article source: http://www.nytimes.com/2012/11/23/business/global/us-judge-orders-argentina-to-pay-holdout-bondholders.html?partner=rss&emc=rss