Argentina's $1.67 Billion Court Setback Amid Soaring Inflation

Argentina lost an appeal in a London court regarding GDP-linked securities, resulting in a $1.67 billion liability. The decision is a blow to an economy already grappling with nearly 300% annual inflation. Hedge funds initially sued in 2019, and although similar lawsuits were dismissed in New York, the London ruling stands.

Argentina lost an appeal in a London court on Wednesday to reverse a ruling which had left it facing a 1.56-billion-euro ($1.67 billion) bill over GDP-linked securities.

The ruling is a blow to Argentina's economy, which faces galloping annual inflation of nearly 300%. Its lawyers had argued that making it pay out could risk "the republic's ability to service both its 'GDP-linked' and conventional debt". Argentina's dollar-denominated international bonds fell across the curve by about one cent each on Wednesday, having gained 26% this year to Tuesday on an index level. Spreads in the JPMorgan EMBIGD index, the so called 'country risk', widened by 16 basis points to 1,541 bps.

Four hedge funds, holding around 48% of the securities issued between 2005 and 2010, sued Argentina in 2019 and London's High Court ruled in their favour last year – leaving Argentina on the hook for 1.33 billion euros plus interest. Argentina was given permission to appeal the London court decision, subject to paying nearly 310 million euros to be held by the court, to try and overturn the huge bill.

Its case, heard at the Court of Appeal in May, turned on the terms of securities issued in the wake of an economic crisis in Argentina that culminated in the world's biggest-ever sovereign debt default. Argentina argued it did not have to pay out on the securities, which were linked to its GDP in 2013, after it "rebased" its measurement of GDP. Its case was rejected by the High Court in the decision that was upheld by the Court of Appeal on Wednesday.

In April, however, Argentina won a bid to throw out similar lawsuits over GDP-linked securities in a New York court. Wednesday's ruling comes as Argentina's monthly inflation rate is expected to come in at 4.9% in May, according to a Reuters poll of analysts published on Tuesday.

That would be the slowest rise since the end of 2022 amid a major austerity drive by President Javier Milei, who has made busting inflation a key focus since taking office in December.