US Supreme Court Justices to determine next steps in Argentina's defaulted debt case

BUENOS AIRES, Argentina – The U.S. Supreme Court is meeting privately Thursday to determine how to respond to Argentina’s appeal of lower court decisions ordering it to repay more than $1.3 billion in defaulted bonds.

U.S. lower courts have ordered Argentina to pay that amount plus interest to hedge funds led by billionaire Paul Singer’s NML Capital Ltd., which snapped up the debt left unpaid when the Argentine economy crashed in 2001-02 and went to court seeking payment in full. Holders of 92 per cent of the debt agreed long ago to accept bonds of lesser value in exchange for regular debt payments.

The justices aren’t expected to announce their decision until next week. The court could ask for input from President Barack Obama’s administration or send the case back to the New York appeals court for more information on how to interpret state law. Although it is highly unlikely, the court could also decide whether to take the case or turn it down.

Argentina has warned that being forced to pay off the old debt would force it into a new default. But some analysts dispute that argument, saying Argentina would be able to meet the payments despite its economic troubles.

“I believe that Argentina will still be solvent if the Supreme Court decision favours the holdouts and Argentina has to pay these claims. From a macro standpoint the capacity to pay is there,” said Alberto Ramos, who analyses the country for Goldman Sachs.

“If the (Argentine) authorities were able to put the issue of the holdouts to rest, they would benefit from broader access to more conventional and stable domestic and foreign financing sources,” Ramos added. “This and a bit of fiscal consolidation, which would also benefit the economy tremendously, would likely put Argentina in a position to honour the claims of the holdouts without necessarily sliding into another crisis.”

Restoring Argentina’s sense of pride and sovereignty after the economic collapse has been the central goal of President Cristina Fernandez and her late husband and political predecessor, Nestor Kirchner. The presidential couple negotiated or paid off most of Argentina’s defaulted debt, nationalized the pension system, and retook control of the national airline and oil company.

They also kept energy cheap through subsidies and dug deep into the treasury to redirect revenue to the poor through handouts.

For several years, Argentina enjoyed annual growth of 7 per cent fueled by the high prices that foreigners paid for the country’s soybeans and other agricultural commodities. But now Argentina suffers from a shortage of dollars, one of the world’s highest inflation rates and an inability to tap into global credit markets because its debt default remains unresolved.


Associated Press writer Michael Warren reported this story in Buenos Aires and Luis Andres Henao reported from Santiago, Chile. AP writer Almudena Calatrava in Buenos Aires contributed to this report.