BUENOS AIRES, Argentina — President Cristina Fernandez says Argentina can’t possibly comply with U.S. court orders to pay $1.5 billion in cash to winners of a decade-long debt dispute, the position her country was left in Monday when the U.S. Supreme Court refused to hear her government’s final appeal.
Delivering a nationally broadcast address Monday night, Fernandez expressed willingness to negotiate, but said there is simply no way that Argentina can pay in cash, in full, starting just two weeks from now, which is what the U.S. courts have ordered.
“What I cannot do as president is submit the country to such extortion,” Fernandez said.
Under the U.S. court orders, Argentina must hand over $907 million to the plaintiffs, or lose the ability to use the U.S. financial system to pay an equal amount due June 30 to holders of other Argentine bonds.
Fernandez said the total owed to the plaintiffs is $1.5 billion including interest, and paying it all immediately in cash the way the courts ordered could trigger another $15 billion in other cash payments to the remaining holders of defaulted debt. That “is not only absurd but impossible,” since it represents more than half the Central Bank’s remaining foreign reserves, she said.
She repeatedly vowed to keep making payments on the vast majority of the country’s performing debts, which are held by bondholders who agreed previously to provide debt relief that enabled Argentina to rebound from its economic crisis of 2001. Even if Argentina can’t use the U.S. financial system to do so, she said, teams of experts are working on ways to avoid such a default and keep Argentina’s promises.
Meanwhile, she suggested that she has a moral obligation not to make the court-ordered payments to NML Capital Ltd. and other investors she calls “vulture funds.”
“It’s our obligation to take responsibility for paying our creditors, but not to become the victims of extortion by speculators,” Fernandez said.
The president said her government has repeatedly shown its willingness and ability to negotiate debt accords, and called on her countrymen to “remain tranquil” despite the Supreme Court loss. “It was known that this would happen,” she said.
Earlier Monday, the markets reacted in fear that Fernandez would take just such a stance. Argentine stocks plunged as economists, analysts and opposition politicians practically begged her to comply.
The justices not only rejected Argentina’s appeal without comment – they also ruled 7-1 that bondholders could force Argentina to reveal where it owns property around the world. That could make it easier to collect on other debts that have gone unpaid since Argentina’s economy collapsed.
Justice Antonin Scalia wrote that U.S. federal law offers no shield to Argentina’s assets. Justice Ruth Bader Ginsburg worried that this could expose even its embassies and military ships to seizure if the government doesn’t pay.
“This is the end of the line for Argentina in the judicial appeal process. It has nowhere else to turn,” said Richard Samp, a lawyer for the Washington Legal Foundation who lobbies for plaintiffs that included NML Capital Ltd., the hedge fund owned by New York billionaire Paul Singer.
Argentina could win a delay of a few weeks by asking for a rehearing, but they are almost never granted.
Bowing to the U.S. courts would force Fernandez to betray a pillar of the government that she and her late husband and predecessor, Nestor Kirchner, have led since he won the presidency in 2003: That Argentina must maintain its sovereignty and economic independence at any cost.
In addition, Fernandez said, there’s near certainty that the 92 percent of creditors who accepted new bonds at steep discounts years ago – debt now totaling at $24 billion – “will find a judge who will tell them that they, too, have the same rights,” leading to “the more than certain possibility that the economy will crash.”
Refusing to comply could win applause from her core supporters, because paying the plaintiffs 100 percent plus interest in cash would mean sacrificing the subsidies and populist programs that enabled her to win re-election by a landslide.
But while she and NML Capital’s owner, New York billionaire Paul Singer, jockey for any remaining advantage ahead of the inevitable negotiations, Argentina’s immediate economic outlook seems grim, analysts say.
Argentina’s Merval stock index dropped 11 percent after the court decision, its largest one-day loss in more than six months. Share prices for the state-run YPF energy company fell nearly 13 percent, while the Edenor electricity utility plummeted 20 percent. The cost of insuring Argentine bonds against default soared, and the value of Argentina’s currency plunged to 12 pesos to the dollar on the black market, implying a 33 percent loss to anyone needing to buy foreign currency legally.
Refusing to comply was “the best option” among a series of grim alternatives that Cleary, Gottlieb, U.S. law firm representing Argentina in Washington, presented to Fernandez ahead of the Supreme Court decision.
Fernandez will pay a steep political price by paying off the winners, but doing so will lower Argentina’s country risk, restore foreign reserves and prevent the recession from worsening, said Miguel Kiguel, a former deputy finance minister and World Bank economist in the 1990s who now runs the Econviews consulting firm.
Defiance “would be very damaging to the Argentine economy in the near future,” he said.