As with so many other things involving Argentina, this case is rooted in the bloody dictatorship that ruled in 1976-1983. The military junta more than tripled the country's foreign debts. By 2001, the burden had become unsustainable and the economy collapsed. Argentina's $95 billion default still stands as a world record.
Sovereign debt is supposed to be paid no matter who runs a country, but Fernandez has always considered this defaulted debt to be illegitimate, forced onto the Argentines by dictators acting in concert with international financial speculators. She and her late husband and predecessor as president, Nestor Kirchner, who took office in 2003, have never made any payments on the defaulted bonds.
Instead, they offered new bonds paying less than 30 cents for each dollar owed in default, and by 2010, 93 percent of the original bondholders agreed to the swaps. The debt relief granted by these "exchange bondholders" enabled Argentina to climb out of a deep economic crisis, and many analysts have described it as a model for Greece and other debt-burdened countries to consider.
Holdouts led by NML Capital Ltd., an investment fund owned by U.S. billionaire Paul Singer, refused the swaps, insisting on payment in full plus interest. Singer's lawyers have traveled the world since then seeking to embargo Argentine assets, even getting it's the naval training ship Libertad seized in Ghana as collateral. But they have never collected.
The judge's solution to all this is to force Argentina to pay the holdouts an equal amount each time it makes a payment to the exchange bondholders. And since the latter group is due to get $3.3 billion on Dec. 15, the judge said the holdouts must get their entire $1.3 billion by then as well.
Exchange bondholders who collectively own $20 billion in the restructured Argentine debt had argued that they "already suffered tens of billions of dollars in losses" and that it was not fair to harm their already diminished returns so that a few holdouts can earn up to 200 percent on debt they bought for pennies on the dollar after Argentina's collapse.
If allowed to stand, this kind of remedy will make it impossible for other countries to get critical debt relief, they argued.
But the judge said his remedy is fair.
"The exchange bondholders bargained for certainty and the avoidance of the burden and risk of litigating," while the holdouts spent years unsuccessfully trying to make Argentina pay, he wrote.
Fernandez sought to calm matters earlier in the week, noting that Argentina has $45.3 billion in reserves and a much lighter debt burden than it did years ago.
But if Argentina does comply with the ruling, Moody's Investors Service said Monday that it could set a legal precedent for other holdouts who together claim nearly $12 billion in unpaid debts.
Ramos, the Goldman Sachs analyst, agreed that "if Argentina pays, all the other holdouts that are not covered by this ruling will get involved."
"I could see this extended very quickly. Then again, $12 billion is not beyond Argentina's ability to pay. After all, they're using $10 billion of their reserves each year to pay for government programs. And I think paying off its debts would be a good use of those reserves," Ramos said.
If Argentina doesn't fully meet its payments in December, however, the exchange bondholders could demand immediate payment on their entire $20 billion. And if this happens, "the injunction will have turned a relatively minor default into a cataclysmic default that will further unsettle the already fragile global economy," the exchange bondholders warned.
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Associated Press writer Almudena Calatrava contributed to this report.
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