Argentina Says Only It Can Declare Default

Jul 17 2014 | 11:03am ET

Argentina is two weeks from its second default in 13 years. Or is it?

The country—barred by a U.S. judge from paying its restructured debt unless it pays two hedge-fund holdouts from its 2001 default $1.5 billion—argues that it isn’t facing a July 30 deadline at all. President Cristina Kirchner said yesterday that only Argentina itself could declare a default, not a creditor or foreign judge.

“Only the country that does not pay can declare default or the cessation of payment,” Kirchner said at an emerging-markets summit in Brasilia.

What’s more, Kirchner and other Argentina officials noted, Argentina has made the $539 million payment due on June 30. It’s just that its custody bank, Bank of New York Mellon, hasn’t passed it on to bondholders due to U.S. District Judge Thomas Griesa’s order.

“Argentina has paid its debt and will continue to pay its debt,” she said.

“There cannot be a default when the debtor is paying,” Cabinet Chief Jorge Capitanich added. “Argentina pays, it has not defaulted. There is no possibility of entering default because Argentina pays in good faith. The vulture funds are the ones acting in bad faith by not supporting Argentina’s request for a stay.”

Argentina has refused to negotiate directly with the holdouts, led by Elliott Management and Aurelius Capital Management, unless Griesa suspends his ruling preventing the June 30 payment from being made. Griesa has already rejected that request, but next week will take up a plethora of other matters, including the $539 million sitting at BNY Mellon.

Argentina transferred the money to the bank in defiance of Griesa’s orders, and he told BNY Mellon to simply return it. But the bank argues that such a move would open it to litigation from both Argentina and the restructured debtholders.

Griesa is also expected to address six bondholders’ requests for clarification, including whether holders of Argentine bonds issued under British and Japanese law can be paid.

Other restructured bondholders are seeking a list of their fellows in an effort to smooth a possible settlement. Argentina’s exchanged debt includes a rights against future offers clause that entitles holders to any better deal the country gives the holdouts. The clause does not expire until the end of the year, but some restructured bondholders wish to waive the clause to ensure they continue getting paid.

Without such a waiver, Argentina could be facing about $13 billion in additional claims, The Wall Street Journal reports. That’s only about one-tenth the $120 billion Argentina says it could face, an amount that would push it into bankruptcy.

At yesterday’s summit, Kirchner accused the hedge funds of a “massive speculative attack” on the country and of wanting “the restructuring to collapse.” Capitanich alleged that Elliott and Aurelius are attempting “the appropriation of the country’s natural resources.”

In Depth

Exotic Assets: Investing In Rare Violins

Jan 17 2017 | 4:43pm ET

By definition, alternative investments include exotic assets far beyond your typical...


'Tis the Season: Wall Street Holiday Parties Back In Fashion

Dec 22 2016 | 9:23pm ET

Spending on Wall Street holiday parties has largely returned to pre-2008 levels...

Guest Contributor

The Trump Administration: What It Could Mean for Carried Interest

Jan 19 2017 | 5:25pm ET

The arrival of the Trump administration brings the potential for a repeal of the...


From the current issue of

Often seen as a passion project, or part of a philanthropic venture, rare and fine stringed instruments offer an exciting option to diversify one’s investment portfolio while providing an opportunity for an exceptional long-term investment.