Argentina has finally run out of wiggle room in a billion-dollar showdown over foreign debts unpaid since the country's world-record default a decade ago - and the stakes couldn't be higher for President Cristina Fernandez.
A United States federal judge in New York has ordered Argentina to pay immediately and in full everything it owes to what Fernandez calls "vulture funds" that she blames for much of her country's troubles. That adds up to US$1.3 billion ($1.6 billion), due by December 15.
The judge also barred Argentina from paying other bondholders until it satisfies this judgment, putting the President's back against the wall.
If she doesn't reverse her longstanding position and pay up, she risks triggering another Argentine debt default, this time totalling more than US$20 billion.
"It is hardly an injustice to have legal rulings which, at long last, mean Argentina must pay the debts which it owes. After 10 years of litigation this is a just result," US District Judge Thomas Griesa concluded.
Argentine Economy Minister Hernan Lorenzino responded to the judge by pledging to battle "judicial colonialism".
He said Argentina would defend its stance using all legal means and would appeal against the ruling next week.
"Paying the vultures is not only unfair but illegal following our internal rules," Lorenzino said, referring to Argentina's "ley cerrojo", or "lock law", which bans the re-opening of debt restructuring.
Fernandez said before the verdict that her Administration wouldn't pay a single dollar to the plaintiffs.
But the judge gave her no room to manoeuvre, lifting his stay and ordering that the money be put in an escrow account for the plaintiffs.
"These threats of defiance cannot go by unheeded," the judge wrote. "The less time Argentina is given to devise means for evasion, the more assurance there is against such evasion."
If Fernandez refuses, the judge said, the Bank of New York, which processes Argentina's bond payments, will find itself in violation if it doesn't hold up payments to all other bondholders.
"It's a mess. This does not help Argentina. Default could happen," Goldman Sachs analyst Alberto Ramos said in New York yesterday.
As with so many other things involving Argentina, this case is rooted in the bloody dictatorship that ruled in 1976-1983. The military junta more than tripled the country's foreign debts. By 2001, the burden had become unsustainable and the economy collapsed. Argentina's US$95 billion default still stands as a world record.
Sovereign debt is supposed to be paid no matter who runs a country, but Fernandez considers this defaulted debt to be illegitimate, forced onto the country by dictators acting in concert with international financial speculators.
- AP