Argentina’s long fight with the so-called vulture funds, the holders of sovereign bonds who did not accept a debt-restructuring agreement in 2005 and 2010, may be soon coming to an end.
After a string of adverse decisions in US courts — the bonds were issued under American law — and a default in 2014, New York judge Thomas Griesa finally decided to give the Argentinean government a chance to strike a deal with the stubborn hedge funds.
On February 19, Griesa lifted an injunction that prevented Argentina from servicing debt to other bondholders until it paid the ‘vulture funds.’
The Economist reports:
The judgment is a blow to the remaining holdout creditors, led by Elliott Management, a hedge fund, who had used [the injunction] to press Argentina for full payment. Mr Griesa’s change of heart stems from a change in Argentina’s government.
The latest ruling deprives the remaining holdouts of crucial leverage over the Argentine government and improves the chances of a swift resolution to the debt saga. “It’s the most important development in the last couple of years,” says Juan Cruz Díaz of Cefeidas, an advisory firm. “There is now light at the end of the tunnel.”
Reaching a deal with the ‘vulture funds’ was a campaign promise of President Mauricio Macri, who reversed the former president Cristina Kirchner’s policy of refusing to pay at all.
The lawsuit in the United States is a major obstacle for Argentina to issue bonds in international markets, as the Macri administration hopes to do in order to revive the ailing economy.
However, there are to caveats to judge Griesa’s ruling:
[H]e wants Argentina to pay those who accept a deal by the end of the month. He also wants the government to repeal legislation designed to block deals with the holdouts. The “Ley Cerrojo” (Padlock Law) was passed in 2005 to prevent the debt-restructuring deal Argentina had just struck from being reopened at a later date. It was suspended to allow for a second restructuring in 2010, but remains on the books.
Now the battleground moves to Argentina’s Congress, controlled by Peronist opposition movements that denounced Macri as unpatriotic and a sell-out for compromising with foreign hedge funds.