France to File Brief Supporting Argentina in Debt Case

France said it will support Argentina in the country’s legal battle over its defaulted debt to bring attention to the risks a U.S. court ruling poses to international financial stability.

France’s decision to submit a friend-of-the-court brief to the U.S. Supreme Court comes three days after International Monetary Fund Managing Director Christine Lagarde dropped a proposal for a similar move because of the U.S. government’s opposition. The case involves holdout creditors from the nation’s $95 billion default in 2001.

“The principle that could be affected the most is the orderly and negotiated restructuring of sovereign debt,” the French finance ministry said in an e-mailed statement today. “The decision of the court might discourage the future participation of ‘good faith’ creditors in all resolution of debt crises, and have significant implications for many developing and low-income countries.”

Argentina contends that a federal appeals court in New York was wrong when it ruled in October that investors who accepted Argentina’s debt restructuring can’t be paid unless holders of defaulted bonds who rejected the plan are also paid. The holdouts are led by billionaire Paul Singer’s Elliott Management Corp. and its NML Capital Ltd. unit.

Lower Court

“Under this decision, Argentina may not be able to pay the creditors who made efforts to restore debt sustainability, without preliminary full payment of its litigating creditors who refused such an effort in the past,” the French ministry said.

Argentina today received additional support at the high court from holders of the country’s restructured bonds, as well as Caja de Valores SA, a provider of custodial and clearing services.

The IMF in a July 23 statement said Lagarde’s planned recommendation to file a brief was premised on U.S. support. The U.S. Treasury Department that same day said it didn’t think the fund should file a brief “at this time.”

The U.S. had until then indicated it was supportive, according to Paulo Nogueira Batista, who represents Brazil and 10 other countries on the IMF board.

“It was a last-minute change of opinion on the part of the U.S.,” he said in an interview yesterday. “I was really surprised.”

Without U.S. support, it was understandable for Lagarde to withdraw the proposal, he said.

The U.S. had backed Argentina at the lower court. Treasury Department spokeswoman Holly Shulman declined to comment today.

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