Argentina has a sad history of de-faulting on it's national debt, but on this latest case it seems that the actions of what are termed " Vulture Funds " and the decision of a minor court judge are throwing this entire country's financial system into absolute chaos.
Argentina could not pay it's bills back in 2001 and the world's credit rating agencies listed it as a country in de-fault. Consequently, money markets were closed to it and to attract cash it had to offer high interest rates to interest lenders who were prepared to take a big risk. This money flow was way below needs and as a consequence the Argentine internal economy was crippled.
Meetings with creditor nations over the years resulted in the Argentine debt entering new arrangements in which the lenders took a 93% " Haircut " on what they were owed. Basically, a major portion of the principal was " written off " and a new repayment schedule established. It seemed that Argentina was about to emerge from de-fault.
Back in 2001 when the original de-fault occurred, a small number of opportunist consortiums snapped up Argentine debt for mere pennies on what was owed. The holders of this debt seemed certain that there was no chance of repayment at face value and took what was offered by what were termed " Vulture Companies. "
Now it seems, the " chickens are coming home to roost " ! These Vulture Companies applied to a New York District court and demanded that they receive the full face value of their holdings if the first tranche of repayments under the revised " Haircut " terms were to proceed. Amazingly, this low level judge agreed - and the Argentine's were presented with a bill for billions - beyond their capacity to pay. Their only real option - another de-fault.
It was expected that this would be quickly rectified on appeal, but to the consternation of the money markets, the US Supreme court has declined to hear that appeal. It looks like the decision of a lower court judge will stick - and Argentina will be returned to the company of rogue nations that must operate on the far side of international law when it comes to finance.
It is a complex web of worms with various injunctions in place with time clauses, but a deadline has been missed and technically Argentina is again in de-fault. It seems to be a matter of brinksmanship. The Vulture Companies have a strong position with law on their side and eventually some sort of arrangement must emerge - but for now the matter is frozen - and nobody is being paid any money.
It seems that the higher the legality of international tribunals, the greater the complexity that defies a sane solution !
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