Argentina declared in contempt of court in debt dispute

Judge Griesa says Buenos Aires taking deliberate steps to evade his ruling

Argentina's Cristina Fernandez de Kirchner (GETTY IMAGES)

Argentina has been declared in contempt of court by the American judge overseeing the on-going debt saga after Buenos Aires refused to pay two US hedge funds and announced plans to sidestep his court order

Judge Thomas Griesa announced his decision in a Manhattan hearing on Monday and said he would decide on what sanctions to impose next, with holdout creditors demanding a $50,000 daily fine.

"The problem is that the republic of Argentina has been and is now taking steps in an attempt to evade critical parts of (the court order)," he added. "There's a very concrete proposal that would clearly violate the injunction."

In his ruling, Judge Griesa blocked Buenos Aires from making payments to the majority of its bondholders unless it pays out in full to the hedge funds – including Paul Singer’s Elliott Management and Aurelius Capital Management - which refused to take part in the country's debt restructuring following its 2001 default.

Argentina has repeatedly refused to do so, describing holdout creditors as "vulture funds", and recently unveiled a new domestic legislation that would allow the country to swap its existing bonds, which are covered by US law, for new notes governed by Argentine law.

At the time, Judge Griesa branded Buenos Aires' efforts to bypass his ruling “illegal” but stopped short of holding the country in contempt. Yesterday, Argentina's ambassador to the US described his decision as a "legal absurdity" that would only serve to escalate the conflict.

Argentina defaulted on its debt after it failed to reach an agreement with holdout creditors in July and missed an interest payment. However, the country insists it willing to pay and cooperate under the right terms.

The next interest payment to restructured bondholders is due today.