Don’t Cry for the World’s Greatest Sovereign Deadbeat

Argentina is, to put it bluntly, one of the world’s greatest sovereign deadbeats, defaulting on its sovereign bonds more than once as well as bearing the distinction of being the world’s number one respondent in ICSID arbitration claims (or at least close to number one).  Last week, the ongoing struggle between foreign creditors and Argentina found a new flashpoint as investors brought an action in Ghana to attach ARA Libertad, an Argentina government naval training ship that was on a goodwill tour of West Africa.

Argentina had defaulted on its sovereign bonds in 2002 and various investors who did not accept Argentina’s settlement of those debts (which involved a 70% “haircut”)  have been seeking to collect on those debts ever since, especially in litigation occurring in the U.S. and the U.K.  So far, however, investors have failed to collect much money, even though a U.S. court has granted summary judgment holding Argentina liable for more than $280 million (with lots of interest accruing).

The Ghana litigation is the latest round in this ongoing struggle to collect on this judgment. The commercial court in Accra has refused Argentina’s effort to lift an injunction preventing ARA Libertad from leaving Ghana, holding that Argentina’s bonds waived applicable sovereign immunity defenses. Indeed, most courts seem to have agreed that  Argentina has indeed waived its immunity defenses. Here is an excerpt of their waiver, as described in a recent U.S. Court of Appeals for the Second Circuit decision: (E.M. Ltd. V. Republic of Argentina (2d Cir. Aug. 20, 2012)

To the extent the Republic [of Argentina] or any of its revenues, assets or properties shall be entitled … to any immunity from suit, … from attachment prior to judgment, … from execution of a judgment or from any other legal or judicial process or remedy, … the Republic has irrevocably agreed not to claim and has irrevocably waived such immunity to the fullest extent permitted by the laws of such jurisdiction…

Of course, this waiver does not necessarily mean that all of Argentina’s assets can be seized or attached.  In U.S. litigation, courts have held that this waiver allows U.S. courts to attach Argentina state assets that are used for a commercial activity.  (NML Capital v. Argentina, 680 F.3d 254 (2d Cir. 2012)).  If such an approach is followed in Ghana, I am not sure whether the foreign investors would be able to prevail since they would have to prove that the ARA Libertad is being used for a commercial as opposed to a naval activity.

On the other hand, Ghana law could very well be more favorable to the creditors than U.S. law.  It certainly sounds like that is the case given this report of the arguments in the Ghana court. Perhaps sensing it has a losing legal argument, Argentina has begun a full-court diplomatic press on Ghana, even enlisting Chile to help out.

If Ghanian law allows a waiver of attachment to extend to all sovereign property, then it seems only fair that this case should be allowed to proceed regardless of what Argentine or Chilean diplomats say. I realize that the foreign creditors here are “vulture” investors who purchased the bonds from the original bondholders at a steep discount, but I don’t think that excuses Argentina from its undoubted legal liability.  Even if the ARA Libertad is not properly the subject of attachment, I can’t understand why folks continue to excuse Argentina’s deadbeat behavior.  Argentina plainly has the money to pay the judgment (the just expropriated their largest oil company, after all), and it is obligated to do so as a result of its own commitments. So why cry for Argentina?