Argentina defaulted and restructured its sovereign debt in 2005 and again in 2010. Roughly 93% of bondholders accepted repayments of around 30% of the face value of the bonds. Some of the hold-outs proceeded to sue Argentina in US courts, but in most cases Argentina just ignored the resulting virtually unenforceable monetary judgments.

NML v. Argentina is a long-running court case where some hedge funds – so-called holdouts, also called "vulture funds" by their opponents – are trying to enforce the original terms of the bonds for full payment. This case forced Argentina to react because of the requested, and since then obtained, injunction forbidding US banks from forwarding payments to holders of restructured bonds without making a ratable payment to the holdouts.

Now it seems to me that the issues have been rather thoroughly litigated on all levels of court, and Argentina has lost on most points. Yesterday the District Court of New York held Argentina in contempt of court for not paying the holdouts and actively trying to circumvent the injunction by seeking to unilaterally change jurisdiction of their bonds. Argentina naturally protests vigorously what they see as a violation of their sovereignty.

What possible motivation does Argentina have to still participate in the court proceedings against them? Do they think it's still possible to obtain more favorable rulings, or that the resulting publicity is more favorable to them if they continue to participate in proceedings against them that they allege violate their sovereignty? In other words, why don't they just say "sorry, but there's nothing more you can do to us so we'll just stop playing with you"?

2 Answers 2


At the most basic level, Argentina needs the bond market more than the bond market needs Argentina. Argentina has, in the past, tried printing its way out of debt - but at the cost of ruinous inflation. By continuing to litigate, Argentina is seeking to reassure investors that their most recent default was not Argentina's fault, and that further lending should not be curtailed.

The background, from The Economist is summarized well here:

The countdown started on June 16th, when the Supreme Court of the United States announced that it would not get involved in Argentina’s battle with NML Capital, a hedge fund that picked up cheap debt after Argentina’s 2001 default and has since litigated for payment of full principal plus interest. The decision left intact a ruling by Thomas Griesa, a New York district-court judge, which banned Argentina from paying the creditors who in 2005 and 2010 swapped 93% of defaulted debt for performing securities, if the country did not also pay NML what it wants.

Argentina was left with only thorny choices: pay NML the $1.3 billion plus interest awarded by Judge Griesa; negotiate a settlement with the hedge fund; or stop paying the exchange bondholders. A payment due on June 30th to those exchange bondholders was missed. The grace period expires on July 30th, at which point Argentina will again be in default

Full payment would be hard to swallow. President Cristina Fernández de Kirchner has always opposed stumping up, and a generous payment for NML would open the door to similar payouts to other “holdout” creditors. The consensus has been that Argentina would reach a negotiated settlement with the holdouts. Argentina had made good progress this year in its quest to regain access to capital markets—settling disputes with the Paris Club of government creditors, for example. Tackling the holdout issue was the logical next step. The price of dollar-denominated defaulted debt surged above face value after the Supreme Court’s ruling, opening up a gap with euro-denominated debt that is not subject to New York law (see chart).

There is much more on the case from The Economist here, but the following quote is probably the most helpful:

But the costs to the country will rise the longer it remains in default. “The situation might not be cataclysmic, but defaulting was still the worst decision the government could have made,” says Maximiliano Castillo of ACM Consultants. The country may have got used to doing without access to external financing, but its foreign-exchange reserves have been shrinking, and the economic boost it received in the 2000s from rising commodity prices will not be repeated. It needs to borrow to grow.

The government is aware of this. In the past few months it has scrambled to resolve disputes with the International Centre for the Settlement of Investment Disputes (ICSID); the Paris Club, an informal group of government creditors; and Repsol, a Spanish oil firm whose stake in YPF, the state oil firm, it expropriated in 2012. A default will undo this progress.

The fear now is that the need to print money to finance its deficits will further spur inflation, putting the exchange rate under renewed pressure. Add in the likely jolt to consumption from default, and the recession that the country entered earlier this year will only deepen. Abeceb.com, a consultancy, is predicting that Argentina will contract by 3.5% in 2014; if the country had avoided default the projection was of a milder tightening of 1.5%.

Almost every major financial institution has a clause that says their disputes will be meditated and judged by the laws of the United States (e.g. New York) or the United Kingdom (e.g. London). While Argentina could try going to London, the actors are aware of each other, and nobody will want to lend to a country that doesn't abide by international norms.

  • Do jurisdiction clauses somehow strip Argentina of its common law immunity as a sovereign state, or how is the action structured to avoid that? [Purely legal question, not a politics one.]
    – Calchas
    Apr 20, 2017 at 14:50
  • @Calchas, Argentina is still a sovereign state, even with the jurisdiction clauses. Argentina is only in the US court system because it's choosing to do so to ensure that they will still be viewed as a worthy borrower.
    – A Bailey
    Jun 2, 2017 at 17:59
  • @ABailey That's not quite my question: at common law, courts do not have jurisdiction to hear cases involving sovereign states. I don't know if a state can waive its immunity or how this happens.
    – Calchas
    Jun 3, 2017 at 9:23
  • 2
    A sovereign can waive its immunity at any point, including as part of a contract (the bond terms here). Later disputes were centered on whether Argentina is still immune from post-judgment discovery for enforcing the monetary judgment. The courts held there is no separate post-judgment immunity. Jun 29, 2017 at 10:26

I'll answer only the title (As in "Why does some US court rule over Argentina's debt?") and not the follow up questions in your last paragraph.

Argentina was under a military dictatorship in the 70ies (This raises some questions e.g. about odious debt).
Under Rafael Videla the central bank was led by Adolfo Diz - one of the Chicago Boys.

Given his background the usual economic policy changes were installed, mostly deregulating finance.
One other thing he did was waive the rights of settling its bond to the United States, specifically the Southern District of New York (This was done so investors had more trust in the bonds being payed back).

As the bonds are issued under the legislation of New York the local bankruptcy laws apply and Judge Griesa could make his unusual definition of pari passu which lead to the current crisis.


  • Yes, but that doesn't really answer the question of why Argentina would now cooperate with the court (and indeed it's obvious that they just ignore a large bunch of the orders). Obviously the motivation to pay any attention to a foreign court heavily depends on what harm it can do to you. Oct 1, 2014 at 8:07
  • That judge is a bit silly. Argentina is just powerful enough to thumb their nose at him.
    – Joshua
    Jun 28, 2017 at 19:59

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .