Impact of Court Ruling on Argentina’s Debt on Future Sovereign Debt Restructurings Is Likely Limited

Impact of Court Ruling on Argentina’s Debt 
on Future Sovereign Debt Restructurings Is 
Likely Limited 

On February 18, Argentina filed a petition with the Supreme Court of the United States
challenging the US Appeals Court ruling to uphold the right of holdout creditors to be paid
in full based on the pari passu clause included in bond contracts.1
 One of the questions
presented to the Supreme Court includes “whether a foreign sovereign is in breach of a pari
passu clause when it makes periodic interest payments on performing debt without also paying on
its defaulted debt”.
The petition is the latest development in a series of court battles between Argentina and
holdout creditors. The litigations have spurred a wide-ranging debate on the possible
consequences of the court rulings for future sovereign debt restructurings and have led to
proposals from the IMF and others to modify policy responses to sovereign debt crises.2
 In
theory, the court ruling can have significant implications for the successful completion of
future sovereign debt restructurings, as it can diminish creditor incentives to participate in
restructurings and increase the threat of litigation.
In practice, however, implications of the court ruling are likely limite

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