Argentina’s latest moves in its debt and default dilemma demonstrate defiance to the US court which has ruled on the matter but don’t move anyone any closer to a resolution.
President Cristina Fernández is pushing laws through Argentina’s Congress whereby international investors could swap the government bonds they own for new ones.
Buenos Aires would then be able to pay them the interest money they are owed, which is currently blocked by the court in New York, theoretically ending Argentina’s default on its debts.
In a televised address, the president said the swap offer was to demonstrate her country’s “good will and ability to pay”.
Fernández added she wants a solution for all of the country’s bond holders; that is those who have already accepted reduced interest payments and the holdouts, hedge funds that her government calls “vultures” who are demanding 100 percent of the face value of the bonds.
However, none of the investors are likely go for the swap deal as they would risk being in contempt of the New York court
So the debt crisis is set to go on, deepening the country’s economic recession, weakening the ailing currency and draining Argentina’s thin foreign currency reserves.
How we got here
The case goes back to Argentina’s 2002 default on about $100 billion in sovereign bonds. The vast majority of holders – 92.4 percent – participated in restructurings in 2005 and 2010, which offered less than 30 cents on the dollar.
A group of hedge funds led by Elliott Management Corp and Aurelius Capital Ltd opted to sue in the US federal courts, which govern the original bond contracts, for 100 cents on the dollar.
President Fernandez says the funds that bought Argentine bonds at steep discounts are out to wreck the country’s finances in their pursuit of huge profits.
Argentina slid into default on its restructured bonds last month after the New York court blocked an interest payment of $539 million.
The payment did not go through to investors because US District Judge Thomas Griesa says restructured bonds cannot be paid unless the holdouts get paid at the same time.