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ARGENTINA

Argentina defies US judge by depositing debt payment

Saul Loeb, AFP | Argentine President Cristina Fernandez de Kirchner
4 min

Argentina on Tuesday deposited a $161 million payment on its restructured debt with a newly appointed local trustee, defying a US judge who held it in contempt of court a day earlier and ordered it to pay two "holdout" creditors first.

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The Argentine government, forced into default for the second time in 13 years as a result of the bitter legal dispute, said it had deposited the payment in a Buenos Aires account of the state-run Banco Nacion, just in time for a Tuesday deadline.

"By making said deposits, the Argentine Republic has once again demonstrated its unbreakable commitment to fulfill all its obligations to bondholders and contribute by any means available to preserve their right to collect payment," the economy ministry said.

The South American country is trying to meet its obligations to creditors who agreed to take steep losses on their bonds after it defaulted on $100 billion in debt during its 2001 economic crisis.

But it has been blocked by US federal judge Thomas Griesa, who has ordered the country to repay two hedge funds demanding the full $1.3 billion face value of their bonds before going ahead with the restructuring deals.

Griesa ruled Monday that Argentina was in contempt of court after it passed a law allowing the government to repay creditors in Buenos Aires or Paris – skirting the New York judge's freeze on the bank accounts it previously used to service its debt.

Argentine cabinet chief Jorge Capitanich brushed off the ruling, saying it had "no basis or impact."

He repeated the foreign ministry's statement that the contempt ruling violated international law.

Capitanich said any potential contempt penalties – which could amount to a $50,000-a-day civil fine, as requested by the hedge funds – would be "inapplicable."

"Sovereign immunity law prohibits contempt penalties against foreign states," he said.

More than 92 percent of Argentina's creditors agreed to take losses of up to 70 percent on the face value of their bonds in 2005 and 2010 in order to get the struggling country's debt repayments back on track.

But the two hedge funds, US billionaire Paul Singer's NML Capital and US-based Aurelius Capital Management, bought up defaulted Argentine bonds for pennies on the dollar and then refused to accept the write-down, taking the country to court.

The strategy, which stands to make them profits of up to 1,600 percent, has earned them the label "vulture funds" from Buenos Aires.

Blocked from paying its restructured debt, Argentina missed a $539 million interest payment and entered default again on July 30.

It is now trying to buy time until the end of the year, the expiration date for a clause in the restructuring deals that entitles all bondholders to equal treatment.

Will investors defy court?

It remains to be seen whether bondholders will be able or willing to collect.

Many investment funds will likely be reluctant to defy a US court ruling, though one major creditor, Mexican billionaire David Martinez, has already said he has no problem collecting payment in Buenos Aires.

Argentina is meanwhile lobbying to create a UN convention to prevent a minority of bondholders from scuppering struggling countries' debt restructuring plans.

A resolution to negotiate such a framework passed the United Nations General Assembly earlier this month.

On Saturday, Argentine President Cristina Fernandez de Kirchner also sought to rally Pope Francis to the cause during a meeting at the Vatican.

The president told reporters afterward that the two Argentines had discussed the UN vote.

“We were talking about all these things and he appeared very happy that the United Nations took this decision,” she said.

Argentina exited recession in the second quarter of the year with 0.9 percent economic growth.

But with inflation estimated at more than 30 percent and the peso tumbling, it is still mired in a slowdown after averaging 7.8 percent annual growth from 2003 to 2011.

Analysts are forecasting the economy will shrink two percent this year.

The end of the boom has revived the ghost of the 2001 crisis, when riots erupted after the government froze citizens' bank accounts.

At least 26 people were killed, leading to the resignation of president Fernando de la Rua, whose successor, Adolfo Rodriguez Saa, himself resigned a week after taking office amid more unrest.

(FRANCE 24 with AFP, REUTERS)
 

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