...of the debt-based economic development model. I conclude that, regardless of any pyrrhic victory obtained from the restructuring process and the willingness of the international financial markets to lend new money, Argentina should not incur additional public debt.

Lessons from the Restructuring Process

Legal Inclination toward Sovereign Debtors

The overall rulings of the U.S. courts regarding the numerous claims filed by bondholders against Argentina have so far favored the sovereign debtor. Even though the U.S. courts have issued various judgments against Argentina, there has not been any effective enforcement of those judgments. The U.S. courts have always found a way to reject all legal arguments presented by the holdouts, so bondholders have so far not been able to collect on their judgments. For example, in one of the latest attempts by the holdouts to attach assets (filed after the bonds were tendered by the bondholders but before the exchange offer was implemented in early 2005), the U.S. Court of Appeals for the Second Circuit, on May 15, 2006, did not rule in favor of Argentina on legal grounds but rather on political considerations. The judges, in E. M. Limited v. the Republic of Argentina, said that the exchange offer was necessary for Argentina's well being, and for that reason they confirmed the judgment from the district court. In Argentina the Supreme Court ruled against the rights of the bondholders to collect in accordance with their original terms, arguing that the existence of an emergency justified limiting property rights.

From the foregoing, it appears that (1) the level of actual protection given by New York law and jurisdiction regarding sovereign bonds is not sufficient to protect creditor rights, and (2) Argentine courts too often accommodate the needs of the government rather than the private property rights of citizens.

In Europe the luck of the holdouts has been no better than in the United States. The Italian courts have rejected the claims filed by the Italian bondholders, and the German courts have not condemned Argentina, giving the government precious time to advance with the restructuring proposal.

Another interesting aspect of Argentina's restructuring process is that the favorable reaction from the courts had the support of the clearinghouses of debt-related securities and other financial institutions. The clearinghouses, in particular, are agencies of crucial importance because they are the places where eventual attachments against Argentina's assets might materialize. For instance, the Belgian parliament--with jurisdiction over Euroclear, one of the principal European clearinghouses--approved a law to exempt Euroclear from possible attachments from holdouts of...

NOTE: All illustrations and photos have been removed from this article.



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