	Introduction

In December 2001, Argentina suffered a severe financial crisis, leading to the largest sovereign debt default in history, except for Greece. In 2005, Argentina abandoned negotiations to restructure the debt and made a unilateral offer on terms highly unfavorable to creditors. Still, $62.3 billion of the $81.8 billion in principal was exchanged. A diverse group of "holdouts" representing $18.6 billion did not tender their bonds. At the close of 2010, Argentina reported that it owed private investors $11.2 billion ($6.5 billion in principal, $4.7 billion in past due interest). Argentina does not recognize the private holdout debt in its budget, and legislation bars the government from making further offers to the holdouts. Recent court decisions have left Argentine central bank assets in the United States immune from attachment, but require Argentina to treat both holdout and exchange bondholders equally. In this case, the district court ordered Argentina to pay litigant holdouts the full $1.3 billion of their claim. Should this occur, it could prohibit banks from allowing Argentina to make payments to exchange bondholders unless it also paid the holdouts, creating a conundrum for Argentina: either pay all parties per the court order, or for lack of an ability to pay only the exchange bondholders, find itself in technical default. This report reviews Argentina's financial crisis, the bond exchanges of 2005 and 2010, ongoing litigation, prospects for a final solution, related U.S. legislation, and broader policy issues. A sovereign default means the government is no longer willing or able to pay the debt it has legally incurred in the international markets. According to official Argentine sources, as of December 31, 2010, Argentina was in arrears with holdouts and some members of the Paris Club in the following amounts:
$11.2 billion to the holdouts worldwide (including $6.5 billion in principal past and coming due, and $4.7 billion in past due interest through December 2010). Holdout creditors argue that this number could be $15 billion by 2013, of which $1.3 billion is being litigated by hedge funds in U.S. courts, and $6.3 billion to the Paris Club, including PDI through December 31, 2010, plus the possible addition of interest and penalties. Holdout Responses Since 2010

In the eyes of holdout creditors, and apparently increasingly the U.S. courts, the 2005 and 2010 bond exchanges have set a precedent that cannot be condoned, even though 91.3% of total bondholders have accepted the terms. Although Argentina continues to argue that the restructurings took place after extensive negotiations, they were not mutually agreed solutions. Bondholders had to accept or reject the offers with the alternative being the promise of no restitution at all. Holdout bondholders remain unpaid while Argentina is current on its obligations to the bondholders who exchanged their debt, an outcome that is currently being challenged in court as illegal under the equal treatment ( pari passu ) provision of the bond contracts. The holdout bondholders formally rejected the offer and urged the appeals court to enforce the lower court ruling requiring Argentina to pay them in full. Argentina has said it will continue to make payments due to exchange bondholders as long as the stay issued by the appeals court is in effect. The bond exchange addressed two aspects of outstanding debt.
In December 2001, Argentina suffered a severe financial crisis, leading to the largest sovereign debt default in history, until Greece. In 2005, after prolonged, contentious, and unsuccessful attempts to restructure the debt, Argentina abandoned the negotiation process and made a unilateral offer. The terms were highly unfavorable to creditors, but $62.3 billion of the $81.8 billion in principal owed was exchanged. A diverse group of "holdouts" representing $18.6 billion did not exchange their bonds, and some have opted to litigate instead. These actions resulted in attachment orders against Argentine assets, leaving the country unable to access the international credit markets. Holdout creditors also lobbied against Argentina's debt policy, which has triggered actions by the U.S. government and legislation in previous Congresses.
The lingering effects of the debt default became a legacy problem for Argentina. The government decided to open another bond exchange in 2010 to deal with remaining holdouts, on slightly less favorable terms than before. Argentina reduced its outstanding defaulted debt by another $12.4 billion. As of December 31, 2010, Argentina reported that it owed private investors $11.2 billion ($6.5 billion in principal and $4.7 billion in past due interest). Holdout creditors estimate that with additional interest, this number could be as high as $15 billion by 2013, with $1.3 billion under litigation in federal court. Argentina also owes the Paris Club countries $6.3 billion in principal and past due interest. The U.S. portion is estimated at $550 million.
Argentina does not recognize the remaining private holdout debt in its official budget and is legislatively barred from making another offer to bondholders. Nonetheless, in the eyes of holdout creditors, the bond exchanges have set a precedent that cannot be condoned, even though 91.3% of total bondholders have accepted terms. Although Argentina continues to argue that the restructurings were negotiated solutions, they were not mutually agreed ones. Bondholders had to accept or reject the offers with the alternative being the promise of no restitution at all. Holdout bondholders remain unpaid while Argentina is current on its obligations to bondholders who participated in the two bond exchanges, an outcome that is currently being challenged in court under the equal treatment provision of the bonds.
Recent district court decisions require Argentina to treat both holdout and exchange bondholders equally. In this case, the court ordered Argentina to pay litigant holdouts the full $1.3 billion of their claim. The appeals court stayed the order and required Argentina to offer a payment plan to the holdouts that would satisfy the equal treatment clause. On April 19, 2013, the holdouts formally rejected an offer that was effectively the same as the 2010 exchange, and urged the appeals court to enforce the lower court ruling. Argentina has said it will continue to pay the restructured bonds, but is no position to pay the holdouts in full. A final ruling against Argentina could prohibit banks from allowing Argentina to make those payments unless it also paid the holdouts, creating a conundrum for Argentina: either pay all parties per the court order, or for lack of an ability to pay only the exchange bondholders, find itself in technical default.
This report reviews Argentina's financial crisis, the bond exchanges of 2005 and 2010, ongoing litigation, prospects for a final solution, related U.S. legislation, and broader policy issues. These include lessons on the effectiveness and cost of Argentina's default strategy, the ability to force sovereigns to meet their debt obligations, and ways to avoid future defaults like Argentina's.