Argentina sues US in the UN court over debt default

Argentina has filed legal action against the US at the International Court of Justice (ICJ) the principal judicial organ of the UN in The Hague, Netherlands, for alleged breaching of the country's sovereignty following its debt default a weak ago.

In a statement, ICJ said that it has forwarded the application to the US government further stating that no action will be taken in the proceedings unless and until the US consents to the court's jurisdiction in the case.

''The Argentine Republic contends that the United States of America has committed violations of Argentine sovereignty and immunities and other related violations as a result of judicial decisions adopted by US tribunals concerning the restructuring of the Argentine public debt,'' the court release said.

Argentina's current default is its second in 13 years which came after the failure of a protracted legal battle with hedge funds – the so called vulture funds - which opposed the restructuring terms of 2005 and 2010.

Argentina, which ceded its position of Latin America's third-largest economy to Columbia recently, defaulted on about $100 billion of sovereign bonds in January 2002 following a prolonged recession and unsustainable fiscal deficits.

Most bond holders, about 93-per cent of the total, had agreed to the debt restructuring in 2005 and 2010, while the holdouts lead by hedge funds NML Capital, an affiliate of Elliot Management Corp and Aurelius Capital Management opted to sue the country in the US courts for full repayment.

US district court judge Thomas Griesa ruled that Argentina could not pay its bondholders unless it also paid their holdouts in full which is approximately $1.5 billion. The ruling has prevented Argentina from paying its bondholders though it had the money to do so.

On Argentina's failure to reach a deal, rating agency Standard and Poor's declared the country in 'selective default' and Fitch in 'restricted default'.

Argentina argues it has not defaulted as it made a required interest payment of $539 million on exchanged bonds before a 30 June deadline, which Griesa labels as illegal.

Argentinian economy minister Axel Kicillof said on the country's television,  "We will continue to work tirelessly to defend the rights of Argentina,'' further adding that Judge Griesa did not resolve anything.

"He created this confusing and extraordinary situation," Kicillof said.

The default could cause inflation in Argentina to further surge, and brin in more austerity measures, economists believe.

A prolonged default could have negative implications on the cost of borrowing to the local and federal governments.

Last week, Jorge Capitanich, president Cristina Fernandez' cabinet chief had blamed the US for the default and said Argentina may go to the ICJ for justice.

''This is the fault of the United States for not acting properly. This is a shame.'' Capitanich said.

The default has come at a time when the country was trying to win confidence in the international markets.

The previous default resulted in the devaluation of peso, the national currency, failure of the banking system and huge unemployment, which took several years to recover. Although, a similar situation is not anticipated now by analysts, as the country's banking system is believed to be much sounder. 

The ICJ comprises 15 judges who are elected for nine-year terms and aims to settle legal disputes between countries, with parties unable to appeal the court's decisions.

Although the US has recognised the ICJ's jurisdiction in the past, it is not clear if it would do so in this case.