beyondbrics

Argentina believes it has closed the chapter on its $100bn sovereign default in 2001 after two debt swaps, in 2005 and 2010, which have restructured more than 92 per cent of the defaulted bonds.

It says the two take-it-or-leave-it offers prove its good faith in the matter, and has vowed not to negotiate or settle with the remaining “holdouts” – especially so-called “vulture” funds which are among those to have been pursuing it through US courts.

But a new avenue of litigation has been opened with a 283-page decision last week by the World Bank’s arbitration tribunal, ICSID, which has not yet been made public, that it is competent to hear a claim for more than $1bn brought by some 60,000 jilted Italian bondholders.

At a time of financial market panic and default fears in Greece, when the fine print of bond jurisdictions is under the spotlight in case bond holders need to sue to get their money back, the ICSID decision could reverberate widely.

Represented by global law firm White & Case, the Italian bondholders say Argentina is accountable under a bilateral investment protection treaty. The World Bank’s International Centre for the Settlement of Investment Disputes ruled on August 4 that it was competent to hear the case.

“This is a victory for tens of thousands of individual Italian bondholders and demonstrates that Argentina must confront its violations of fundamental investment protections,” said Carolyn Lamm, a partner at White & Case.

No one at the Argentine economy ministry or law firm Cleary Gottlieb Steen & Hamilton, which represents Argentina, was immediately available for comment.

It is not clear how long ICSID could take to rule on the case, and though any ruling would not set a firm legal precedent, “a well reasoned case is certainly persuasive” and could be taken into account in other suits, Lamm told beyondbrics.

But could it force Argentina to pay up?

“The reason one goes to ICSID is to complain about violation of international treaty rights. Any ruling is enforceable in every ICSID state, roughly 150 countries now, and must be respected as if it were a judgment of the highest court in each country,” she said.

Though any eventual ICSID ruling would not strip assets of any sovereign immunity, it would make Argentina “at risk in many more jurisdictions,” said Lamm, adding that Argentina has assets abroad and collects revenue from outside the country. “I am confident there will be a way (to get Argentina to pay up),” she added.

White & Case says “the decision has significant implications for sovereign finance and for procedures involving multiple claimants and mass claims”, though ICSID would only be open to litigants who could argue that an investment protection treaty had been breached.

It noted in a statement that ICSID ruled that “the bonds in question, and in particular the security entitlements held by Claimants in these bonds, qualify as ‘Investment’ . . . made ‘in the territory of Argentina’ and ‘in compliance with the laws and regulations of Argentina.’”

For more details of the ruling, see the specialist legal news website Investment Arbitration Reporter.

Argentina says it considers the holdouts case closed – though the ICSID decision will put the pending claims in a spotlight that the government, facing presidential elections in October, would have preferred to avoid. It still owes, separately, some $7bn to western government creditors in the Paris Club. Though it has vowed to pay, negotiations have stalled over Argentina’s refusal to submit to IMF scrutiny of its accounts, a requirement of Paris Club renegotiations. Default may be a thing of the past for Argentina, but leaving it fully behind still looks some way off.

Related reading:
Argentina: A high-risk recovery, FT
Argentina’s advice for Greece, beyondbrics
Dithering risks creating the Argentina on the Aegean, FT