Argentina defies US court bringing debt under national law

Analysts warn the swap offer could carry legal risks and Argentina could end up in contempt

Argentina's Cristina Fernandez de Kirchner (GETTY IMAGES)

Argentina has tried a new legal move in its efforts to avoid paying off US hedge funds that have acquired its debt and which are refusing to take part in a restructuring.

President Cristina Fernandez unveiled domestic legislation last night that would swap its existing bonds, which covered by US law, for new notes governed by Argentine law.

“If bondholders decide in individual or collective form to ask for a change of the legislation and jurisdiction of their bonds… the economy ministry is authorised to implement a swap for new public bonds under local legislation,” Fernandez said.

She said: “This is an option bondholders have. It’s not an obligation because we can’t impose obligations on them according to our contracts. Our contractual obligation is to always guarantee that they can collect [interest].”

Argentina defaulted on its debt last month after a New York court prevented the country from paying interest to bondholders unless it first compensated the hedge-fund holdouts that are demanding repayment in full.

Some analysts warned even if bondholders accepted the swap offer the manoeuvre could carry legal risks.

“Argentina could end up in contempt,” said Alejo Costa, strategy chief at the Buenos Aires investment bank Puente, referring to the original US court order forbidding interest payment.