UPDATE 1-IMF withdraws plan to file with U.S. Supreme Court in Argentina case
WASHINGTON, July 23 (Reuters) - The International Monetary Fund no longer plans to ask the U.S. Supreme Court to review Argentina's case in its decade-old legal battle with holdout creditors due to a lack of support from the U.S. government, the IMF said on Tuesday.
IMF Managing Director Christine Lagarde had planned to recommend that the IMF's board approve a friend-of-court brief in support of the case by the end of this week. The board discussed her recommendation on Tuesday. In a statement late on Tuesday, the IMF said Lagarde was withdrawing her recommendation.
The news is likely to sharply hit prices of Argentina's bonds, which had rallied on news of the IMF's planned support.
"The Managing Director's recommendation was premised on U.S. support, as it would not be appropriate for the IMF to file this brief without that support," an IMF spokesman said.
"The Fund remains deeply concerned about the broad systemic implications that the lower court decision could have for the debt restructuring process in general."
The IMF, the Washington-based global lender, has said it was worried a ruling against Argentina would make it more difficult for other countries to restructure their debt and put financial calamity behind them.
The U.S. government, in prior briefs to lower courts, has agreed with that sentiment. But the United States on Friday said it will not file a brief asking the Supreme Court to review the case.
A Fund official said it would have been inappropriate to file a brief on behalf of Argentina in a U.S. court without the support of the U.S. government, as it could pitch the IMF into a dispute between two of its members and violate its neutrality as an international organization.
The official, speaking on condition of anonymity, also said the lack of U.S. support could undermine the effectiveness of the Fund's filing.
Over the last decade, holdout investors and Argentina have sparred in the U.S. courts over the South American country's $100 billion default in 2002. Holdouts declined to take part in two restructurings in 2005 and 2010 that drew participation from 93 percent of bondholders, who accepted returns as low as 25 cents on the dollar.
Investors including Aurelius Capital Management and NML Capital, a unit of billionaire hedge fund manager Paul Singer's Elliott Management, have refused a deal and are suing Argentina to recover the full value of their assets.
Argentina is asking the Supreme Court to void an October 2012 ruling by the 2nd U.S. Circuit Court of Appeals in New York, which found it had violated a clause in its bond documents requiring it to treat all creditors equally.
The appeals court has not yet ruled on whether to require Argentina to pay the holdouts. A ruling in their favor would put Argentina on the hook for more than $1.3 billion in payments and risk another default.
The Supreme Court is on its summer break and won't decide whether to hear the Argentina case until the fall.
The Supreme Court decides to hear fewer than 1 percent of the thousands of petitions that are filed each year. But some investors believed the IMF's participation could have increased the chances the case is reviewed.
The U.S. Justice Department last week declined to say why it would not submit a brief in the case. But several lawyers said the government almost never files friend-of-the-court briefs before the Supreme Court has decided to hear a case, unless the justices ask it to.
In an April paper, the IMF said a ruling against Argentina could "risk undermining the sovereign debt restructuring process" by making it more difficult for governments to get agreement from all creditors to accept new debt, which usually pays lower interest rates.
The IMF is a lender of last resort to governments in financial distress, and has an incentive to ensure countries can get their finances in better shape after a crisis. It helped Greece restructure billions of dollars in privately held debts as the euro zone country sought to wade out from its debt pile.
But the 2nd Circuit rejected the IMF's arguments, saying most new bonds include collective action clauses that eliminate the threat of holdout litigation by requiring that all creditors accept a restructuring if it is approved by a supermajority.