In the ongoing World Cup soccer, or "futbol" to much of the world, tournament in Brazil, the Argentine team has achieved reasonable success. Although most if not all of Argentina is focused on the tournament, the financial future of the country is being discussed in the courts and the financial press.
For the second time in the past 15 years, the country of Argentina is moving toward a default on its sovereign debt obligations. One of the key points of contention in the current financial discussions is whether Argentina can make a payment to one group of bondholders for less than the full amount due while not paying anything to a second group of bondholders who are not willing to settle for a partial repayment of the debt owed.
As the bonds sold by the Argentine government were issued under U.S. law, the dispute between the various parties is subject to the U.S. court system. A provision in the documents governing the treatment of the sovereign debt of Argentina says all bondholders will be treated equally. As should be expected, the U.S. courts have stated Argentina must abide by the legal provisions it agreed to when the bonds were initially sold.
The parties seeking full repayment of the debt due own a total of approximately $1.5 billion of Argentine sovereign bonds. It is estimated this group of bondholders may have purchased these Argentine bonds at steep discounts in the secondary markets when it became evident the country would likely default on its debt obligations. The purchase price of the bonds does not affect the repayment obligation of the issuer.
Current tactics of the Argentine government include taking out full-page ads in financial newspapers condemning the actions of the bondholders seeking full repayment. Based on what has been stated publicly, neither side appears willing to compromise.
Argentina last won the World Cup in 1986 and prior to that, in 1978. The last time it was the runner-up was in 1990. Future success of the Argentine soccer team looks more promising than the future performance of the sovereign debt.
Kirby Brown is the CEO of Beneficial Financial Group, which is based in Salt Lake City.