Argentina's arbitration wrangles have taken a fresh twist.

The decade-long fight between the Argentine government and litigating hedge fund Elliott Management has recently verged on high drama. A replica sailing ship belonging to the Argentine navy was impounded as repayment and now there is a risk of Argentina defaulting again on the bonds that were issued in 2005 to take the country out of its 2002 default.

Editor's choice 

A court decision in October that the defaulted 1994 bond issue still held by Elliott must rank pari passu with the bonds issued in the 2005 exchange opened the door for Elliott to seize future payments made in New York on the new bonds to reclaim its own debt. In an unprecedented move, Bank of New York Mellon – custodian for the new bonds – and holders of the exchange bonds themselves have now joined the litigation to stop Elliott getting its way.

How the courts decide on the matter of intercepting payments on other bonds will be significant for the future documentation of bonds issued in the US and the role of custodian banks. But it is not so significant for sovereign debt. Since the Argentine default, most emerging market sovereigns have introduced collective action clauses (CACs) that prevent litigation unless more than 75% of bondholders approve. Greece went one stage further, and introduced a retrospective CAC into Greek law bonds restructured in March 2012.

So Elliott’s action against Argentina may be the last epic sovereign debt litigation. But what this dispute highlights is the country’s persistent confrontation with international investors. In 2002, it was just the latest in a long line of emerging market sovereigns to enter default. Many of those former defaulters, such as Brazil, Russia and Colombia, are today investment grade sovereigns with higher ratings that a number of eurozone countries.

By contrast, Argentina is still a highly unreliable investment and Elliott is not the only creditor to say so. Just days after the latest court ruling in New York, the International Monetary Fund (IMF) issued a brief statement about the timing of its ongoing investigation into whether Argentine official inflation and growth data has been manipulated. Independent economists have long calculated inflation rates that are at least double the official figure. If the IMF concludes that Argentina has rigged its inflation numbers, it will be interesting to see whether holders of Argentine inflation-linked debt will be calling their lawyers.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter