Default: The Landmark Court Battle over Argentina's $100 Billion Debt Restructuring

by Gregory Makoff

What ensued was a three-way power struggle of epic proportion over who would control the terms of Argentina’s upcoming transaction: the IMF, Argentina, or organized creditors. Each of these parties had a reason to claim that they should control the process. The IMF was an international organization, the lender of last resort, and its staff was uniquely qualified to objectively determine the amount of debt a country could safely sustain. In the last quarter of 2003, however, the U.S. Treasury had knocked the IMF out of contention by insisting that it not intervene in the negotiations. It looked like this was going to be a two-way, Argentina versus creditor face-off, but the organized creditors brought the IMF back into the dispute by complaining that Argentina was in breach of its good faith negotiations rule. By doing so, the creditors hoped to use the IMF to gain leverage: if the IMF threatened to cut off the money spigot to Argentina based on a breach of this rule, the country would soften up on process and terms. The effect of bringing the IMF back into play, however, was that the IMF was soon a full participant in the power struggle, with creditors pressuring it to enforce its new rule and the IMF pressuring Argentina to ease up on its approach to the deal.