Not signed up for the Counterparties newsletter yet? Click here.
When we left off two weeks ago,Â the Supreme CourtÂ deniedÂ to hear the Elliott v. ArgentinaÂ case.Â Federal district court judge Thomas Griesaâ€™s decision stands,Â giving the sovereign nation until today to either pay its holdout creditors (who did not restructure their bonds when the country defaulted in the early 2000s), settle with them, or default on its debts again. In the interim, Argentina has attempted to do anything but those three things. â€śArgentina is not lying when it says that it simply canâ€™t afford to do what the U.S. courts are demanding of it — which is to pay all the holdouts in full,â€ť writesÂ Felix Salmon.
Last week, Argentina attempted to do exactly what Judge Griesa told it not to: it deposited the $539 million in interest payments due to its (non-holdout) bondholders with the Bank of New York. After that, â€śthings went variously pear-shaped in court,â€ť saysÂ Matt Levine. More specifically, Judge Griesa ordered the payment nullified.Â â€śThis payment is illegal and will not be made. Anybody who attempts to make it will be in contempt of court,â€ť he said, ordering the Bank of New York to return Argentinaâ€™s money.
This morning, Argentina took out aÂ full page adÂ in the Financial Times, declaring that Judge Griesa is biased in favor of the “vulture funds” (the holdouts). Argentina, it seems, is about to default, despite having technically sent the money to New York. â€śNaturally, given the bizarro world of the pari passu saga, this announcement is headlined ARGENTINA PAYS,â€ť saysÂ Joseph Cotterill. Further,Â Matt LevineÂ writes in anotherÂ post that â€śif your goal is to maintain access to the international capital markets, a technical argument that you’ve paid your debts isn’t nearly as good as actually getting money to your creditors.â€ť If you are interested, that post also contains a fair amount of speculation about various interesting ways Argentina could try to make technical end-runs around the U.S. legal system to pay its bills without defaulting.
While the interest payment was technically due today, the world could be in for another month of drama. â€śArgentina has a 30-day grace period to try to reach a deal with the holdouts. If it cannot, it will be in default by the end of July,â€ť writesÂ William Alden.
The larger point here, though, is probably Felixâ€™s: no matter what Argentina does, this ruling has broad implications for international finance. â€śThe ruling will make it more difficult for countries to free themselves from the burden of over-indebtedness. It will be very bad for international capital markets. Oh — and it will also diminish national sovereignty,â€ť he says. Martin Wolf and Joseph Cotterill talk about this, too, in an FT AlphavilleÂ video. â€śThe most important thing is to have a process that makes possible renegotiation of the debt on not ludicrously easy terms for the debtor, because that destroys the whole market, and at the same time makes it possible that this doesnâ€™t go on forever,â€ť says Wolf. â€”Â Shane Ferro
On to todayâ€™s links: