(Adds Kicillof comments from U.N. news conference In paragraphs 7-9, and link to video recording)
UNITED NATIONS, June 25 (Reuters) - Argentina is being pushed toward a new default after a U.S. Supreme Court decision favored holdout creditors seeking payment on bonds it defaulted on in 2001-2002, Economy Minister Axel Kicillof warned United Nations diplomats on Wednesday.
Referring to those creditors as "vulture funds," Kicillof said the June 16 decision by the top U.S. court to deny Argentina the chance to appeal a lower court ruling means it faces an insurmountable payment to all existing bondholders, given it has just $28.5 billion in foreign currency reserves.
"So probably this is going to push us into a technical default," Kicillof said through an interpreter. "Whichever way you look at it this ruling is forcing Argentina towards the risk of economic crisis."
The holdouts are led by Elliott Management's NML Capital and Aurelius Capital Management, two hedge funds that specialize in buying up deeply discounted or distressed debt and negotiating profitable settlements, often through the use of the courts.
"Once these funds get recognition of 100 percent of the value of their bonds, which were purchased under vile conditions of having paid only 30 cents on the dollar, there could be more demand from other holders who did not participate in the restructurings," Kicillof said.
He was speaking to members of the Group of 77 plus China, meeting at the United Nations in New York.
Kicillof arrived in New York in the morning and did not meet with the holdouts during his stay, which lasted about 10 hours. He quickly left for the airport to return to Buenos Aires after an early evening U.N. news conference.
"No, I have no plans to hold meetings before leaving," he told reporters, referring to the holdouts, stressing the government was simply asking for more time to negotiate.
"We have a legal representative here in New York that is in communication with the court and lawyers from the other party," he said.
U.S. District Judge Thomas Griesa of the Southern District of New York had ordered Argentina to pay the holdouts $1.33 billion plus accrued interest, at the same time it pays the 93 percent of bondholders who accepted the terms of the sovereign restructuring in 2005 and 2010.
Argentina is due to make a $900 million coupon payment on June 30, but has a 30-day grace period in which to come to an agreement with the holdouts before a default can officially be declared.
The holdouts have written to Griesa saying they would discuss an accommodation to let Argentina pay other bondholders facing a potential default if good progress is made in any talks. But they said there were no grounds for Griesa to reinstate a suspension of his order for Argentina to make payment.
Daniel Pollack, the court-appointed special master in the dispute, issued a statement on Wednesday confirming a Reuters report that he had met with lawyers from both sides on Tuesday.
"No resolution has been reached," the statement said, adding that he also spoke with both sides in phone calls in the last 48 hours.
Attempts to contact the holdout investors on Wednesday were unsuccessful.
Argentina has been the subject of numerous creditor lawsuits stemming from its default. The current case, referred to as the pari passu, or equal treatment case, was filed in 2008. Griesa originally decided in favor of the holdouts in 2012, leaving Argentina with years to consider its alternatives should the appeal process fail.
The U.S. Supreme Court's refusal to hear Argentina's appeal exhausted its ability to overturn the ruling.
Argentina says it is being ordered to pay the holdouts $1.5 billion while the holdouts contend that by June 30 the figure will have risen to $1.65 billion because of accrued interest.
Argentine officials, including President Cristina Fernandez, have said the country will not pay these investors, arguing it could face potential demands for up to $15 billion from other holdouts not involved with the case - an amount representing more than half of the government's foreign currency reserves.
The United Nations trade agency, UNCTAD, weighed in on the case on Wednesday, echoing concerns voiced by the United States as well as the International Monetary Fund that the ruling in favor of holdouts erodes sovereign immunity and is a setback for the debt restructuring process.
However, investors and legal advisers alike note changes to the covenants in bond contracts have adapted to avoid such disputes and the legal battle with Argentina is so unique that chances for a repeat situation have been dramatically reduced.
One indication that bonds issued under New York law are not being shunned, at least not so far, is last week's well-received 10-year issue by Ecuador. This came after Ecuador selectively defaulted on its debt in 2008, calling debtholders "monsters," and saying that the debt issued by past governments contained "illegalities."
"It is kind of ironic that the day after the Supreme Court came with this decision, we had not Peru, not Colombia, not Mexico, not even Brazil; we have freakin' Ecuador coming to the market with a $2 billion (bond) with a yield of less than 8 percent, and the deal was absorbed very well and the bond is flying now," Javier Kulesz, emerging market credit analyst at Nomura Securities, said at a forum in New York.
Despite the tough public stance, markets believe the parties will eventually negotiate a solution.
Argentina's U.S. dollar-denominated 2033 discount bonds last traded at 87.5 cents on the dollar, yielding 9.93 percent . That is little changed on the day, but just off Monday's high when it hit its best levels since August 2011.
When the threat of a possible default rose one week ago, the price of those bonds slid to about 73.4 cents.
The cost of insurance against a default on the country's debt has dropped in recent days. The annual cost to insure $10 million in bonds was about $1.397 million, down from $2.805 million last week. (Reporting by Daniel Bases, Rodrigo Campos, Joseph Ax in New York, Hugh Bronstein in Buenos Aires, Jeremy Gaunt in London and Tom Miles in Geneva; Editing by G Crosse, Chizu Nomiyama, Meredith Mazzilli, Richard Chang and Mohammad Zargham)