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Legal enforcement has long been a peripheral concern in the sovereign debt markets. Observers disagree about why sovereigns repay loans, but almost no one thinks they do so to avoid being sued. There are obvious reasons for the scepticism. The usual remedy for failure to repay a loan is a money judgment for the amount due, which must be enforced through seizure of sovereign assets. Despite a handful of creditor successes, sovereigns are very good at keeping assets out of their creditors’ hands. As a result, most academic treatments of the subject take for granted that sovereigns repay their debts not because they fear litigation but because they wish to preserve their reputation in the capital markets or because they have some other incentive to repay.1 The recent case of NML Capital v Argentina has the potential to shatter this consensus. Eschewing the usual remedy of a money judgment, a federal district judge in New York has granted a novel form of injunctive relief to creditors who hold bonds that remain unpaid after Argentina’s 2001 debt default. The creditors are holdouts who refused to participate in the country’s subsequent debt restructurings, and the injunction forbids Argentina to pay other bondholders—those who hold restructured ‘exchange bonds’—unless it also pays the holdouts.2 A panel of the US Court of Appeals for the Second Circuit has affirmed the injunction,3 although that court must still resolve a number of questions before the injunction will take effect.
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