Are obligations denominated in dollars under international agreements (such as loans granted abroad or Eurobonds) “pesifiable” by virtue of Argentine legislation?

During the 90´s Argentina received important investments as well as financing from abroad through different means, including among others, loans from abroad and the issuance of eurobonds –negotiable obligation- subject to foreign law and jurisdiction. The applicability to international agreements, as the ones mentioned above, of the Pesification Decree and other recent rules enacted in Argentina as regards to economic, financial and exchange control matters is a complex issue within the scope of international law.

Such complexity may first appear before the foreign courts chosen by the parties, where the debtor may invoke that Argentine rules have prevented him from complying with his obligation as originally agreed. Moreover, and depending on who the parties are, certain international treaties or international law rules may become applicable and, when an essential connection with a specific country appears, allow the competent foreign judge to apply regulations of such country. International precedents show that these claims are often rejected with different arguments (such as, for example, that the domicile of the debtor does not constitute a point of essential connection), and debtors are obliged to pay the obligation as originally agreed (Court of Commerce of Marsella, 27-11-31, in re Chaoloff vs. Ascoli; S.C. New York, 1936 Central Hannover Bank & Trust vs. Halske Aktiengesellshcaft; S.C. New York, U.S. Supreme Court, 1964, Banco Nacional de Cuba vs. Sabbatino).

If the creditor obtains a favorable judgement, it may enforce the judgement in the jurisdiction where the elected foreign court stands against the assets that the debtor may have in that jurisdiction. Also, the creditor may do so in other jurisdictions where the debtor may have any assets, in this case, subject to the recognition of the judgement in those other jurisdictions through the proceeding known as exequatur.

In that scenario the Argentine law becomes relevant since in order to enforce in Argentina a judgement obtained abroad, the local judge must consider, among other aspects, whether the foreign judgement does not violate the principles of national public order.

Under this frame, the Argentine debtor may invoke the application of the Argentine pesification rules based on the fact that those rules have been enacted by the State exercising its peremptory power and, therefore, they shall become applicable despite of the law chosen by the parties, as established by the Supreme Court of Justice of Argentina (in re Videla Cuello, among others). In that sense, rules regarding foreign commerce, exchange control, antitrust, consumers rights, etc. are directed to defend primary interests of the Nation, essential interests of the local economy, and therefore, such rules have the ability to interfere with international commerce and the parties’ agreement.

Nevertheless, in order to avoid an unjustified interference of the local peremptory rules with international agreements, the application of such rules to multinational cases must be done in a restricted manner and on a case by case basis.

Therefore, if a proceeding of exequatur is initiated, the application of the Pesification Decree should imply that it is considered constitutional and qualifies as a peremptory rule regarding public emergency and, following the restricted application rule, that said Pesification Decree contains a relevant connection with the obligations to be enforced.

As regards to the requirement of the decree being considered constitutional, after the judgement issued by the Supreme Court of Justice of Argentina on February 1st (Smith vs. Banco de Galicia), that initiates the review of different aspects regulated by the rules that modified the convertibility system, it seems that a lot is still left to be said by the Supreme Court.

Meanwhile, if a foreign judgement did not successfully complete the proceeding of exequatur because an Argentine judge applied the Pesification Decree, the analysis of the mutual investments treaties entered into by Argentina would be opened, compromising an eventual responsibility of the National Government.