Kerry Says State Department Won’t Back Argentina in Debt Case

The U.S. State Department won’t side with Argentina in a legal fight with holders of $1.5 billion of the nation’s defaulted debt, Secretary of State John Kerry told lawmakers.

Asked at a House budget hearing yesterday whether the department would back Argentina, which is seeking a U.S. Supreme Court hearing, Kerry answered no. His comments didn’t preclude the possibility of a brief by the U.S. solicitor general, the Justice Department lawyer who makes the final decision on Supreme Court filings.

Argentina is seeking review of a lower-court order requiring the nation to pay holders of defaulted bonds in full if it makes payments on its restructured debt. Kerry said the U.S. has encouraged Argentina to find a resolution with creditors.

“We’ve urged Argentina to repay its debts to the U.S. government and to engage with creditors, public and private,” Kerry said at the hearing, according to a transcript. “I will continue to do everything that I can and the department can do in order to recover” about $600 million in funds owed to the U.S., he said.

The solicitor general typically doesn’t express a view on a bid for a Supreme Court hearing until the justices ask the government to do so -- something that hasn’t taken place in the Argentina case. The solicitor general makes a decision after consulting the government agencies affected by an issue.

Hedge Funds

“We do not believe that Secretary Kerry’s statements reflect at all on what the solicitor general may say at that time,” Citigroup Inc. strategist Jeff Williams wrote in a report today.

The administration of President Barack Obama backed Argentina at the appeals court level, arguing that the country was protected by sovereign immunity. In addition to Justice Department lawyers, the April 2012 brief was signed by legal advisers for the Treasury and State departments.

Argentina contends a New York-based federal appeals court failed to apply properly the Foreign Sovereign Immunities Act, which limits suits against foreign governments. The country has said that forcing it to pay the defaulted bondholders immediately would expose it to $43 billion in additional claims it can’t pay and trigger a new default.

Solicitor General Donald Verrilli is backing Argentina in a separate Supreme Court case regarding a court order requiring two banks to turn over information about the country’s assets. That case is also part of the multipronged fight by hedge funds to collect on defaulted debt.

Attorneys for NML Capital Ltd., a New York-based unit of hedge fund Elliott Management Corp., which sued Argentina for full repayment, declined to comment on Kerry’s comments.

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