On Monday, the U.S. Supreme Court declined to hear the appeal from Argentina, which has been embroiled in legal disputes with lenders since the country defaulted on its debt in 2001. After restructuring its sovereign debt in order to escape recession, Argentina offered previous creditors an exchange for new debt that gave only 25 cents on the dollar.
More than 90 percent of the country’s bondholders took the deal, though some American hedge funds held out and have sued in court for full payment. An appeals court agreed that Argentina could not pay off its new debt without paying the holdouts. Doing so would violate its equal-treatment promise and cause the country to lose access to U.S. financial markets.
Argentine President Christina Fernandez de Kirchener has repeatedly decried the litigious creditors as “vulture funds” and warns that a full payment could push the nation toward another default, though her assertion remains in dispute. But what is clear is this: The bonds were sold as contracts with the promise of equal treatment and the explicit promise that any disputes be tried in New York City under local laws.
Now the judgment has been made, and for good reason. Enforcing contracts made by sovereign lenders is important to maintaining functional and reliable credit markets. If Ms. Kirchener would like to renege on her promises to American investors, then the country shouldn’t be allowed a place in U.S. markets until it is ready to operate in good faith.