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 In a rare move, District Judge Thomas Griesa held Argentina in
contempt earlier this week, saying its attempts to pay holders of
the bonds it restructured in 2005 and 2010 debt swaps locally were
"illegal."
The judge prevented Argentina in June from making a coupon payment
to exchange bondholders because of his earlier ruling that the South
American country could only do so if it paid the U.S. "holdout"
funds, who rejected the swaps, at the same time.
The move plunged Latin America's third largest economy into its
second default in 12 years.
Leftist President Cristina Fernandez's government responded by
enacting a law removing trustee Bank of New York Mellon Corp and
allowing the country to make payments locally to keep the money
beyond Griesa's reach.
"Argentina will need to reverse entirely the steps which it has
taken constituting the contempt, including, but not limited to,
re-affirming the role of The Bank of New York Mellon as the
indenture trustee," Griesa said in an order, noting this was what it
would take to purge his contempt finding.
Defiant, the country this week deposited a $161 million bond
interest payment with a newly appointed local trustee,
state-controlled Nacion Fideicomisos.
Griesa, who has overseen litigation in New York over Argentina's
debt for years, said on Friday the country must "(withdraw) any
purported authorization of Nacion Fideicomisos, S.A. to act as the
indenture trustee."
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The judge's decision to hold a foreign government in civil contempt
of court is a rare but not unprecedented move. In typical cases,
U.S. judges can hold parties in contempt and issue sanctions to
force compliance.
The hedge funds had proposed a daily fine of $50,000. However,
Argentina might simply ignore any monetary sanction. Griesa has not
set a specific schedule to consider sanctions.
(Reporting by Nate Raymond in New York. Writing by Sarah Marsh.
Editing by Andre Grenon)
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