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The US Supreme Court opened discussions yesterday on whether to hear a challenge from Argentina against predatory hedge fund investors.
Argentina sought the court’s intervention in the nine-year-old case to avoid being forced to pay out more than $1 billion (£600 million) to investors who picked up defaulted bonds for a song and are now demanding full-price restitution.
Buenos Aires says the vulture funds gave up their claims when they refused to participate in a restructuring of the country’s foreign debt in 2010.
But lower courts have backed the hedge funds and said they should be paid the full face value of their bonds.
The huge majority of holders of nearly $100bn (£60bn) of defaulted Argentine debt have accepted that large write-offs are necessary.
If the Supreme Court decides against hearing the case, it could wreak havoc in attempts to restructure the bonds of bankrupt countries by eliminating any incentive for bondholders to agree write-downs.
A concerned International Monetary Fund has made it clear that it sees Argentina vs NML Capital as a threat to helping countries with collapsed finances come to restructuring pacts with creditors.
Investors who accepted restructuring have also objected to the lower court rulings.
And a lower court ruling giving the hedge funds the right to pursue Argentine government assets despite a US law protecting them has attracted concern from US authorities.