After taking a beating in the US court system, Argentina is moving its sovereign debt legal battle to a potentially more sympathetic international judicial tribunal.

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Latin America’s lawsuit against US in the International Court of Justice

The Latin American nation has filed suit against the US in the International Court of Justice with an important catch.

The Hague-based court will only take up the case if the US accepts the court’s jurisdiction in the matter.  It is unclear from press reports if the US Obama administration were to make the decision or the US courts would weigh in on providing international courts jurisdictional power.

This could make a big difference in the case.

Obama Administration supports Argentina

The Obama Administration has officially expressed its support for the Argentine position, noting the negative issues on foreign policy, but has avoided exerting too much influence on the situation. If the administration were to make a decision, or if it were to start to exert authority, they could easily overrule US judge Thomas Griesa using a legal principle known as “comity,” where foreign policy management could trump the court, a Guardian report notes.

But this path for the Obama Administration is fraught with risk.  The route of least resistance could be for the US to simply allow the case to be decided in Europe.  European courts and legislative bodies have already made the holdout hedge fund’s practice illegal or ruled or legislated against the issue in question.  Allowing the international tribunal to decide the issue could play into Obama’s foreign policy mandate to lead from behind – and more.  This could be the worst case situation for the holdout hedge funds.

If, however, the decision is left to the US legal system, odds are courts will not want to cede legal control to a foreign power and would upheld the US decision regardless of political pressure, is my speculation.  This would be the worst case situation for Argentina.

Eric LeCompte on Argentina’s default

International observers are looking for a more lasting solution. “If we had an international bankruptcy process, countries from Argentina to Grenada never would default and predatory actors are forced to sit at the table,” said Eric LeCompte, Executive Director of Jubilee USA Network.

Argentina’s government had continually said the possibility international intervention might be required once its legal options were depleted.  As reported yesterday in ValueWalk, Argentina had sought information on potential credit default SWAPs insurance derivatives.  It is unknown if they have made contact with the proper US regulatory authority or if their case for insider trading has standing under US derivatives laws.