The Political Shift and Economic Instability
“These elections have shown the breaking point of our history,” said Javier Milei, on his inaugural discourse while comparing the elections with the fall of the Berlin wall. He also uttered his famous phrase: “There is no money!”
It is widely known that Argentina is facing one of its deepest economic crises. Official sources say 41.7 percent of Argentinians are living under poverty, and 11.9 percent in indigency. It is still uncertain whether the political turn that Argentinians have taken choosing Javier Milei will have positive results. However, it is unquestionable that there will be a reduction in public expenditure. The new president will face resistance to pass new laws as he is the head of a new political party with no majority at congress, creditors will expect a new devaluation, and at least during the first part of the new president’s period, Argentinians will continue facing hyperinflation.
After Milei’s election, the International Monetary Fund celebrated his “decisive measures.” But a contrary social reaction cannot be denied, and the demonstrations against Milei’s policies have invaded the city of Buenos Aires too.
A major question is: What if the public funds are used to pay creditors instead of addressing the basic needs of Argentinians?
The Reduction of Public Expenditure
The reduction of public expenditure, and the end of inflation were central to Javier Milei’s presidential campaign. In his inaugural discourse, he denounced the “economic disaster” left by the Kirchnerism, which he claims is (among other things) “a bomb of 100.000 millions of USD of debt [plus previous] 420.000 million USD of existing debt.”
For Milei, the only option is an adjustment that will directly impact on the number of poor and indigent people in Argentina but will be necessary to “create a solid ground for growth.”
The Need for a Political Alliance
Nonetheless, Milei has started to govern by using Emergency and Necessity Decrees provided in the National Constitution Art. 99.3 Const. Nac. (Arg) and is facing resistance to pass new laws despite his political alliance with the Propuesta Republicana party (founded by ex-president Mauricio Macri). In fact, his political party is not a majority (see the 31 new representatives of La Libertad Avanza National in the Chamber of Deputies and 7 new senators of La Libertad Avanza), and his extreme policies are not welcome by everyone. The “Peronismo,” “Kirchenrismo,” members of the “Radicalismo,” and other parties have shown their firm opposition. In March 2024, the resistance was evident when the Decree of Urgency and Necessity 70/2023, which aimed to modify 300 laws, was rejected by the senate with 42 votes against.
The Current Standard of Law for International Arbitration
Paying to creditors is part of Argentina’s international public policy both following the National Constitution and National Supreme Court of Justice rulings.
Argentina’s civil law system can be explained as a pyramid which has the National Constitution on its top. But after the Constitutional Reform of 1994, it has a “Constitutional Block” with the Constitution and Human Rights treaties approved by two thirds of each Chamber of The Congress at the same level, (Art. 75.22 Const. Nac.). Additionally, treaties with other nations are considered the Supreme Law of the Land (Art. 31 Const. Nac.). Because of these, it can be assured that the New York Convention and the Panama Convention that were incorporated into the Argentine legal system not only impose international obligations on the republic but also deem a legal status superior to federal laws.
Additionally, Argentina is a party to the Inter-American Convention of Extraterritorial Validity of Foreign Judgements and Arbitral Awards (CIDIP II, Montevideo, 1979), and to the Mercosur Commercial Arbitration Agreements of 1998. Since 2014, the country has a dual model for domestic and international arbitrations.
On the one hand, the Civil and Commercial Code incorporated arbitration agreements in its Title IV, Chapter 29. The arbitral agreement or contract is limited to private parties, arbitral awards can be reviewed if there are grounds for total or partial nullity, and there is a non-renunciation to the legal challenge of an award that contests public policy.
On the other hand, in 2018, there was the enactment of the International Commercial Arbitration Law (ICAL) which follows the UNCITRAL Model Law as amended in 2006. Argentina did not adopt (Art I.3.c): “[. . .] the subject matter of the arbitration agreement relates to more than one country.” See Law No. 27449.
Together, these measures have turned Argentina into a dualist country where domestic arbitrations are governed by the Civil and Commercial Code and procedural law, while international arbitrations by ICAL.
Therefore, even with this political shift, the laws that favor international arbitration and the favorable interpretations of the National Supreme Court of Justice remain.
However, Argentine laws are interpreted by the lex specialis rule, and if a new federal law governs the enforcement of international arbitration awards, or the way payments should be done, it should be followed unless it is found unconstitutional.
The National Supreme Court of Justice’s Aim of Enforcing International Awards.
In recent decisions the National Supreme Court of Justice has shaped its rulings towards favoring the enforcement of international awards. Nonetheless, some inferior courts, and Provincial Supreme Courts, have previously refused the recognition or enforcement of awards that would be contrary to public policy, following Art V(2)(b) of the New York Convention. Plaintiffs should be aware of this resistance and prospective litigation costs.
Among the cases to consider there are:
Astilleros Rio Santiago
The case known as Astilleros Río Santiago originated on an award that the plaintiff secured in 2004 which condemned the Shipyard “Río Santiago” to the payment of more than $3.2 million USD, and more than £220,000 for costs of the process plus interests.
The First Instance Court provided its recognition, but the Province of Buenos Aires appealed before the Contentious Administrative Chamber of Appeals, which rejected the execution of the foreign arbitration award in 2007 as it violated the public order.
Later, the plaintiff was granted an appeal before the Supreme Court of Justice of the Province of Buenos Aires, which in 2016 ruled that, absent any norm issued by the Legislature of the Province of Buenos Aires approving the agreement, it had no value, and thus any aim to enforce an award affected the Argentinian public order.
