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Argentina Pushing Law Sidestepping US Court Ruling on Default, with Zero Creditor Approval

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Most of Argentina’s creditors are not about to accept a swap of their bonds, paid for with cold cash, for a new set of government bonds with payment sometime in the future.

Would you?

“It is not the wish of a majority of bondholders, as far as I know, to have a big change in the jurisdiction, ” Economy Minister Axel Kicillof told several Congressional committees yesterday, according to Reuters.

The Argentine Congress, where leftist President Cristina Fernandez has a lot of power for now, is planning to pass the new bond plan into law on Wednesday. They’ll do it in order to avoid a U.S. court ruling that declared Argentina in default and ordered it to pay up its mostly American creditors.

But if investors—whom the president politely called “vulture funds”—refuse to go along, Argentina would remain in default, pending resolution of its dispute with those debt collectors.

Interestingly, Nobel prize-winning economist Joseph Stiglitz on Tuesday told Reuters in an interview that Argentina is right to fight the U.S. court ruling that pushed it into default in July. The United Nations is planning to a multilateral plan for handling bond restructuring.

Last month, Argentina came up with a plan to make payments on its bonds only locally, and to offer creditors to swap their IOUs for bonds. But that idea didn’t make anybody particularly happy up north, in New York City, because of “the lack of financial incentive to participate, ” as a Reuters report put it so aptly back then.

Argentina defaulted in July, following a U.S. court’s blocking of its interest payment to holders of its restructured debt issued under U.S. law. The court ordered Argentina to first reach a settlement with a small but extremely powerful American hedge funds, who still demand full payment.

This stalemate can’t go on much longer, obviously, seeing as Argentina’s foreign reserves will run out if it stays in default for too long, and that means many closed doors at the international credit markets. That’s nothing new to the ailing Argentine economy, which has been barred from those nice global markets since it defaulted on $100 billion in 2002..

Back in August, Economy Minister Axel Kicillof described what he called the process of “over- indebtedness, ” initiated by the 1976-1983 military dictators, which left Argentina with a mountain of external debt it couldn’t possibly pay up.

Kicillof accused the International Monetary Fund (IMF) of making a bad situation much worse by forging a mechanism of “refinancing, ” “interests, ” and “covered capitalization, ” which only increased Argentina’s liabilities “without the entrance of genuine resources into de South American country.”

“Each of these refinancing processes were a show of humiliation for Argentina, because the impossibility to pay forced her to incur new debts, conditioning its economic policy on adjustment plans, ” Axel Kicillof said.

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