I read the following excerpt on Peterson Institute of International Economics and I was wondering if other entities such as the EU or China had the same power as the United States in preventing other countries from issuing new debt. I was also wondering if such power is an extra legal power, or a power some countries have under international laws.


After a decade of feckless efforts to get Argentina to accede to holdouts’ demands for preferential payout, a US federal judge issued an injunction effectively blocking the government from paying its restructured debt or issuing new debt to replenish its foreign exchange reserves—not even in London or Buenos Aires, not even under Argentina’s own law. The court did so by targeting market intermediaries—trustees, payment systems, clearinghouses around the world—which, unlike the government of a sovereign country, could ill afford to jeopardize their business in New York. This was a weapon that worked entirely by inflicting collateral damage, even as the court was “bemoaning” its effects on “entirely innocent third parties.”

  • Which governments do you mean? Argentina could have been a special case. Commented Aug 8, 2019 at 20:38

2 Answers 2


Simplified descriptions are simplified

If you want to extrapolate to general principles, you have to be very exact, and the sentence you're quoting is not - that's why it includes the word "effectively" to denote that it's not exactly what's happening.

The injunction doesn't literally block Argentina from issuing new debt. What it actually does is it says that the new lenders won't get any repayments unless the holders of old debts get paid as well. That makes the new debt very unattractive to lenders until/unless Argentina starts to repay the old debts, which it wasn't going to do (at least at the time of injunction) - there's no profit in lending if you don't expect to be repaid. So Argentina is technically free to issue new debt, it's just that no serious lender in the western world is likely to buy it.


The question is based on mistaken assumptions. This circumstance of a U.S. judge attempting to prevent Argentina from issuing new debt senior to old debt is the result of a contract that Argentina voluntarily signed with private banks; it is not a consequence of international law giving the United States a special role.

Argentina has gone broke many times in the past. Eventually, foreign lenders demanded that their contracts with Argentina be adjudicated in New York, following the contract law of New York. For practical purposes, this means United States contract law. If this provision had not been included in the contracts, the lenders would have refused to lend the money to Argentina.

Argentina later defaulted on that round of loans, too. Argentina paid 35 cents on the dollar for about 90 percent of the loans. "Vulture funds" paid a few more pennies on the dollar for the rest, and are now suing to recover as much as they can from Argentina. Argentina is now trying to borrow yet more money, without paying the "vultures" what the vultures are owed.

The New Yorker had a good article on the subject in 2014.

You must log in to answer this question.