Legal experts are calling it the sovereign debt trial of the century - a protracted battle in a New York court pitting a group of "vulture funds" against the Argentinian government with severe implications for poor countries.
"This particular case will have broader implications on global poverty probably more than any case we will see in our lifetimes," Eric LeCompte, executive director of Jubilee US, a campaign group focusing on debt issues, told Al Jazeera. "It sets a precedent with impacts far beyond Argentina."
The current legal clash dates back to 2001-02, when Argentina suffered an economic crisis and defaulted on its foreign debt. It was the largest sovereign default in history.
Many average Argentines lost their lifesavings as the currency crashed and the economy contracted more than 10 percent. Images of middle class women in high-heels smashing bank windows raced around the globe.
|A New York court battle involving the Argentinian government over debt could have severe global implications [AFP]
In the aftermath, more than 90 percent of Argentina's creditors agreed to take a "haircut" on what they were owed - usually about one-third of the principle - as the country defaulted and restructured debts of more than $100bn.
During negotiations, a small group of hedge funds, including NML Capital, swooped in and bought up the distressed debt at bargain-basement prices. The fund, controlled by billionaire US financier and Republican donor Paul Singer, is now suing to get the full value of the original debt - including interest - even though most investors accepted the financial "haircut". If NML wins the case, it stands to make an exponential profit from its original investment on the distraught debt.
"None of these hedge funds were buying Argentina's bonds at par," Charles Geisst, a former investment banker and author of Beggar-Thy-Neighbor: A History of Usury and Debt, told Al Jazeera. "They bought them at a distressed rate hoping for a bounce … More vulture funds will go into the business if Argentina loses this case."
The case, which has been fought in several legal jurisdictions, is currently before the Second Circuit Court of Appeals in New York and could be resolved in the next few weeks. Argentina is appealing an earlier court decision and has indicated it will take the case to the US Supreme Court if it loses the current appeal.
More vulture funds will go into the business if Argentina loses this case.
"These outstanding bondholders have been suing Argentina since 2002 … claiming Argentina owes them approximately $1.4bn," Rodrigo Oliveres-Caminal, a finance expert at the University of London, told Al Jazeera.
In their quest, hedge funds have launched lawsuits to try and seize Argentinian assets in different countries, he said, "anything from central bank reserves to satellites [and] military assets".
Last year, a court in Ghana took the unprecedented step of having that country's military seize an Argentinian navy ship docked off the West African coast. The hedge funds successfully sued in Ghana but a UN maritime court eventually ordered the ship to be released.
Argentinian President Cristina Fernandez hailed the ship's return home in January as a victory for national sovereignty over the "vultures" of "anarcho-capitalism". The Argentinian embassy in Washington did not respond to requests for comment on the litigation.
In a bizarre geopolitical twist, Kirchner has found herself on the same side of the issue as the International Monetary Fund, a group that has been at odds with Argentina for more than a decade. The IMF has expressed concerns over the case and the "policy implications" for debt relief and restructuring a court victory for the hedge funds could inspire.
"Just about every group in the world - legitimate investors, the UN, World Bank are all on the side of Argentina because of the precedent this will set," LeCompte, the debt campaigner, said. "This doesn't happen very often."
There are about 100 "vulture funds" operating around the world, LeCompte said, and they are often making 400 percent profits, usually from poor, debt laiden countries.
Unlike the US, which has not formally intervened in the case despite speculation that it would support Argentina, France has weighed in, filing an "amicus brief" with the US court, Argentina's state-run news agency reported Friday.
Due to the opaque nature of their business - gaining value on credit default swaps, using ultra-fast computers to make quick profits on currency fluctuations, saddling struggling companies with debt and then forcing layoffs and generally profiting from insider knowledge and instability - most hedge funds seek to keep a low profile. This case is different.
Companies linked to Paul Singer's funds, including Elliott Associates LP, helped form the American Task Force Argentina (ATFA), financing a series of advertisements in leading newspapers, including the Washington Post, blasting President Fernandez for everything from having diplomatic relations with Iran to the ongoing court case.
Keen to attack their competitors - Argentina is a major beef exporter - the US Cattlemen's Association has also joined the campaign. ATFA did not respond to interview requests from Al Jazeera.
Professor Oliveres-Caminal said the hedge funds are right to launch a PR campaign. "Of course if someone owes you this money, you will want your money back," he told Al Jazeera.
You could see a hedge fund buying Greek debt knowing there are Greek assets around the world they could seize. No sovereign country wants to see its brotherate around the world blackmailed like that.
"In the past, they [hedge funds] hired private investigators to follow African dictators and got copies of their expense reports from a trip to Paris on how much they spent on champagne and so on, and then leaked them to the newspapers," he said. "If that is part of how they get paid, and it's legal, I don't see any problem with that."
If Argentina wins this case in New York, he said, the biggest winner could be the City of London, as soveign debt financing will happen through the UK rather than the US legal system, if creditors don't believe they will be able to recuperate their investments in court.
Argentina is, after all, a member of the G20 with a reasonably high standard of living. It can afford to pay what they borrowed, some economists say. The funds might be criticised, Oliveres-Caminal said, "but in reality they serve a purpose; they supply liquidity when no one else wants to".
Others disagree. If a small group of funds can make major profits, blocking attempts by larger institutional investors to create a settlement, then the broader economic system - not to mention poor people in highly indebted countries - could suffer. Bankruptcy and debt restructuring is, most economists agree, a natural part of the creative destruction that is supposed to make capitalism flourish.
Many analysts worry a victory for the hedge funds could undermine future debt restructuring procedures - in Greece and sub-Saharan Africa in particular.
"You could see a hedge fund buying Greek debt knowing there are Greek assets around the world they could seize," Geisst, now an economics professor at Manhattan College, said. "No sovereign country wants to see its brotherate around the world blackmailed like that."
Follow Chris Arsenault On Twitter: @AJEchris
Source: Al Jazeera and agencies