Monday, June 16, 2014

Supreme Court Sides with Vulture Funds in the case of Argentina

Very briefly, since I've to go teach (more later today this week). The Supreme Court has sided with the Vulture Funds and denied Argentina's appeal judge's Griesa's infamous decision requiring it to pay the last holders of bonds on which it had defaulted (almost 93% had already renegotiated, after Argentina's agreement with the Paris Club). The problems this will cause transcend Argentina, and are a blow for any debt renegotiation worldwide. Who will accept a renegotiation knowing that the Supreme Court can decide that some have to be paid according to the original agreements?

In the case of Argentina, the efforts to finalize the renegotiation with debtors, that culminated with the Paris Club agreement, and which intended to normalize the relation with international capital markets, and allow a reentry of the country into those markets on a more favorable footing are gone. A very likely outcome will be a technical default, that is, for lack of payment even though the Central Bank does have funds to pay.

On an interesting note, 'liberal' judges Breyer and Kagan voted with the conservative majority, and only Ginsburg dissented (Sotomayor did not vote).

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