(Recasts with latest statement from Argentina economy ministry,
U.S. State Department rejecting Argentina's request to allow the
International Court of Justice to hear dispute)
By Joseph Ax and Andrew Chung
NEW YORK/BUENOS AIRES Aug 8 Argentina's economy
ministry once again defiantly asserted the country has made a
required debt payment on restructured sovereign bonds on Friday
night, just hours after a U.S. judge threatened a
contempt-of-court order if Argentina did not stop issuing such
U.S. District Judge Thomas Griesa, who has overseen the
nation's long-running debt battle with hedge funds, railed at
Argentina's lawyers at a hearing in New York a day after the
publication of another so-called legal notice insisting the
government has met its payment requirements and was therefore
not in default.
Holding a newspaper copy of the notice, Griesa said if the
false statements did not stop, a contempt of court order will
Later on Friday, however, Argentina's economy ministry
issued a statement accusing Griesa of "clear partiality in favor
of the vulture funds."
"Judge Griesa continues contradicting himself and the facts
by saying that Argentina did not pay," the statement said.
Meanwhile, a spokeswoman for the U.S. State Department said
the United States would not permit the International Justice
Court in The Hague to hear Argentina's claims that U.S. court
decisions had violated its sovereignty.
"We do not view the ICJ as an appropriate venue for
addressing Argentina's debt issues, and we continue to urge
Argentina to engage with its creditors to resolve remaining
issues with bondholders," the spokeswoman said in an email.
Argentina petitioned the International Court of Justice on
Thursday, but the lawsuit could only move forward if the United
States submitted voluntarily to the court's jurisdiction.
At the hearing, Griesa said he was not going to go further
than a warning for now. He repeated that the two sides must
continue negotiating with the aid of mediator Daniel Pollack.
Griesa did not specify whether he might seek to sanction
Argentina or its lawyers, though he said he was "glad" to hear
Jonathan Blackman, Argentina's lead lawyer, say his firm Cleary
Gottlieb Steen & Hamilton did not aid in preparing the
government's latest legal notices.
In rare circumstances, U.S. judges have held foreign
governments in contempt and imposed monetary penalties. But such
sanctions can be difficult to enforce, and federal appeals
courts have split on whether foreign governments can be held in
contempt at all.
Federal law largely protects the assets of foreign
governments held in the United States, said Michael Ramsey, a
professor of international law at the University of San Diego.
"You can't put Argentina in jail, so I'm not sure what he'd
have in mind besides monetary sanctions," Ramsey said.
"Argentina has refused to pay a valid judgment and I don't see
why it wouldn't also refuse to pay a valid contempt order."
Blackman also complained of being attacked and lampooned by
the lobby group American Task Force Argentina, which is partly
funded by holdout investors.
Shortly after the hearing, Economy Minister Axel Kicillof
said on public television in Argentina, "We will continue to
work tirelessly to defend the rights of Argentina," and added
that "Judge Griesa did not resolve anything" in court.
"He created this confusing and extraordinary situation,"
said Kicillof, who also played down concerns the case would
cripple investment in Argentina.
NO SETTLEMENT IN SIGHT
Argentina missed a coupon payment after a grace period ended
on July 30, pushing it into default on restructured debt from a
previous default in 2002 on roughly $100 billion in sovereign
The government settled with nearly 93 percent of its
bondholders in two restructurings but two deep-pocketed
distressed debt investors held out and did not participate in
the exchanges in 2005 and 2010. They are by far not the only
holdouts, but have been the most prominent in their fight for
full repayment on debt they bought at pennies on the dollar in a
case that essentially comes down to a contract dispute.
In 2012, Griesa ruled in favor of the holdout investors, led
by NML Capital Ltd, an affiliate of the $24.8 billion hedge fund
Elliott Management Corp, and Aurelius Capital Management, who
won a $1.33 billion judgement.
Argentina insists it is not in default because it deposited
a $539 million coupon payment on exchanged bonds before a June
30 deadline. Griesa has called the deposit with trustee Bank of
New York Mellon illegal and reiterated on Friday that "there has
been no payment."
Payments to exchange bondholders have not been made because
of Greisa's order, which stipulated the nation must concurrently
pay the holdouts their award plus accrued interest.
Argentina has published legal notices in recent weeks
disparaging Griesa and Pollack, who succeeded in getting the two
sides to meet face-to-face for the first time in nearly 13 years
but could not get them to an agreement by July 30.
Pollack issued a statement after the hearing saying it was
his intention to "convene and conduct further negotiations until
a solution is reached, however long that may take."
Argentina insists it cannot meet the demands of the court
order, nor make a deal with the holdouts that is better than the
terms offered in its two restructurings based upon a clause in
its agreement known as the Rights Upon Future Offers (RUFO).
The RUFO clause expires on Dec. 31, 2014.
Reuters IFR has reported that private banks are trying to
reach an agreement with the holdouts that would pay them 80
cents on the dollar for their Argentine bonds in hopes of
getting the frozen coupon payment sitting at BNY Mellon released
as soon as possible.
(Additional reporting by Andrew Longstreth and IFR's Joan Magee
and Davide Scigliuzzo in New York, Richard Lough and Hugh
Bronstein in Buenos Aires; Writing by Daniel Bases; Editing by W
Simon, Andrew Hay, Andre Grenon and Lisa Shumaker)