The US judge presiding over Argentina’s debt dispute with two US hedge funds threatened on Friday to hold the country in contempt of court for “false and misleading” statements.
The warning came after Argentina accused US District Judge Thomas Griesa of overstepping his jurisdiction by blocking the country from servicing its restructured debt until it settles its US$1.3 billion dispute with the hedge funds.
The Argentine government made that argument in two-page advertisements on Thursday in the New York Times and the Wall Street Journal after Griesa’s ruling forced it into default for the second time in 13 years.
Griesa condemned the ads, which were called “legal notices” and urged creditors to replace the bank the judge has barred from disbursing their interest payments, Bank of New York Mellon, where an overdue US$539 million Argentine payment is currently frozen.
The messy court battle stems from the South American country’s 2001 economic crisis, when it defaulted on more than US$100 billion in debt.
It persuaded most of its creditors to accept a 70 percent write-down in deals reached in 2005 and 2010.
However, plaintiffs NML Capital Ltd and Aurelius Capital Management, which bought up Argentine debt very cheaply when it was in default, refused to sign the restructuring plan and took the country to court.
Argentina has condemned its opponents as “vulture funds,” dismissed Griesa as “incompetent” and biased, and called on the US government to intervene.
On Thursday, Argentina sought to haul the US before the International Court of Justice (ICJ) over the dispute. The Hague-based court said Argentina was suing the US for violating its sovereignty.
However, the court would only hear the case if Washington accepted its jurisdiction, something the US State Department ruled out on Friday.
Argentina says yielding to the hedge funds could expose it to more than US$100 billion in claims for equal treatment from the 92 percent of creditors who had agreed to a write-down.
International banks including Deutsche Bank AG, Citigroup Inc, JPMorgan Chase & Co and HSBC are reportedly in talks with the hedge funds to resolve the impasse by buying up their bonds so Argentina can exit its default.
“The talks are very fluid,” a source close to the negotiations told reporters on Friday. “It is changing quickly every day.”
The impact of Argentina’s default has so far been much smaller than in 2001, as the country has been isolated from international capital markets ever since. However, analysts say a drawn-out dispute would do further damage to Argentina’s recession-hit economy.