Ruling leaves massive debt for next Argentina government

A new ruling by a US judge has increased the total Argentina owes holdout bondholders to $5.2 billion -- a massive responsibility that if upheld likely will fall to the next government, experts said.

In a 26-page ruling, US District Court Judge Thomas Griesa ruled Friday that by refusing to make payment to some hedge fund and individual bondholders of its defaulted debt, while making payment to other creditors, Buenos Aires was in violation of an equal treatment provision in its contracts.

Griesa in a 2012 ruling sided with a group of hedge funds, led by NML and Aurelius Capital Management, who for years have been trying to force Argentina to pay off $1.3 billion in defaulted bonds they hold.

The judge said that his 2012 ruling should also apply to more than 500 "me-too" bondholders who were not covered under the original decision.

Argentina has been refusing to pay the two hedge funds, arguing that they relinquished their claim when they refused to join a restructuring of nearly $100 billion in debt the country defaulted on in 2001.

"It really was just a matter of time for this to happen," said Argentine economist Nicolas Dujovne.

"It makes sense for the ruling to be the same, since what was being sought was the same. And with the months having gone by, the bill has risen to eight billion dollars."

Under mounting pressure, the Argentine government was quick to slam the latest ruling and said it would appeal, branding Griesa's ruling "illegal" and "unfortunate."

Buenos Aires has consistently accused the judge of bias.

Griesa has said he wants to deal with 100 percent of the holdouts.

But those benefitting from Friday's ruling are about one-third of the holdouts, according to Dujovne.

- Settlement may take years -

Some analysts predicted the legal wrangling could drag on for years.

But "in any event, this government is not going to do anything -- except wave its 'I am against the hedge funds' flag," said Dujovne.
"The next government will be the one to sit down and talk with the holdouts, will want to try to get Argentina on good terms with the world, and will want to decrease the total of the amount being sought," he added.

Last month, Argentina's economy minister went to the United Nations to accuse so-called vulture funds of gaining "extortionate power" over countries seeking to restructure sovereign debt.

With the country still refusing to pay, last year US courts also gave the hedge funds the right to seek out and identify Argentine assets they might be able to seize.

NML took similar action in Belgium in 2012, but a local court ruled against the company on the grounds that the 1961 Vienna Convention prohibited the seizure of diplomatic property.

In 2012 NML also persuaded a court in Ghana to hold a 103-meter (338-foot) Argentine navy training ship in port. Later the Ghana supreme court allowed the vessel to leave.