The US courts, not content with contorting established law and practice on sovereign debt to favour the most predatory billionaire “vulture funds,” have crossed a new frontier.

On September 29, New York Judge Griesa declared Argentina in “contempt of court” for democratically enacting a law enabling it to pay the 93 per cent of its bond-holders who had accepted a debt-restructuring deal outside the US court’s reach.

This judicial extra-territorial attack on Argentina’s sovereignty and democracy comes at a time when the United Nations and the influential G77-plus-China group of states have highlighted the urgent need to put a stop to vulture funds, and set up a fair international process for resolving sovereign debt crises.

Paul Singer is one of the US’s richest billionaires, owner of Elliott Associates and its Cayman Island “vehicle” NML.

He financially backed Mitt Romney in the 2012 presidential election and is, says Fortune magazine, “a passionate defender of the 1 per cent.”

His speciality is buying up distressed sovereign debt (bonds) dirt cheap and then, through “vulture funds” like NML, relentlessly litigating to enforce judgments for the face value of the original bonds, plus compound interest.

This usurious outcome is only possible because states and their (usually poor) peoples cannot — like companies and individuals — go bankrupt.

Argentina’s economy collapsed in 2001 due largely to the foolish policy of tying the peso one-to-one to the US dollar with full convertibility.

With IMF support, it borrowed large sums at ever-increasing interest rates to defend dollar parity — to no avail.

GDP fell 25 per cent and the peso’s value with it. But external debts were payable in dollars. Unable to pay, in 2002 Argentina defaulted.

Between 2005 and 2010, 93 per cent of Argentina’s creditors accepted a deal to receive new exchange bonds paying about 30 per cent of the original.

Singer, on the contrary, bought up chunks of defaulted original debt on the secondary market at around 20 per cent of face value.

Argentina since 2005 has paid exchange bond-holders their interest as and when it is due.

No question. Until, that is, last month when it “defaulted” again — thanks entirely to decisions by judges in New York (the original bonds give the New York courts jurisdiction) that give extraordinary preference to Singer’s financial interests. How come?

NML long ago obtained judgment against Argentina for the full sum due under the original bonds — this was not in dispute.

But how to enforce it? That was the vultures’ problem. Try as they might, they could not lay hands on juicy Argentine assets.

Finally, in 2012, they hit upon the “pari passu” (equal step) clause in the bond contract, which states: “the payment obligations of the republic under the securities shall at all times rank at least equally with all its other present and future external indebtedness.”

New York Judge Griesa interpreted this, in a way no other court had done, as meaning that Argentina was obliged to pay NML at the same time as it paid exchange bond-holders.

This reversed the international bond markets’ understanding of the law and strengthened vultures’ hands everywhere.

But Judge Griesa went further, and in a truly partial decision made an injunction forbidding Argentina from paying a cent of interest to exchange bond-holders, unless at the same time it paid NML the entirety of the principal and rolled-up interest under the original bonds — $1.5 billion.

Far from providing equal treatment between the sets of bond-holders, the judge did the precise opposite — patently discriminating in favour of Singer and against the exchange bond-holders.

This was not required by law.
An injunction is a discretionary remedy.

The judge did not have to make an order, or if he did make one, he could have ordered Argentina to pay NML in the same reduced proportion and extended timeline as the exchange bond-holders.

But Judge Griesa’s moral compass is so well-attuned to Singer’s that he openly defended this unequal treatment.

The story does not end there. Argentina has refused on principle to pay the vulture funds.

It deposited interest due to exchange bond-holders in the Buenos Aires branch of the US bank acting as trustee for the innocent exchange bond-holders — which however is barred by Judge Griesa from distributing it to them.

This has led to another absurd episode in an increasingly surreal legal drama.

On August 21, NML’s counsel urged Judge Griesa to find Argentina in contempt and to punish it for “cumulative violations” of his order because of the introduction of legislation in the congress of Argentina “that would have the effect of gutting the order, in that it would provide for a mechanism to pay the exchange bond-holders interest payments in Argentina and outside the control and jurisdiction of this court.”

This is imperial overreach in the guise of law — condemning a sovereign state for introducing legislation into its elected parliament to authorise it to pay money due to creditors.

Judge Griesa, for his part, stated that Argentinian President Cristina Fernandez’s announcement was “invalid, illegal and in violation of current court orders and injunctions.”

But aware perhaps of the quagmire he was invited to set foot in, he declined to find Argentina in contempt.

Judge Griesa is not a crazy outlier in today’s US judiciary.

His injunction was upheld by the US Appeals Court, and the US Supreme Court refused to accept a further appeal by Argentina.

The Supreme Court, however, made its own dubious decision in favour of NML on the interpretation of sovereign immunity with transnational implications.

The clever but extremely conservative Justice Antonin Scalia, appointed by George W Bush, gave the majority decision. Justice Ruth Bader Ginsburg delivered a lone — legally persuasive — dissenting judgment.

In Joseph Stiglitz’s recent words: “Sovereign borrowers will not — and should not — trust the fairness and competence of the US judiciary.”

Not so long ago, the US Supreme Court was respected internationally for its general adherence to norms of justice. No longer.

The Argentina litigation demonstrates just how far the US courts — as well as the political system — have now been captured by the ideology of neoliberalism and actively promotes the interests of finance capital.

The sorry NML v Argentina saga highlights the pressing need for an internationally recognised system for resolving sovereign debt disputes, fairly balancing debtors’ and creditors’ interests.

While new bond “collective-action clauses” are under discussion, such technical measures will not alone put an end to the ruthless politico-legal aggression of the vultures.

Jeremy Smith is co-director of Prime Economics and a vice-president of the Haldane Society of Socialist Lawyers.