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Argentina’s new president Javier Milei is facing a critical test of his pledge to rebuild the serial defaulter’s reputation on the world stage, as his cash-strapped government struggles to meet a looming deadline on the $16bn it owes to former private shareholders of state energy company YPF.
Last year a New York judge ruled that Argentina owed the record sum to two now-defunct investors that had sued after the country’s government declined to buy out their shares at an agreed rate when it expropriated YPF in 2012. Their claims were largely financed by litigation funder Burford Capital in exchange for a percentage of the award.
Argentina has appealed against the judgment. While it pursues its case in the 2nd Circuit Court of Appeals, Judge Loretta Preska has ordered it to post assets worth some $5bn as collateral by January 10, after which point plaintiffs say they would be forced to try to assert their rights by seizing Argentine assets. Analysts say Argentina is all but certain to miss the deadline.
The case risks becoming a headache for the pro-market president, who has attempted to distinguish himself from the left-leaning Peronist politicians who expropriated YPF. Since taking office in December, Milei and his officials have repeatedly touted Argentina’s “willingness to pay”, while at the same time arguing that a severe shortage of hard currency and political roadblocks prevent them from doing so in the near term.
Plaintiffs say Milei has not assuaged their concerns that Argentina, which has faced waves of drawn-out international litigation over the last two decades, is again seeking to avoid meeting its obligations.
“Despite the welcome and optimistic statements of Argentina’s new president, Argentina’s lawyers have made it clear that the Republic will not co-operate in even basic things,” they wrote to the judge last week.
Argentina is currently in the midst of its worst economic crisis in two decades, with annual inflation running above 200 per cent and four in 10 people living in poverty. The central bank’s foreign exchange reserves are roughly $8bn in the red. The $16bn sum is equivalent to 32 per cent of the 2023 government budget, Argentina’s lawyers noted in December.
US- and UK-listed Burford, whose cut of the $16bn would be around $6bn, has told shareholders it is very unlikely the whole sum will be recovered.
Recognising Argentina’s “extraordinary and unique circumstances”, Preska in November agreed to hold off on enforcing the $16bn judgment so long as Buenos Aires moved to expedite its appeal against the verdict and posted “minimal assets” as collateral.
The assets she has deemed appropriate are the 26 per cent of YPF shares now owned by Argentina’s national government — a further 25 per cent are held by the country’s provinces — and payments that the country is due to start receiving from Paraguay in 2028 in relation to a hydroelectric border dam.
Argentina’s lawyers have said they cannot “legally or practically” submit those by January 10. The former would require congressional approval — difficult for Milei’s government to secure quickly — and “the economic situation of the country wouldn’t permit” the latter, Argentina’s attorney-general Rodolfo Barra told La Nación newspaper on December 31.
In late December, Milei floated the idea of issuing a perpetual bond to pay its obligations, and charging Argentines what he dubbed a “Kicillof tax” to pay the interest — named for Axel Kicillof, the Peronist former minister and now governor of Buenos Aires Province, who championed the YPF expropriation in 2012. Investors have widely panned the idea, citing non-existent demand for long-term bonds from Argentina.
“There is no earthly way that I know of for Argentina to present collateral by January 10,” said Sebastián Maril, a director at consultancy Latam Advisors who has closely followed the case.
If Argentina fails to submit collateral, the next move would lie with the plaintiffs. They have asked Preska for clarification on whether, should Argentina miss its January 10 deadline, they will be permitted to begin what they have called the “arduous and time-consuming process” of attempting to claim the $16bn judgment by seizing Argentine assets.
Experts say that would be exceedingly difficult, if not impossible. They note that US law protects Argentina’s assets in the country, except any used as part of the country’s moves to renege on its contracts in 2012, which likely do not exist.
History suggests the plaintiffs will also struggle outside the US. Argentina was famously involved in a cat-and-mouse game with holdout creditors from a sovereign debt restructuring, in which lawyers for so-called “vulture fund” Elliott Capital spent years trying to pin down significant Argentine holdings. A high-profile attempt to seize an Argentine Navy vessel in a port in Ghana in 2012 was blocked by the UN International Tribunal for the Law of the Sea. A deal was ultimately reached in 2016.
Sebastián Soler, who served as Argentina’s assistant attorney-general in the previous Peronist government, said on X that seizures in this case would be even more challenging than they were for the bondholders, who benefited from a clause in Argentina’s bonds renouncing some US legal protections for their assets.
The conditions “represent a VERY big obstacle for the plaintiffs”, he said. “Of course, that doesn’t mean that they won’t try anyway. Or that they won’t [try to seize assets] as a harassment strategy, knowing that it won’t work.”
While a stand-off appears imminent, Maril said the appeal and recovery efforts may be a backdrop for behind-the-scenes negotiations between Argentina and the plaintiffs.
Milei’s government, he said, “has clearly recognised that Argentina almost always ends up losing these cases . . . Argentina has paid out almost $17bn [as a result of] international litigation since 2000.”
He added: “The plaintiffs should be encouraged that for the first time in 25 years, Argentina has a government that has shown it intends to stop kicking the can down the road.”
Additional reporting by Joe Miller
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