The headline ruling in yesterday’s battle between Argentina and what are known as the “hold out hedge funds” was that Argentina cannot compensate those who agreed to a settlement without compensating holdouts as well.  In regards to this, the deep pocketed holdouts are likely waiting by their phones for Argentina’s President Cristina Kirchner to make the first move in this chess game.

Argentina Flag

But it was the second ruling that likely might be the motivator that changes outcomes.  This is where NML Capital, one of the hedge fund holdouts operated by Paul Singer, was granted discovery into Argentina’s global financial transactions.  What might be discoverd, along with the specter of Argentina being chased around the world by thug-like debt collectors is part of leverage that is likely to motivate the payment of Argentina’s past debts.

Argentina will pay debt rather than default

In a speech broadcast on national TV Monday night, Kirchner had indicated that Argentina will pay its debt rather than default, a move that had been surrounded by a wide range of speculation. It might have been the image of the presidential plane attempting to be seized while she was still in it – an event that actually occurred in 2007 – that encouraged Kirchner to play ball. This was punctuated in the second ruling, where the court said no to Argentina, which sought adjudication under the Foreign Sovereign Immunities Act of 1976 (FSIA or Act).

“No provision in the FSIA immunizes a foreign-sovereign judg­ment debtor from post judgment discovery of information concerning its extraterritorial assets,” the court ruled, making a default that much the stickier.

What the ruling does open the door for is NML and other holdouts to ravage through Argentina’s overseas property and claim property that the country might categorize as “immune.”

NML’s general request for information about Argentina’s worldwide assets

“The prospect that NML’s general request for information about Argentina’s worldwide assets may turn up information about property that Argentina regards as immune does not mean that NML cannot pursue discovery of it,” the ruling read.

Who knows what the hold outs will find amidst Argentina’s confidential bank records and foreign transactions. But just the prospect of looking is enough intimidation to have the leader of a Latin American sovereign nation to cave to the desires of the holdouts.

Ms Kirchner may not have much experience making the first call to a man, but a word of advice. Don’t be intimidated. Start with Paul Singer. He won’t bite. Explain the reality of the situation, he understands the debt crisis.

Secondary Ruling Against Argentina Has Intimidating Bite