At a hearing yesterday, U.S. Federal Judge Thomas Griesa decided to hold Argentina in civil contempt of court, asserting that the country’s recent efforts to circumvent his ruling on debt repayment are illegal. Argentina’s Congress passed a law on September 11 that would replace Bank of New York Mellon Corp. as a bond trustee with a branch of Banco de la Nación. This would allow the country to pay the bondholders that agreed to restructuring in 2005 and 2010 in country, while avoiding payment to creditors that rejected restructuring.
Griesa’s ruling came the same day that the Kirchner Administration sent a letter to U.S. Secretary of State John Kerry requesting that the U.S. avoid holding Argentina in contempt and asking for support against the federal judge. After yesterday’s decision, Argentine Foreign Minister Héctor Timerman released a statement claiming that Griesa’s decision was a “violation of international law,” and called for the U.S. to allow the International Court of Justice (ICJ) to preside over the case. The Argentine government filed a suit at the ICJ in August, claiming that the New York court ruling violated their national sovereignty, but no action will be taken by the ICJ until the U.S. agrees to its jurisdiction in the case.
Argentina is scheduled to make a $200 million deposit of an interest payment on restructured debt today in the Banco de la Nación Fideicomiso, and a Central Bank source has indicated that the deposit will be made in spite of the ruling. Timerman affirmed yesterday that the country will continue to fight the blatant violation of Argentina’s autonomy as a nation.
Griesa previously warned Argentina about the potential ramifications of refusing to pay the holdout creditors the approximately $1.5 billion owed to them. However, when NML Capital Ltd. lawyer Robert Cohen called for a daily $50,000 penalty until Argentina pays in full, Griesa declined and stated that potential penalties will be considered at a later, as yet unspecified date.
Early this morning, the lower house of the Argentine Congress passed a bill that will allow for the restructuring of its sovereign debt. After entering into session Wednesday afternoon, members passed the law Thursday morning with a vote of 134 to 99, just over the 129 votes needed for its approval.
The vote comes after the United Nations General Assembly overwhelmingly approved a new resolution on Tuesday in favor of protecting countries' ability to restructure sovereign debt, with 124 countries in favor, 11 against and 41 abstained. The United States was one of the few countries that voted against the measure.
Argentine Foreign Minister Hector Timerman expressed his approval of the UN result. “The time has come to give a legal framework to the financial system for restructuring sovereign debt that respects the majority of creditors and which allows countries to come out of crises in a sustainable manner,” he said.
After entering into selective default on its debt on July 30, the new law will help Argentina pay back its creditors before its new September 30 payment deadline by allowing the payment site to be moved from New York to either Buenos Aires or Paris. However, New York District Judge Thomas Griesa—who froze $539 million in Argentine deposits in the Bank of New York Mellon and ordered the country to repay hedge funds in full before paying back creditors—has declared the law illegal and threatened to take legal actions against it.
Not everyone in Argentina is in favor of the new bill though. Alfonso Prat Gay, former president of the Central Bank of Argentina, stated that “the fight with the holdouts will be tremendously negative for the country’s future.”
U.S. Deputy Representative to the UN Economic and Social Council Terri Robl also expressed his concerns about the consequences of the new bill. “If lenders face higher uncertainty regarding repayment they may be less likely to provide financing and will likely charger higher risk premiums, potentially stifling financing to developing countries,” he said.
Top stories this week are likely to include: the pope’s visit to Mexico and Cuba; Chávez at home and in campaign mode; Argentina’s threat of legal action on the Malvinas/Falklands; drug decriminalization talks in Central America; and Venezuela taking a stand against narcotrafficking.
Papal Visit to Mexico and Cuba: Pope Benedict XVI will arrive in Mexico on Friday for a five-day, two-country tour that will wrap up in Cuba. Benedict XVI will land in León—in the central Mexican state of Guanajuato—and celebrate a holy mass at the Parque del Bicentenario on Sunday.
But expect greater a focus around Benedict XVI’s visit to Cuba. AQ Editor-in-Chief Christopher Sabatini predicts: “Will he repeat Pope John Paul II’s call for Cuba to open up to the world and the world to open up to Cuba? And if he does, how will he frame it? While Cuba hasn’t done much, the U.S. hasn’t changed the embargo at all. How much weight will the Pope give to the Castros’ release of prisoners and the economic reforms—likely more than he will give to President Obama’s tinkering on the margins of the embargo.”
Chávez Back Home: Venezuelan President Hugo Chávez tweeted late Friday afternoon that he was departing Cuba after a three-week sojourn for a second surgery to remove a cancerous tumor. Shortly after arriving home, his first public appearance in Caracas turned into an impromptu campaign rally. As Chávez transitions into radiotherapy, expect continued speculation about his long-term health to grow while the president remains publicly visible and boisterous.
Argentina Ready to Sue: Last week, Argentine Foreign Minister Hector Timerman announced that he promised to sue any companies that exploit natural resources in or around the Malvinas/Falklands Islands. This is the latest salvo in intensifying rhetoric between Argentina and the United Kingdom ahead of the April 2 anniversary of the 1982 war over the archipelago. Will Argentina carry through with litigation?
Decriminalization Talks in Central America: Less than three weeks after the Central American presidents met with U.S. Vice President Joe Biden in Honduras, the region's leaders will come together again later this week in Antigua, Guatemala, to discuss the idea of drug decriminalization. "The March 24 meeting gains increased importance now that decriminalization will be part of the agenda at the Summit of the Americas in mid-April. This is especially true for Guatemalan President Otto Pérez Molina, who is leading the charge, and is looking to convince skeptical countries like El Salvador and Honduras to get behind him. It will not be an easy task," says AQ Senior Editor Jason Marczak. Will the region come up with a unified stance?
Venezuela Combating Narcotrafficking: Venezuela’s military announced Operation Sentry last week: a plan to move 15,000 troops across its borders with Brazil, Colombia and Guyana. This appears to be a sign of seriousness from President Chávez’ administration, particularly from Defense Minister Henry Rangel, to confront the narcotics threat. With only 2,000 troops dispatched thus far, look for any progress this week regarding the deployment of the remaining 13,000.