Argentina faces litigation for nearly US$25 billion

Argentina has arbitrarily altered the rules of the game for more than two decades, turning it into a country where few are interested in investing, despite its immense potential in natural and human resources and the superlative achievements of this government in fiscal matters, among others.

The default on the foreign debt, the asymmetric pesoization in 2002, the expropriation of YPF in violation of its obligations to other market shareholders in 2012, and the arbitrary change in INDEC's measurement to avoid paying coupons tied to GDP growth in 2013 resulted in hundreds of legal actions for immense amounts. An unworthy record for the Guinness Book of Records.

Argentina has resolved most of its non-compliance, but two and a half decades later , it still faces multi-million-dollar lawsuits.

The nominally largest case is the one led by Burford for the expropriation of YPF, with a first-instance order to pay US$16 billion . The appeals hearing is likely to be held in the next three to six months, and three months later, a ruling could be appealed to the Supreme Court. The previous Trump administration filed a brief favorable to the plaintiffs. This time, it may be different if the government acts decisively and in a timely manner. Interestingly, Burford's market valuation, net of its other assets, assigns a market value to the judgment significantly lower than the amount of the judgment. The chances of compulsory collection appear to be very low based on 25 years of experience in litigation against Argentina.

There are 11 final arbitral awards issued under ICSID and other forums, five suspended cases, and five pending. The amounts of the awards and undetermined claims total approximately US$4 billion . It is very difficult—or nearly impossible—for the claimants to collect without Argentina agreeing to negotiate. ICSID is part of the World Bank. Past non-compliance with its rulings has resulted in the cancellation of new financing programs for Argentina by the World Bank and the Inter-American Development Bank. These programs were resumed after Argentina agreed in 2013 to pay with a discount for the five cases that had final awards at that date.

In the 2005 swap, Argentina offered growth-linked coupons to repay the debt with a write-off. It promised to pay if it grew, which seemed a reasonable proposal given the enormous capital write-off offered by the country. But then it lied about the growth figures to avoid paying —the great local trick. In London, the country has already been ordered to pay €1.33 billion . An amount that would eventually be much higher in the New York case.

Coupons tied to GDP do not benefit from the equal treatment or pari passu clause under which Elliott Management prevented payment to other bondholders if their loan is not repaid. Collecting these judgments is also nearly impossible without an agreement with Argentina. However, the IMF has forced Argentina to record them as a liability.

In the London case, Argentina has already paid 20% of the judgment in order to appeal, which—as expected—was lost months later. The trial in New York is progressing more slowly, and there is still no final ruling.

There are other cases in Germany involving over €1 billion in unpaid judgments from the 2001 default that may have expired.

The constant change in the rules of the game and the lack of respect for its commitments have made Argentina a highly unreliable country for domestic and foreign investment. Argentina is potentially one of the richest countries in the world due to its theoretical capacity to produce oil and gas, minerals, food, and technology. It is one of the three main global hubs for exporting services to the rest of the world, with companies such as JP Morgan, Accenture, Globant, Disney, and EY, all employing thousands of people abroad.

Despite this, foreign investment has been negligible compared to other countries where the rules of the game are respected, whether good or bad. The country risk (or surcharge for investing in Argentina) is exorbitant for a country with growth and a fiscal surplus for almost a year and a half, with consequences for the entire local economy, per capita income, inflation, unemployment, poverty, and extreme poverty.

The chances of legally forcing Argentina to pay the outstanding judgments are low or very low, but the reputational cost of not doing so is high. This presents a unique opportunity to pursue a process that benefits the country, where a significant reduction can be applied again but two decades of non-compliance can be ended for an amount significantly lower than the amount claimed.

Being a country with little credibility comes at an immense cost. The country could finally seek a way to end all non-compliance by adopting a protocol for the definitive resolution of pending legal disputes.