Can anyone explain how Argentina can issue bonds under New York law denominated in a foreign currency (USD$) and then try to assert their full sovereignty rights?

To me when you issue bonds outside of your own legal system and your own currency those bonds stop being truly sovereign and become something else. Thanks to anyone who can help!

He writes, seemingly with regret, that:

“..Argentina remains a capital-markets pariah, it can’t really do business anywhere in the world without worrying that Elliott or someone like it is going to attach its property, and pretty soon it will probably have to give up on issuing any foreign debt at all, retreating instead to its own small South American world.”

So what? They are DEADBEATS, for God’s sake! Argentina is an irresponsible debtor nations that caused huge numbers of innocent pensioners in Italy and across Europe to lose their life savings just a few years ago. The Argentine government DESERVES to be completely cut off from international capital markets. There is nothing more moral or just than doing exactly that. Allowing them access to markets, and, thereby, the ability to employ western banks, who are experts at squeezing money out of innocent little old ladies, is the wrongful act, not cutting them off!

But, as mentioned by so many other people here, Argentina is simply the tip of the iceberg. Its mistake was to borrow in the currency of another nation, the USA, when it cannot legally print dollars. The USA is also an irresponsible debtor nation, and will also default on its debt, but it will do so in a stealthy manner, by devaluing the US dollar to a tiny fraction of its present value. BUY GOLD!!

However, the impounding of assets has proven to be a remarkably inefficient remedy. The injunction however creates a default trap with far greater consequences than the nuisance of impounding la libertador tango 1 (the presidential plane). Attachment of assets thus far has proven to be for far smaller amounts than the hoped for payout of 1.3 billion at present making this in many ways different. Still your point is taken about gunboat diplomacy happening as people think it did. Indeed it can be hard to prove intervention on behalf on bondholders when it may have been intervention for a raft of reasons (geopolitcal concerns included). So we will it seems have to wait to see if this remedy is any different or any more effective.

Agreed that looked at from 30,000 feet in many ways this is not necessarily different but rather a part of a rather long cycle of sovereign defaults with different periods when creditor rights became relatively weaker. Interestingly if we believe Tomz argument that the gun-boat hypothesis does not hold then this is perhaps the most powerful remedy ever in the sovereign context. Still looking at it like Reinhart and Roghoff might one imagines that the market including Sovereigns, Institutional holders and the many intermediaries that could be affected might begin to correct thus limiting the larger effect. Still those battles will be interesting to see. It does appear that other sovereigns are reacting e.g. Belize, Paraguay. One imagines that they will continue to do so. Still it seems that we can at least expect a period of difference until the historical arc again reverts to this norm of default, search for remedy, creation of new remedy, reaction to remedy.

There is no question that Argentina’s old, defaulted bonds held by Elliott are a legal obligation of Argentina under New York and U.S. law. The question before the court is what means can be used to collect this obligation.

Whether or not you have been cheering for Argentina, for NML, or for no one in these proceedings, the most interesting impact may be the injunctive remedy which is arguably more powerful that any judgment would be. It seems that using a contempt trap/choice (depending on your viewpoint) for BoNY and a default trap/choice for Argentina the court seems likely to affirm the most powerful enforcement mechanism in the realm of sovereign debt since the era of “gunboat diplomacy.” Blocking access both to the world payment system and world capital markets is as close one can get to blocking access to trade and customs duties.

The question now remains whether this mechanism would be applicable to all other sovereigns or whether the 2nd Circuit’s stance is derived from Argentina’s specific history. As a court in equity, it is incumbent on the court to look at the totality of the circumstances. Argentina’s role as a “repeat defaulter” and “contumacious” challenger of holdout and creditor rights may be the limiting factor in the further use of such an enforcement mechanism. Still, if the injunction is affirmed it will be interesting to see if similar injunctions are sought either inside or outside the sovereign debt context. One imagines that others will certainly try

RPESSC

That is undoubtedly true, but their efforts to do so would be a direct violation of the decision that is likely to emerge from the 2nd Circuit. Absent an exchange to which every single bondholder agrees, any solution that provides for payment of some bondholders but not of others would be a violation of the pari passu clause. Any participation in such a violation would constitute active concert or participation with a party violating the NML v. Argentina and would therefore implicate Rule 65(d)(2)(C). The justices in the hearing demonstrated their commitment to a strict reading of 65(d)(2)(C) throughout their questioning of Bank of New York’s counsel, and that strict reading would doubtless be extended to bondholders seeking to bypass the panel’s by now practically guaranteed interpretation of the pari passu clause.

