The usual suspects are complaining loudly that Argentina will have to pay back some of the money that it borrowed. Better, they seem to think, that the law should be flouted by a government than that capitalists should get their money back. However, Argentina had a choice a decade ago. And they made one that benefited them then and has done so for the past decade: it’s only now that the other part of that choice is becoming apparent.

Yet, the implications of this ruling go far beyond Argentina’s borders. The New York court decision is a precedent that prioritises the profits of financial speculators above the rights of a nation to make economical decisions and protect the interests of its people. It dramatically increases the risk and potential impact of future debt crises, removing any incentive for creditors to participate in debt restructuring for countries facing debt distress – why take the hit when you can stop everyone else from getting paid by holding out?

The clue is in that “New York court decision”. Why on earth is a New York court interfering between a soverign government and the people that lent that government money? We wouldn’t expect a New York court to have any power over the issuance of UK gilts for example. And the reason is that investors don’t trust the Argentine courts. Thus if the bonds had been issued under Argentine law the interest rate to be paid on those bonds would have been higher than those that were actually issued under Now York law. so, Argentina has been benefiting all along from lower interest rates (both before and after default in fact) as a result of issuance in somewhere where court decisions get decided according to the law rather than as a result of a telephone call from the Presidential Palace.

And do not think this does not happen: some Argentine bonds have interest rates set against the Argentine inflation rate (logically, as they’re local currency bonds). And the Argentine government has been threatening to jail economists recording the inflation rate as they keep coming up with numbers rather higher than the official announcements which are used to calculate that interest rate.

Another way to put this is that if a government flouts the rule of law so egregiously as to have to borrow money outside its own legal jurisdiction (something that is very different from having to borrow from foreigners, as you can issue foreign bonds under domestic law or that of some other jurisdiction) then it really shouldn’t come as all that much of a surprise when some of those foreigners use that foreign law to stop you flouting said rule of law. For, of course, that’s why it’s all been set up this way in the first place.