International Monetary Fund Managing Director Christine Lagarde withdrew a proposal to back Argentina in the country’s legal battle over its defaulted debt, citing opposition from the U.S., the fund’s largest shareholder.
The decision comes three days after Lagarde said she’d recommend that the IMF board file its first-ever friend-of-the-court brief to the U.S Supreme Court in support of Argentina’s request for a review of a lower court ruling. The case involves holdout creditors from the nation’s $95 billion default in 2001.
“The managing director’s recommendation was premised on U.S. support, as it would not be appropriate for the IMF to file this brief without that support,” the IMF said in an e-mailed statement. “The Fund remains deeply concerned about the broad systemic implications that the lower court decision could have for the debt restructuring process in general.”
The South American nation contends that a federal appeals court in New York was wrong when it ruled in October that investors who accepted Argentina’s debt restructuring can’t be paid unless holders of defaulted bonds who rejected the plan are also paid. The holdouts are led by billionaire Paul Singer’s Elliott Management Corp. and its NML Capital Ltd. unit.
The IMF said Lagarde’s decision came after the U.S. said that “at this stage” it no longer supported the filing.
“It is a bit awkward, but it is consistent with the consensus-based nature of IMF’s decision making,” said Domenico Lombardi, the director of the Global Economy program at the Centre for International Governance Innovation in Waterloo, Canada. “Certainly, this is a case in point showing the political reality under which international organizations operate and how such constraints limit their institutional effectiveness.”
In asking the Supreme Court to take the case, Argentina argued that the lower-court ruling “represents an unprecedented intrusion into the activities of a foreign state within its own territory that raises significant foreign relations concerns for the United States.”
Last week, the Obama administration said it won’t file a brief at this stage urging the Supreme Court to hear Argentina’s appeal. The justices could seek the government’s views before acting in the case, potentially giving the administration another chance to make a recommendation. The administration backed Argentina at the appeals court.
“Clearly this is a politically sensitive issue and the politically conservative thing to do is not to file at this time,” Anna Gelpern, a law professor at Georgetown University in Washington and senior fellow at the Peterson Institute for International Economics, said in a telephone interview. “It sounds like the fund has decided that the politically sensible thing to do for now is to hold off.”
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