(Adds quotes, background, link to UNCTAD document)
By Tom Miles
GENEVA, June 25 The United Nations trade agency
UNCTAD said on Wednesday that the recent U.S. court ruling on
Argentina's debt erodes sovereign immunity and does not comply
with the country's own U.S. Foreign Sovereign Immunities Act.
Buenos Aires has been stuck in a battle with a pair of hedge
funds that chose not to take part in two past debt
restructurings following Argentina's 2001-2002 default and held
out instead for full repayment.
It has suffered a series of setbacks as U.S. courts have
ordered Buenos Aires to pay the so-called holdouts along with
its other creditors.
But those rulings "set legal precedents which could have
profound consequences for the international financial system",
UNCTAD said in an unusual online commentary here
"The rulings could open floodgates to other similar cases
depending on interpretations given by courts under New York law,
British law or other laws," UNCTAD said.
"Copycats will abound."
Argentine President Cristina Fernandez argues that paying
the hedge funds in full could potentially trigger demands of up
to $15 billion from others who did not participate in previous
debt exchanges following the 2002 default on $100 billion.
The country is due to make a bond coupon payment on June 30
to holders of restructured debt. But the 2nd U.S. Circuit Court
of Appeals ruled last week that Argentina cannot do so unless it
also pays $1.33 billion to the holdouts.
Taking into account a 30-day grace period, this could propel
the country into technical default.
Argentina's Economy Minister Axel Kicillof is due to speak
before the UN later on Wednesday about his country's debt
UNCTAD said the court rulings could have far-reaching future
"The rulings have made future debt restructuring much more
difficult as debtors are left with only moral suasion and
foreign relations as weapons to encourage creditor
coordination," the agency said.
"They have also strengthened the hand of creditors even
though their behaviour can be among the underlying causes of
The U.N. agency said the "chaotic context" - in which it was
questionable "whether the IMF is best positioned to give timely
and fair judgements" reinforced the need for a globally agreed
sovereign debt workout mechanism.
Eventually the cost to Argentina could go well beyond the
potential $15 billion in claims, UNCTAD said, pointing out that
if Argentina paid the holdouts, it might have to also give the
same terms to creditors that accepted the previous debt swaps.
"This would amount to an estimated cost of over US$120
billion," it added.
(Additional reporting by Sujata Rao; Editing by Jon Boyle)