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 Latin America's No. 3 economy tipped into its second default in 12
years in July after U.S. District Judge Thomas Griesa blocked
payments to holders of issued under U.S. law that was restructured
following its record $100 billion default in 2002.
Griesa ruled that measures proposed by Argentina's president late on
Tuesday to make debt payments locally and push bondholders to bring
their debt under Argentine law violated past court rulings. But he
stopped short of holding the country in contempt.
President Cristina Fernandez's measures, if enacted and executed,
would potentially allow Argentina to skirt Griesa's court orders and
thus resume interest payments on an estimated $29 billion in
restructured bonds.
Argentine Cabinet Chief Jorge Capitanich said Griesa's choice of
words was "unfortunate, incorrect and even, I would say, imperialist
expressions".
Argentina defaulted after Griesa froze a $539 million interest
payment, saying restructured bonds cannot be paid unless U.S.
investment funds demanding 100 cents on the dollar, plus interest,
are simultaneously paid.
Elliott Management Corp, a lead holdout investor suing Argentina via
its NML Capital affiliate, is preparing to subpoena a number of
international banks in its efforts to seize what it suspects are
embezzled Argentine funds, a source at the hedge fund told Thomson
Reuters IFR.
Argentine bonds extended losses but the peso halted a two-day rout,
firming 0.2 percent on the black market to 13.880 per dollar. It
struck a record low of 14.000 on Thursday.
Griesa's move not to level contempt charges against Argentina was
aiding the peso erase some of its cumulative 5.2 percent loss on
Wednesday and Thursday, market analysts said.
The government has pulled no punches in its stinging criticism of
Griesa, accusing the judge of abusing Argentina's national
sovereignty.
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It said Griesa's remarks showed a "complete ignorance of the
functioning of democratic institutions".
On Friday, Argentine dollar-denominated Discount bonds due in 2033
traded 2.8 percent lower to bid 78.925 cents on the dollar.
Fernandez's stance makes a resolution to the debt saga increasingly
unlikely before the October 2015 presidential election, in which she
is constitutionally barred from running.
"What may change that dynamic is a significant deterioration in the
macro environment coupled with a meaningful further devaluation of
the peso," said Nasser Ahmad, chief investment officer of New
York-based hedge fund DA Capital.
"That may force the current government back to the negotiating
table," he added.
The peso's mid-week slump reinforced expectations that a drawn-out
crisis will fuel one of the world's highest inflation rates, sap
shrinking foreign reserves and deepen the country's recession.
"If capital continues to pour out of the economy, the authorities
will probably have to devalue," wrote David Rees, emerging markets
economist at Capital Economics.
(Additional reporting by Nishant Kumar in London and Davide
Scigliuzzo of IFR)
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