The day after the Supreme Court published its decision, Argentine President Fernandez appeared on national television to denounce it. Wearing her usual facial expression of disapproval President Fernandez told her audience that the country would honor its payments to the exchange-bondholders. She directed her aides, ministers and legislative members to work together to find away to pay these bondholders without having
to comply with the District Court’s decision and order. She also offered again to negotiate a settlement of the litigation with the caveat that; “What I cannot do as president is submit the country to such extortion.” In her televised address President Fernandez tried to prepare the person in the streets of the country’s inevitable failure to obey Judge Grisea’s original order.
I do not agree with the commentators who say that Argentina is now going to negotiate in “good faith” a resolution to the decade long contentious litigation. President Fernandez’ words and tone make it clear that Argentina is not going change its bargaining position for negotiations to succeed.
What is being overlooked by focusing extensively on Argentina’s reaction to the decision is the newly enhanced position of the judgment-creditors. The Supreme Court handed the plaintiffs a stronger hand to play in any future negotiations with Argentina. I believe that the plaintiffs should not, at this point, even attempt to negotiate a settlement. Why would the judgment-creditors give up what the Supreme Court gave them only to settle on terms that were offered before the decision?
The clock is running against Argentina. If the country does not make the ordered payment, for whatever reason, it will probably be held in contempt of court. The officials who signed guarantees that the country would comply with all court orders could be held personally in contempt of court. To make matters worst if Argentina fails to pay the exchange-bondholders as agree, the country could technically be held in default.
Unlike Argentina the financial institutions that are directly affected by Judge Grisea’s order are very concerned over not complying with the letter and spirit of the court’s orders. At day’s end corporate self-interest is going to come to the forefront to cost Argentina its allies in its fight to avoid paying what it legally owes the non-exchange bondholders.
During the litigation the United States government has filed amicus curiae briefs in support of Argentina’s general position. Each brief started off with an acknowledgment that the South America Republic must obey all judicial orders that pertain to it. Having stated this – the obvious – the Department of Justice (DOJ) went on to argue that the politics of allowing poor nations to restructure their debt takes precedence over fundamental elements of contract law. Commentators argue that the Obama Administration’s position argued politics over law. I agree with this point of view and have so stated this in my previous posts.
In my opinion the DOJ has allowed itself to be boxed into a legal position that is indefensible. Argentina is going to ignore the court’s orders and ultimately be held in contempt. The lawyers at the DOJ should have seen this coming. The best position for the DOJ to have taken relative to the Argentina vs vulture funds litigation would have been not to have filed any papers at all.