Argentina Resists Court Order to Pay Hedge Funds US$1.3bn after 2001 Default

Argentina’s economic minister, Hernan Lorenzino, said that his country will resist a US court ruling on 20 November, that it must pay US$1.3bn to hedge funds that refused to restructure their debts following Argentina’s 2001 sovereign default when it makes regular payments to its restructured bondholders in December.

New York federal judge, Thomas Griesa, ordered Buenos Aires to immediately pay sovereign bondholders who rejected two exchanges of defaulted debt in 2005 and 2010 in the latest episode of a years-long legal battle.

Argentina’s Lorenzino told reporters that the country was willing to appeal to the US Supreme Court “or whatever international body that might be necessary” to press its case.

“We don’t believe that this was a fair decision, as Judge Griesa says it is, to pay the vulture funds. We believe that on the contrary, to do so is in some way at the expense of all those who did everything possible to make it so that Argentina today is in a position to pay its debt,” he added.

Lorenzino’s stance has raised concerns that the country might default again, with Argentina due to pay around US$3.4bn in total next month to various restructured bondholders, which include NML Capital, part of Elliott Capital Management, headed by founder and chief executive officer Paul Elliott Singer.

A small payment due on 2 December will be able to proceed as normal, but if Argentina does not make a further payment due on 15 December payment to NML and others, it will not be allowed to make regular payments to its restructured bondholders, increasing the risk of default.

Argentina has also resisted past judgments against it, arguing that the funds were “vultures” and “scavengers”. Its president, Cristina Fernandez, has stated that her government will not pay “one dollar” to the holdouts. However, this week’s ruling not only directed an injunction at the country, but also its agents “and other persons who are in active concert or participation with the parties or their agents”.

This includes Bank of New York Mellon (BNY Mellon) as trustee of Argentina’s restructured bonds, which directs the country’s payments to investors in these securities. The judge argued that when BNY Mellon pays restructured bondholders, those creditors that refused to join the restructuring should also be paid what they are due.

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