A rather interesting develop in international banking, and international relations in general, occurred recently. The Supreme Court declined to hear an appeal from Argentina, which allows the earlier court’s ruling to stand.
I won’t even try to get into all the background on this. However, for short, here’s the very basic rundown:
(A) Argentina has been a fiscal basketcase for quite some time.
(B) Some years ago, it found that its credit rating was so god-awful nobody was willing to lend it money without some pretty heavy assurances.
(C) As a sovereign nation, its politicians weren’t in a position to give those assurances. The investors, in short, couldn’t rely on promises now to be paid later, since Argentina had a nasty history of default.
(D) To get the credit it needed, Argentina agreed voluntarily, according to a pretty clear contractual agreement, to waive certain rights of a sovereign state for the specific case of its bond issue. Further, it was bound to New York, and therefore US, law for those bonds.
(E) Argentina decided the best use for this precious and expensive credit resource was to piss it down the tube.
(F) Their next plan, since anything approaching a sensible fiscal policy clearly wasn’t on the table, was to try to do exactly the thing they swore not to do. Specifically, they wanted to basically ignore any debt they didn’t feel like. Strictly speaking, this was a “voluntary” adjustment by the creditors to Argentina. However, in practice (and nobody even pretended otherwise), Argentina was blatantly threatening to just cancel the debt.
(G) Some creditors decided not to take this lying down, and the courts agreed that Argentina must, as per its agreement, pay out all the debt. They cannot pick or choose. This means that the creditors who knuckled under basically cannot get anything. (This may sound odd, but it’s a way of preventing companies, individuals, or in this case nations from abusing their influence to get around agreements while maintain decent credit, I guess.)
(H) Argentina, for its part, apparently thought it could threaten the Supreme Court and has gone back and forth on whether or not they’d even obey an adverse ruling they themselves agreed to be subject to. God alone knows why, since that’s more or less the single dumbest move anyone can possibly do before a judge. It may have been a ploy to win domestic approval, but Argentina’s economy is in the crapper so I don’t think that’s going to help anyone much, not even their government.
(I) The Supreme Court evidently took a very dim view of Argentina’s antics.
(J) Argentina may be planning to try and ignore the ruling anyway, but there’s some question over whether they can even find a willing international partner to help them do it. Their behavior and double-dealing has been so bad that it’s seriously damaged their international credibility - and inherently their credit. While I’m sure they can con some further sucker, they’re going to have to really work on it. and the country may face complete fiscal collapse long before they can get anything. Most foreign banks have already apparently said they’ll respect the U.S. ruling - which means that even if Argentina tried to evade the decision, they might not be able to. Any bank caught assisting Argentina might make itself a target for the creditors, because they can then make a claim against its assets. There are probably few banks in the world of international finance would rather do business with Argentina than the Untied States.
Yes, that IS the short version. The long version involves thousands of pages of court documents and requires an intimate knowledge of financial law as well as expert insider information into the world of international politics.
The latest link on this I can find is here: Argentina Defiant Against Supreme Court on Bond Payments - The New York Times