The US government has urged the Supreme Court to intervene in Argentina’s fight over paying up on its defaulted debt, saying a lower court ruling against the country was wrong.
In an brief filed with the top court Wednesday, the Justice Department said a key ruling in the longstanding case that gave hedge fund bondholders the power to pursue the country’s non-US assets was wrong.
It said the US Foreign Sovereign Immunities Act protects foreign governments’ property, including financial assets, from creditors “unless the property is used for a commercial activity in the United States.”
In August 2012, the 2nd US Circuit Court of Appeals in New York ruled that FSIA did not prevent NML Capital and Aurelius Capital from seeking information on Argentine assets as they try to press the country to repay their bonds.
It said the two could enforce subpoenas against two banks for information about Argentine assets.
“The court of appeals’ decision is incorrect,” US Solicitor General Donald Verrilli said in the brief.
Verrilli did not comment on any other merits of the case, in which lower US courts have ordered Buenos Aires to pay the two hedge funds the full value of the sovereign bonds they hold, even though they refused to join most of the country’s other bondholders in a restructuring of the debt.
Argentina has argued that NML and Aurelius lost their right to collect when they opted out of the 2005 and 2010 restructurings of nearly $100 billion of debt it defaulted on 13 years ago.
Buenos Aires says that paying the pair full face value for their bonds would be unfair to the restructured bondholders.
It also says being forced to pay the two in full could expand its payment obligations to others and force it back into default on all its debt.
The case has huge ramifications for the global sovereign debt market, potentially jamming up any sovereign restructuring program such as that at the core of the massive rescue of Greece.
Argentina is waiting to see whether the Supreme Court will hear its appeal, and the Justice Department brief raises the chance that the high court will do so.
[Image via Agence France-Presse]