27 June 2014
Last updated at 11:33
Argentina”s Economy Minister Axel Kicillof wants to pay investors who agreed to the restructure
A US judge has scheduled a hearing for Friday in the latest twist in Argentina’s attempt to manage its debts.
It follows a complaint from hedge funds about the country’s plans to make a payment to creditors who participated in its past restructurings.
The Argentine government has been in a 12-year legal battle in the US courts.
It is fighting investors who have refused to agree to join a debt restructuring agreement.
The South American country defaulted in 2001 following an economic crisis, and has been in a legal battle with bondholders led by hedge funds NML and Aurelius Capital Management.
Under a deal, 92% of bondholders agreed in 2005 and 2010 to write off two-thirds of the bonds’ pre-crisis value, providing Argentina with time to re-build its economy.
Restructuring deals are voluntary between the borrower, in this case Argentina, and lenders. Bondholders are not obliged to agree to a devaluing of their debt, but risk a full default and loss of all their funds if they don’t. Some investors may buy debt ahead of a restructure and bet that they can demand a better deal.
The hedge fund investors bought Argentine government bonds at a big discount after the 2001 default.
Earlier this month the US Supreme Court ruled that Argentina must pay the funds the full $1.3bn (£766m) value of the debt.
Dr Jerome Booth, an economist at New Sparta, told 5 live: “What’s going to have to happen is they will have to sit down and do a deal with the hold-outs.”
Argentina is a “serial defaulter” he said. Part of the country’s complaint appears to be investors are trying to make money from the situation.
“It’s a bit rich to turn round and say ‘people made money from it’ as that’s why investors buy the bonds in the first place,” he said.
Now, Argentina wants to pay the investors who took part in the debt restructures.
Argentina’s economy minister, Axel Kicillof, said on Thursday that Argentina has taken steps to pay $832 million owed by Monday to creditors who participated in debt swaps in 2005 and 2010.
“Not paying while having the resources and forcing a voluntary default is something that is not contemplated in Argentine law,” Mr Kicillof said. “It would be a clear violation of the debt prospects.”
The US judge has ruled Argentina must pay all of its creditors rather than being selective.
If Argentina does not also pay the US bondholders who refused to join the debt swaps, the court ruling bars it from using the US financial system to pay other bondholders.