In December 2001, Argentina suffered what was then the largest sovereign default in history as it failed to make payments on nearly $100 billion of its debt. After decades of military dictatorship, the country was suffering through spiraling inflation, heavy debts on infrastructure projects that were never finished and the state takeover of private debts. Getting relief was almost impossible as the markets were already spooked by the Russian and Brazilian financial crises that were followed by the US Dot-Com bust.  Argentine authorities were hamstrung trying to maintain a hard currency peg to the US dollar.

A series of dominoes started falling. The default ultimately resulted in widespread riots and protests as bank depositors could no longer access their money, the International Monetary Fund cut off support after Argentina failed to meet several conditions of its bailout and President Rodriguez Saá was ultimately forced to resign from office. Since that mess the country was able to mostly restructure its debt; and strong economic growth in the mid-2000s helped make the Argentina more or less prosperous again. But markets can have a long memory, and Argentina has been virtually locked out of access to global credit with a bond rating deep in junk territory.

Its lucked turned from bad to okay over the past 13 years, but another turn for the worse is looming.

A group of investors headed up by Paul Singer of NML Capital acquired a large chunk of old Argentine debt some years back and is now working to force the Argentine’s to repay the bonds under their original terms. While that would amount to tilting at windmills for most investors, Singer has successfully forced the governments of Peru and the Republic of the Congo to make bondholders whole following defaults. And he’s made a great deal of headway forcing Argentina’s hand, recently winning a lower court ruling that the country must pay $1.5 billion that it owes on the bonds, which the Supreme Court upheld by refusing to hear an appeal.

In the grand scheme of things, $1.5 billion isn’t a make-or-break proposition for Argentina; its economy is the second-largest in South America and it holds about $29 billion in foreign reserves with an estimated $16 billion in liquid reserves. But if NML Capital is successful in forcing a payment, it likely won’t be the only claimant on those old bonds, as other holders will be likely to demand payment in full as well. If that were to happen, Argentina’s liability could balloon to between $15 billion and $20 billion.

Argentina is now basically stuck between a rock and a hard place. It’s due to make an interest payment to its other bond holders on Monday, June 30, but the courts have said that if that payment is made, NML must also be paid. If NML isn’t paid, US banks will be barred from handling the government’s other debt payments. At that point, the country will once again be in default.

Under normal circumstances, this probably wouldn’t be that big of a deal. Argentina hasn’t issued any new bonds since 2001 and, for all intents and purposes, it is still basically in default, so it really wouldn’t change much for the country or its investors. There also isn’t likely to be any sort of cascade effect such as we saw with the European sovereign debt crisis, though a fresh round of default news will surely rattle nerves, since Argentine bonds aren’t very widely held.

The real danger here is the precedent it sets.

Argentina was essentially trying to prioritize its payouts, making good on debt from creditors who had already agreed to a restructuring of the debt, while freezing out NML and others who were holding out for the original bond terms to be met. If you or I are down on our luck, we can call on a bankruptcy court for protection while we work to settle our debts, and the court can essentially pick and choose who gets paid what. There’s no such protection for sovereign states, so bond contracts usually stipulate that any disputes must be through American or British courts. As a result, when another nation inevitably finds itself in dire financial straits, this recent US court ruling has the potential to encourage other bondholders to play hardball when trying to restructure debts.

In theory at least, foreign states now have little leverage in negotiating debt restructurings unless they are willing to face a full-blown default. So while there aren’t likely to be many immediate consequences from the current crisis outside of Argentina, it does underscore why, when investing in foreign sovereign debt, you must take into account the overall economic health of the countries you’re considering.

After running up 173 percent over the trailing year, Buenos Aires’ benchmark Merval Index has dropped from 8,291 to its current level of 7,982 after dipping as low as 7,235. That’s despite the fact that there are many terrific Argentinean companies which rely primarily on export markets that won’t be terrifically impacted by the sovereign debt crisis. However, given these debt woes and the volatility they present, investors will simply be better off finding growth opportunities in other nations.