I tango bond they risk bringing Argentina to the… casqué.
On 17 June the United States Supreme Court expressed itself on the dispute between the Argentine Government and the hedge funds about the payment of the country's sovereign debt. In particular, the Supreme Court in application of the contractual clause passi passu, imposed on the South American country the equal treatment of amounts due between hedge funds and creditors who had agreed to debt restructuring after 2001 default.
What happened in four points
1. After Argentina's previous default, some creditors, including Argentine bondholders, renegotiated their credit, accepting a lower payment. Others don't, demanding the entire amount due.
2. Among the latter are the hedge funds, which have entered into litigation with Argentina, requesting repayment of the sums owed in full (approximately $1,3 billion).
3. The sentence of the American Supreme Court proves them right, forcing Argentina to repay them.
4. At this point Argentina could default, potentially involving even holders of Argentine bonds who had previously renegotiated their credit.
In this regard, the South American government immediately declared that it not wanting to negotiate with hedge funds American and feared the default risk for savers who hold government bonds. Later, President Kirchner attempted to reassure the markets showing willingness to negotiate. The trend of CDS 5-year term on Argentine bonds reflects this fear, as shown in the graph in the photo (click to enlarge).
What consequences does this ruling have?
First of all the risk default, which would fall on savers who have Argentine government bonds in their portfolios and then a precedent would be created: no State would agree to restructure its debt. That's right!
Which developing country that has the public interest (of its citizens) at heart would be willing to issue sovereign bonds through the US financial system when there is an American Court of Justice that guarantees financial interests to the detriment of the collective interest?
We are therefore faced with the recurrence of the “law of the strongest” especially true in the Argentine case. The country has tried to get back on its feet by trying to avoid being devoured by large multinational credit institutions by restructuring its debt. But now he sees thepublic interest outweighed by the financial onerisking default again.
An answer for these countries could be that of extend the collective action clause to all creditors without distinction, in order to hinder thevulture funds” in delaying the debt restructuring, as they themselves would be forced to accept the restructuring plan. Furthermore, faced with the failure of justice, in the absence of an efficient and fair debt restructuring mechanism in international disputes, it is now more than ever necessary to implement it.
