The International Monetary Fund has dropped plans to formally back Argentina in its legal battle with investors who refused to take losses on debts in the country's $100 billion default in 2001. Originally the Fund planned to ask the US Supreme Court to review Argentina's case but has announced that it is no longer going ahead with the pals due to a lack of support from the US government.
IMF Managing Director Christine Lagarde had been expected to recommend the IMF executive board file an unprecedented friend-of-the-court brief this week with the U.S. Supreme Court supporting Argentina's petition to reverse lower court rulings. The lower courts are seeking to force the Latin American country to pay $1.3 billion owed to investment funds trying to collect on bonds rendered nearly worthless in the default.
But the international lending agency said late Tuesday that Lagarde would no longer recommend the filing.
"The Managing Director's recommendation was premised on U.S. support, as it would not be appropriate for the IMF to file this brief without that support," an IMF spokesman said.
Over the last decade, holdout investors and Argentina have sparred in the U.S. courts over the South American country's $100 billion default in 2002. Holdouts declined to take part in two restructurings in 2005 and 2010 that drew participation from 93 percent of bondholders, who accepted returns as low as 25 cents on the dollar.
Investors including Aurelius Capital Management and NML Capital, a unit of billionaire hedge fund manager Paul Singer's Elliott Management, have refused a deal and are suing Argentina to recover the full value of their assets.
Argentina is asking the Supreme Court to void an October 2012 ruling by the 2nd U.S. Circuit Court of Appeals in New York, which found it had violated a clause in its bond documents requiring it to treat all creditors equally.
The US, which is the IMF's largest and most influential member, no longer supported the Fund's planned filing to the Supreme Court because of concerns a ruling in favor of holdouts could make sovereign debt restructurings less predictable and orderly, and had serious concerns about lower court decisions.
The Fund said it remains concerned the case could set a precedent making it harder for other countries to get debt relief. But it was wary of taking sides in a US court case after the US government said it would not support the IMF move.
Without US support, the IMF could leave itself open to criticism from the US Congress that it is interfering in the American legal system.
The IMF said in a statement that it also does not want to be seen as taking sides in a dispute over financial claims involving its member governments.
It added that it remains deeply concerned about the implications that the lower court decision could have for the debt restructuring process in general. The concern is that countries in financial distress, such as the Greece over the past few years, would not be able to get relief on overwhelming debts in order to return to financial stability.
Relations between IMF and Argentina, Latin America's third-biggest economy, have been strained in recent years. The IMF dispute's the accuracy of Argentina's economic data and in February itsformally reprimanded the country for its lack of progress in improving inflation and GDP data. The country could face board sanctions in November, barring it from voting on IMF policies or accessing financing.
Argentina has cut all financial ties with the IMF and relations between them have steadily deteriorated since Argentina's 2001-2002 debt crisis, which the center-left government and many ordinary Argentines blame on IMF policies.
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