The US judge who barred Argentina from servicing its debt until it settled with investors demanding full payment on their bonds scheduled a new hearing yesterday, after the country unveiled plans to sidestep his ruling that led it to default for the second time in a dozen years.
Argentina missed a June interest payment after District Judge Thomas Griesa blocked a coupon payment owed to holders of debt issued under US legislation that was restructured after the country’s 2002 default on $100 billion in debt.
President Cristina Fernandez, steadfast in her refusal to pay the hedge funds face value on their bonds, this week sent to the Argentine Congress a bill that would allow her government to resume payment to holders of exchanged bonds in defiance of Griesa’s court.
In a letter to Griesa filed late on Wednesday, NML Capital Ltd, one of a group of plaintiffs known as holdout creditors, said the measures announced by Fernandez on Tuesday were a “grave affront” on the judge’s ruling.
“The express purpose of these manoeuvres is to render this court’s orders a nullity,” NML’s lawyer Robert Cohen said.
In June, Griesa blocked a $539 million interest payment on the restructured debt deposited by Argentina at intermediary Bank of New York Mellon (BONY), saying it violated his order. Those funds are still held in limbo in BONY’s account.
Latin America’s No 3 economy then tipped into default on an estimated $29 billion in debt when negotiations with the New York hedge funds collapsed.
The President’s Bill would make state-controlled bank Banco Nacion the intermediary for bondholder payments instead of BONY.
The legislation is likely to be enacted by Congress because Fernandez’s backers hold a majority in both chambers.
Griesa, who has presided over the decade-long legal battle between Argentina and the New York hedge funds, has already threatened Argentina with contempt for making public statements that it had honoured its debt obligations.
Argentina has accused the judge of overstepping his bounds and siding with the holdouts, and said any contempt charge would have no consequences for a sovereign power.
“Argentina’s proposed exchange would gut this court’s injunctions by replacing financial institutions such as BONY that have refused to participate in Argentina’s violations ... with Argentina’s patsies that have no interest in abiding by the court’s rulings,” Cohen wrote.