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Economic strains The death of Alberto Nisman

Debt ‘default’

Argentina: Debt ‘default’

Following the country’s default in 2002, in 2005 and 2010 Argentina had reached agreement with about 93% of creditors on restructuring the debt owed. However, the remaining 7% of bondholders refused to accept the new terms, continuing to demand payment in full. In November 2012 Thomas Griesa, a US district judge in New York, USA, ordered Argentina to give equal treatment to holders of both defaulted and restructured debt, under a pari passu clause in the original rescheduling agreement. Argentina appealed against the ruling, which required it to deposit US $1,330m. in an escrow account to ensure payment of those creditors (about 1% of the so-called hold-out creditors) who were demanding full repayment of defaulted debt. However, in August 2013 a US court of appeal upheld Griesa’s ruling. In response, in September both houses of Congress approved a decision by the Government to offer those creditors with whom it was yet to agree terms an unlimited ‘debt swap’, although it would be under Argentine, rather than US, law; nevertheless, in November the original court decision was upheld. Argentina appealed the decision in the US Supreme Court, but in June 2014 the Court refused the appeal, ruling that the hold-out creditors (who mainly comprised hedge funds which had bought the debt after 2001 for much less than its original value) were entitled to demand full payment of all outstanding debt before the next payment of the restructured debt could be paid at the end of the month. President Fernández insisted that the country could not afford to pay the so-called vulture fundholders without risking having to pay a further $15,000m. to the other hold-out creditors, equivalent to almost one-half of Argentina’s foreign exchange reserves.

The Government protested against the US court decision, although it did indicate that it was willing to negotiate with the group of creditors. To this end, in June 2014 Judge Griesa appointed a mediator, Daniel Pollock, a US lawyer, to broker talks between the two sides. Argentina attempted to pay its next debt servicing payment to the exchange creditors at the end of the month as scheduled, but this action was blocked by Griesa. In July the Organization of American States issued a statement in support of Argentina’s stance, following a vote by its members, although the USA and Canada abstained. Negotiations between both sides began in the same month, in New York and in Buenos Aires, although these were intermittent and frequently stalled. On 23 July Judge Griesa refused a further stay of execution on payment by Argentina. Following the failure to reach an agreement between the two sides, and the expiry of the 30-day ‘grace’ period, at the end of July Argentina was forced into a technical default on its sovereign debt. The Government insisted that it had not defaulted as it had paid some US $539m. in interest payments to exchange creditors into an account as scheduled.

The Fernández Government in August 2014 proposed another debt swap to hold-out creditors in lieu of full payment, and in September a further proposal for new bonds to be issued under Argentine or French, rather than US, jurisdiction was approved by the Congress. Judge Griesa reacted to the legislation by declaring Argentina to be in contempt of court, accusing the country of attempting to circumvent the US judicial system. The two sides remained in deadlock, despite hopes that some accommodation could be reached following the expiry, in 2015, of a clause in the original debt restructuring agreement (Rights Upon Future Offers) that prevented full payment to any hold-out creditor without making an equivalent payment to all other bondholders. The incoming Government of Mauricio Macri (see below) made resolution of the ongoing debt impasse a priority: to this end, in January 2016 government finance officials met with US mediator Pollock. In February an agreement in principle was reached whereby the Government would pay US $4,653m. in outstanding debt to the hold-out creditors. The proposal was approved by both houses of Congress at the end of March, after the Congress had repealed legislation banning any payment to hold-out creditors, and in April Argentina made its first bond issue since 2001.

Citation: Debt ‘default’ (Argentina), in Europa World online. London, Routledge. Retrieved 23 February 2020 from

Economic strains The death of Alberto Nisman

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