Actions Speak Louder Than Words: Argentina Continues to Stiff its Creditors

ArgentinaEver since its final courtroom defeat earlier this summer in its long-running battle with holdout bondholders, Argentina has attempted to portray itself as a responsible debtor that wants to pay all legitimate obligations. The Kirschner regime claims that its July 2014 default on the nation’s bond repayment obligations was forced upon it involuntarily by U.S. District Judge Thomas Griesa. Argentina asserts that it wants to act responsibly by making interest payments on its external indebtedness and would do so but for the injunction issued by “crazy old Judge Griesa” at the request of holdout bondholders (or, as Argentina refers to them, “vulture funds”). But Argentina’s recent actions don’t match its rhetoric; it continues its well-established policy of refusing to pay obligations that it has no plausible basis for contesting. Argentina has expressed a desire to repair its tarnished reputation within financial markets, but nothing in its recent conduct suggests movement in that direction.

A good case in point is Republic of Argentina v. BG Group PLC, a case decided by the U.S. Supreme Court earlier this year. That case involved claims by BG Group, a British natural gas company, that Argentina had breached a contract by taking steps designed to drive BG Group out of business. In 2007, an international arbitration panel unanimously agreed and entered a $185 million judgment in favor of BG Group. Rather than paying the judgment, Argentina sought to appeal the arbitration award within the U.S. court system. After years of protracted litigation, the Supreme Court in March 2014 upheld the arbitration award.

Despite that final ruling, Argentina has shown no willingness to comply with the arbitration award. When the case went back down to the appeals court for entry of a formal judgment, Argentina sought to raise new grounds for overturning the award. The appeals court summarily dismissed those arguments in a brief, unpublished order issued in April. Argentina then filed a formal petition seeking a rehearing, which the appeals court again summarily denied.

Then on August 19, Argentina filed a certiorari petition asking the Supreme Court to hear the case yet again. Argentina’s lawyers understand that the certiorari petition is utterly frivolous. Indeed, the legal issue raised by the petition—whether an arbitration award should be vacated when (as Argentina alleges occurred here) the arbitrators exhibit a “manifest disregard of the law”—is not even raised by the facts of BG Group. The appeals court assumed, without deciding, that “manifest disregard of the law” is an appropriate ground for overturning an arbitration award; it nonetheless summarily rejected Argentina’s appeal, concluding (in a single sentence) that the arbitrators had not disregarded controlling law when they ruled in BG Group’s favor. There is only one plausible explanation for filing a frivolous certiorari petition that has zero chance of being granted: Argentina wants to avoid paying an arbitration award despite having exhausted the appeals process, and it figures that a Supreme Court petition will buy it an additional four months of delay.

Refusing to pay final arbitration awards is standard practice for Argentina. Indeed, in 2012, President Obama issued a proclamation suspending the United States’s special trade privileges for Argentina based on a finding that it had acted in bad faith in failing to pay arbitral awards owed to U.S. companies. And even when Argentina, in recent years, has on occasion made payments to holders of arbitration awards, it has never agreed to pay 100 cents on the dollar. Rather, it has routinely demanded that any judgment holder who wants to be paid must agree to a “haircut” (generally in the neighborhood of 15% to 35% of the total judgment) or else it will receive nothing.

In sum, Argentina’s recent actions belie the nation’s claim that it has turned over a new leaf and is now willing to take the steps necessary to get back into the good graces of the financial community. If Argentina is truly interested in developing a reputation as a debtor that can be relied on to repay its debts, a good place to begin would be to comply with the determination of the U.S. courts that it is contractually required to afford equal treatment to all of its bondholders, including the holdout bondholders. Doing so would bring Argentina into compliance with Judge Griesa’s injunction and eliminate any judicial obstacles to Argentina’s professed desire to make payments on its external debt.

Also published at WLF’s Forbes.com contributor site

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