But the prospect of sovereign default does not warrant histrionics. In “This Time is Different” Carmen Reinhart and Kenneth Rogoff point out that sovereign default is an historically common occurrence and, each time, we believe the situation is unique. While I expect a lively debate on whether the potential discovery of a credible enforcement mechanism does in fact distinguish this default from historical ones, history suggests that a belief in the singularity of the current situation is misplaced.

Moreover, although the Second Circuit’s interpretation of the pari passu language within the Argentine bonds may have created a more effective enforcement mechanism than in the past, does that make our situation unique? Creditors have always been able to turn to gunboat diplomacy or diplomatic responses. Does the court’s interpretation of pari passu distinguish this default from all historical defaults—or is it merely a natural step in the evolution of our response to sovereign default? Isn’t it just another war, albeit with different weapons? Why should we think that this time really is different?

Reinhart and Rogoff recount this same story over 8 centuries: the sovereign issues debt, the sovereign defaults, the sovereign restructures, and there are holdouts, and those holdouts want to be paid.
Attitudes towards sovereign default and repayment go through phases. Yet, historically, holdouts have almost always been paid, for example, countries often end up settling their debts with their holdout creditors and so far this has not impaired sovereign debt restructuring. Besides, there have always been enforcement mechanisms: while we are no longer using gun boat diplomacy (see Michael Tomz, Enforcement by Gunboat), the norm is to hold countries accountable—exactly what the injunction purports to do. This is just another step in the evolution of enforcement mechanisms.

Moreover, the Second Circuit is not ignoring lots of settled law about sovereign immunity because sovereign immunity has changed dramatically over the last century moving from absolute immunity, to restrictive immunity, to the creation of the FSIA replete with specific exemptions. Besides, as Judge Raggi pointed out: Argentina waived its claim to sovereign immunity, submitted itself to the jurisdiction of the court and wrote a pari passu clause into its sovereign debt contracts. Normally, in these circumstances, the court wouldn’t have to worry about enforcing its injunction…but Argentina is being a bit “contumacious.” This is just one more step in the evolution of sovereign debt—a mechanism for modern day situations.

Whether or not you have been cheering for Argentina, for NML, or for no one in these proceedings, the most interesting impact may be the injunctive remedy which is arguably more powerful that any judgment would be. It seems that using a contempt trap/choice (depending on your viewpoint) for BoNY and a default trap/choice for Argentina the court seems likely to affirm the most powerful enforcement mechanism in the realm of sovereign debt since the era of “gunboat diplomacy.” Blocking access both to the world payment system and world capital markets is as close one can get to blocking access to trade and customs duties.

The question now remains whether this mechanism would be applicable to all other sovereigns or whether the 2nd Circuit’s stance is derived from Argentina’s specific history. As a court in equity, it is incumbent on the court to look at the totality of the circumstances. Argentina’s role as a “repeat defaulter” and “contumacious” challenger of holdout and creditor rights may be the limiting factor in the further use of such an enforcement mechanism. Still, if the injunction is affirmed it will be interesting to see if similar injunctions are sought either inside or outside the sovereign debt context. One imagines that others will certainly try

RPESSC

Jonathan Blackman stated repeatedly that Argentina would never “voluntarily” pay holdouts. If Argentina now argued it had no choice but to pay holdouts, however, it could protect itself from claims by exchange bondholders that they were misled when they entered the exchange offers.

Argentina also has strong legal arguments (on FSIA and contract merger doctrine grounds) for why other holdouts who have already received court judgments on their defaulted bonds cannot collect using the “enhanced judgment enforcement mechanism” of an injunction. Payment might not, therefore, open Argentina to valid claims by all other holdouts. That seems like a better legal battle to wage than the mess that would entail after a default.

So unlike past episodes of contumacious conduct, this time may indeed be different.