A U.S. court ruling against Argentina in a decade-old legal battle over its defaulted debt could have “detrimental consequences” for global financial stability, said Christine Lagarde, managing director of the International Monetary Fund.
Lagarde said in Moscow today that she’ll recommend that the IMF’s board ask the U.S. Supreme Court to review a lower court ruling ordering Argentina to pay investors who refused to exchange bonds after its 2001 default on $95 billion of debt.
The friend-of-the-court brief to the high court wouldn’t be aimed at helping Argentina, whom the IMF censured in February for providing inaccurate inflation data, Lagarde said after a meeting of Group of 20 finance chiefs in the Russian capital. It would rather serve to warn of how the ruling could bolster the power of minority bondholders in future debt restructurings, she said.
“We’re not supporting one party against the other,” Lagarde said. “We’re simply alerting the court to the detrimental consequence that the finding would have on our ability to discharge our mandate, which is intended to maintain financial stability in the world.”
Argentina, a G-20 member, claims that a federal appeals court in New York was wrong when it ruled in October that investors in restructured Argentine debt can’t be paid unless holders of the nation’s defaulted bonds, led by billionaire Paul Singer’s Elliott Management Corp. and its NML Capital Ltd. unit, are also paid. Last month it asked the U.S. Supreme Court to review lower court rulings.
Lagarde declined to discuss details of the Argentine case, which she described as complex, except to say that it’s in the interest of creditors as a group to reach agreement with debtors in a manner that ensures debt sustainability and fairness among creditors.
“Our concern is that the lower court’s decision would undermine the ability of the debtors and creditors to reach an agreement,” she said. “In that respect it could be a threat to financial stability.”
Argentina’s Economy Minister Hernan Lorenzino declined to comment yesterday on media reports about the IMF’s intention to file the brief, saying the government would wait to respond until the IMF’s board reaches a decision.