Finally, the plaintiff was granted the Federal Extraordinary Appeal, and in August 2021 the National Supreme Court of Justice overturned the ruling. The court held that under article V(2) of the New York Convention, judges could not reenter ex officio defenses that were already introduced and rejected in first instance (National Supreme Court of Justice, supra, Ground 10). The power of local judges to deny recognition and execution of awards needs to be exercised observing the Public Law Principles of the National Constitution: due process, congruence, defense in judgment, and the prohibition of double jeopardy (Id., Ground 14).
Besides, due process extends to every proceeding that results in the resolution dictated by a foreign judicial authority with extraterritorial effects over Argentina (Id., Ground 11). The defendant argued that the award contradicted the National Emergency Laws that had fixed the currency and the way of payment of state obligations. But the court held that this claim is not of greater hierarchy than the “stability of rulings, [which] insofar . . . constitutes an inescapable presupposition of legal certainty [and] is also a requirement of public order with a higher hierarchy.” (Id., Ground 14).
In conclusion, even if there are emergency laws that affect the amount that should be paid to fulfill an enforcement, the award continues to be enforceable. This ruling should be followed by inferior courts.
Deutsche Rückversicherung AG v. National Savings and Insurance Fund
A similar resolution had been reached in 2019, in Deutsche Rückversicherung AG v. National Savings and Insurance Fund and others in liquidation. There, the National Supreme Court rejected an ordinary appeal of the National State and favored the partial enforcement of an international award.
The issue was whether an arbitral award could be enforced following the debt consolidation laws, or if an award only needs to be enforced entirely and with no substantial modification.
The plaintiff sought the enforcement of an award that represented more than $7.3 million USD and $8.6 million USD of interest with a yearly 6 percent interest rate. But the state again claimed that the public order was violated as Argentinian laws were not followed on the prescription period and powers of representation and that the award breached a “mere declarative character of the judgements against the nation, and the payment conditions established in the consolidation provisions” (Id., Ground 5.a). Thus, as following Public Debt Law (See Law No. 23982) was a substantial modification of the award, this was not legally possible (Id., Ground 5.a).
However, the National Supreme Court held in favor of the plaintiff. Article III of the New York Convention requires that states may not impose more rigorous conditions than those applied to the recognition or enforcement of national awards. In fact, the solution was not the annulment, but the adequacy of the award to the national legal standards (Id., Ground 8). It was inadmissible for the Supreme Court to accept that an award could not be adapted to a National Regime of Debt Consolidation (Id., Ground 9).
Justices Rozenkratz and Rossati, on separate votes, also outlined various principles that need to be followed for the enforcement of awards:
First, Art VII of the New York Convention demands that courts should favor the enforcement of international awards. (Rosenkrantz vote, Ground 14).
Second, a different prescription period cannot be considered a violation of the public order nor article V of the New York Convention, (Id., Ground 9). Besides, debt consolidation norms can be recognized as part of the Argentinian public order, but cannot be used to annul an award, they would rather be used to adequate them (Id., Ground 11).
Third, parties can consent to the application of the Emergency Laws that govern the payment of the state debt (Id., Ground 14). If so, notwithstanding a reduction of the award, the Supreme Court lacked jurisdiction to review how public order could be affected. (Id., Ground 12, and Rosatti’s vote Ground 8, ii).
Finally, scrutiny of the application of International Law is necessary. Justice Rossati, mentioned the case where the National Supreme Court held that there is a sphere of sovereign reserve that makes it impossible to make international law prevail directly, with no scrutiny. (Deutsche Rückversicherung, Justice Rosatti’s vote, Ground 11). Also, cases contrary to the restructuring process would violate the national public order (Id., Ground 13).
Therefore, a partial execution (as was solved here) could prevent a conflict with the national public order if the effect of the international public order could be individualized and rescinded. The partial execution of dispositions that do not conflict with national law order are possible (Id., Ground 14).
The Commission for the Payment of the International Public Debt
The Argentinian public debt has also been addressed by the congress in a more protective view. Indeed, politics play a pivotal role in the enforcement of international awards against Argentina.
For instance, in 2014 the administration of Cristina Fernandez enacted the Sovereign Payment Law which created a Bicameral Commission that presented a bill for the creation of a national fund for the Cancellation of the Debt With the International Monetary Fund in 2022.
According to this proposal, the sole payer would be the Federal Administration of Public Income, which would act alongside other states’ administrative agencies towards the collection of funds for the Argentine republic.
The most questionable parts of the project would have affected due process, as individuals acting as “collaborators” (whoever gave information about external accounts with no less than $500,000 USD) would have gotten 30 percent of what the government could collect free of any tax (Art. 33); but a “collaborator” could have suffered imprisonment from 1 to 6 years if they provided false information, and 6 months to 2 years if they disclosed their collaboration with the state (Art 40 and 41).
This proposal was approved by the senate (where it began), and although it was finally not enacted, it shows an alternative way that Argentina could take in the future.
Milei would have probably vetoed such a norm, but the question remains then whether Argentina would defraud its international creditors.
Conclusions
The political shift that Argentina has taken with Javier Milei will probably favor international creditors. Still, he will face resistance in congress alongside public demonstrations.
Moreover, following what has been solved by the National Supreme Court of Justice, the enforcement of international awards will keep on being embraced, as seen in Astilleros Rio Santiago.
However, awards would not be executed directly without evaluating whether they upheld the national public order, and may be modified to adequate to it, as the National Public Order also includes the Argentine International Public Order, as seen in Deutsche Rückversicherung.
Finally, future administrations could implement laws that could affect creditors. The political tendency ought to be analyzed to provide accurate predictions.
