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Published On: Wed, Aug 20th, 2014

Argentina’s President to bring back debt control to national legislation

Argentina’s President Cristina Fernandez is preparing a bill to have bondholders exchange defaulted debt for new notes under Argentina’s national legislation, sidestepping US court rulings.

Argentina’s President Cristina Fernandez is preparing a bill to have bondholders exchange defaulted debt for new notes under Argentina’s national legislation, sidestepping US court rulings.

Argentina’s President Cristina Fernandez is endeavoring to urge bondholders to exchange defaulted debt with new notes under Argentine’s law. Her objective is to evade a US ruling, under which Argentina’s government has not been able to pay its creditors.

Last month Argentina defaulted, after the American court blocked a $539 million interest payment owed to debt holders under US legislation; the debt was restructured after the country’s first default in 2002.

According to the court, Argentina is not allowed to proceed with the interest payment before the settlement of repayment terms with a group of American hedge funds whose demands are for full payment, rejecting the restructuring option.

President Fernandez persists Argentina is not in default and termed the US court ruling an attack on the country’s sovereignty. The new legislation is an effort to restore debt management by Argentina. She announced on TV that if bondholders, individually or collectively, demand a change in legislation, Argentina’s Ministry of Economy has the authority, under local legislation, for an exchange for new public bonds.

There are risks involved in such a new bond swap, so it seems Argentina’s reaching an agreement with hedge fund holdouts, to exit default, may be not so near. A debt crisis is looming, lasting long enough to aggravate the economic recession, further weaken the currency and deplete foreign currency reserves.

President Fernandez has been adamantly reluctant to pay holdouts the full bond face value and said a new restructuring would keep the terms of earlier 2005 and 2010 bond swaps. Then over 90 percent of creditors agreed to large writedowns.

At the end of her statement, Fernandez pointed out that holdouts could take part in the new restructuring provided they agreed to the terms for other bondholders. The New York hedge funds, however, have shown persistent disdain on that matter.

The new bill involves removing Bank of New York Mellon as exchange bondholders’ trustee and replacing it with the state-run Banco Nacion, which would now have an account with the central bank, so that Argentina can service its debt exchange. The bill is likely to easily pass the Congress as Fernandez’s faction has a majority in both Congress chambers.

Argentina’s relations with the US, already tepid, have become even more strained. Judge Thomas Griesa’s rulings have led to tense exchanges with Argentine officials, who blamed the US District Judge of not probing into the depth of the complicated case and blocking the payment.

On Tuesday night, it was still unclear if the skirting of the US court rulings had chances of succeeding, and what impact that could have on the default status of Argentina.The bond swap proposed shrank the prospects of Argentina’s coming to an agreement with holdouts, hence shrinking hopes of the country’s return to global capital markets in the close future.

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