Argentine officials say their plan for paying $1.4 billion in defaulted debt is fully within the spirit of U.S. court rulings.
But Wall Street analysts say the offer looks nothing like the letter of the law as the appellate court sees it. They say the mix of new bonds to be paid out over the next 25 years boils down to just one-sixth of what Argentina was told to hand over in cash.
Many experts looking over the weekend at what President Cristina Fernandez's government filed with the court at midnight Friday said a new default by Argentina is now much more likely.
And some are predicting that if Argentina loses, it will try to reroute its debt payments from New York's banks, rather than submit to U.S. justice.
Fernandez and her economic team are proud of Argentina's long climb back from a world record debt default in 2001, and determined to keep the plaintiffs, and what they call their "vulture funds," from getting a better deal than what the other 92 percent of Argentina's defaulted debt holders accepted in 2005 and 2010 in exchange for the unpaid paper.
Those new bonds had a much lower face value at first, providing relief to Argentina in much the same way a bankruptcy proceeding writes off bad debts and ensures that all creditors are paid more or less equally. It has taken years, but these bondholders have gradually begun to recover most of what they lost more than a decade ago.
Rather than accept this bankruptcy scenario, about 8 percent of the debt holders refused to accept the bond swaps. Led by billionaire Paul Singer, they went to court instead, demanding payment in full for a plain and simple breach of contract. After a decade of litigation, they won. Now it's all about getting paid.
U.S. District Judge Thomas Griesa would block Argentina's regular payments to the 92 percent if U.S. banks don't ensure that the country hasn't already repaid the plaintiffs an equal amount in capital, interest and penalties.
If upheld, that would force Argentina into default in June, if it doesn't pay the plaintiffs their first installments totaling nearly $250 million, equal to what it must pay the exchange bondholders that month.
Vice President Amado Boudou said Saturday that "it would be a judicial absurdity to block payments by a country that has the capacity and willingness to pay."
Boudou added that "one way or another, Argentina will pay" the exchange bondholders no matter what the courts say.
That suggests Argentina might try a long-shot scheme of routing its payments through some other country, even though the exchange bonds are denominated in dollars and promised under New York law, analyst Daniel Kerner said.
"It suggests that it is highly unlikely that the government will comply with any court ruling that mandates full payment," Kerner said.
While the appeals court does not have a deadline, it could issue a ruling anytime in the next few weeks.
Argentina's shaky economy hangs in the balance. The government argued that if the plantiffs win the $43 billion would immediately come due, draining all the country's foreign reserves. Such a victory would enable NML Capital Ltd., a hedge fund owned by billionaire Paul Singer, to walk away with a profit of 1,380 percent, the government complained.
JP Morgan analyst Vladimir Werning predicted that the appellate judges would have little sympathy for such arguments. He also predicted that Argentina will lose and try to reroute its current payments through some other country — a complicated endeavor that U.S. courts could potentially block.
Argentina had some defenders on Monday. A coalition of church groups known as the Jubilee USA Network, which lobbies for foreign debt reduction, said the "payment plan protects the integrity of deals made with other debt holders, but most importantly it ensures that these holdout hedge funds can't take further advantage of the poor in developing countries."
But they appeared to be in the minority.
Arturo Porzecanski, an expert on Latin American emerging markets at American University, said Argentina should simply pay what it owes.
Instead, the government is offering no "explicit or implicit commitment to make anybody whole for the tremendous losses previously sustained," he said. "The plaintiffs are merely given yet another chance to be paid mainly in highly risky, long-term IOUs the little money that Argentina wants to pay them."