(Adds more quotes from president, analyst, context)
By Sarah Marsh and Walter Bianchi
BUENOS AIRES Aug 19 President Cristina
Fernandez on Tuesday unveiled legislation that seeks to push
bondholders to swap defaulted debt for new notes governed by
Argentine law, a move aimed at skirting a U.S. ruling that
prevented her government from paying its creditors.
Argentina slid into default last month after a New York
court blocked an interest payment of $539 million owed to
holders of debt issued under U.S. legislation that was
restructured after the country's record 2002 default.
The judge said Argentina could not proceed with that payment
until it had also settled on repayment terms with a group of
hedge funds that had rejected the restructuring deal and are
demanding full payment.
Fernandez has argued Argentina is not in default and has
consistently labeled the adverse U.S. court rulings an attack on
Argentine sovereignty. The draft bill appeared to be an attempt
to bring Argentina's debt management back under its full
"If bondholders decide - in individual or collective form -
to ask for a change of the legislation and jurisdiction of their
bonds ... the economy ministry is authorized to implement a swap
for new public bonds under local legislation, Fernandez said in
a televised statement.
A new bond swap carries legal risks, analysts said, and
appeared to kill hopes that Argentina might soon reach a deal
with the hedge-fund holdouts, enabling it to exit default.
A prolonged debt crisis is seen deepening the country's
economic recession, weakening the ailing currency and sapping
thin foreign currency reserves.
Fernandez, who has been unflinching in her refusal to pay
the holdouts the full face value on their bonds, said a new
restructuring would respect the terms of earlier bond swaps in
2005 and 2010. More than 90 percent of creditors accepted large
writedowns at the time.
The usually tough-talking leader appeared on the verge of
tears as she neared the end of her address.
"Excuse me if I get a little nervous, I usually have more
poise. However, I really feel that we are living a moment of
great injustice in Argentina," Fernandez told the nation of 40
Fernandez said the holdouts - or "vultures" as she described
them - could participate in the new restructuring if they
accepted the same terms as other bondholders - a proposal the
New York hedge funds have repeatedly scoffed at.
The draft bill also proposes removing Bank of New York
Mellon - where the frozen June 30 coupon payment is held
in limbo - as the exchange bondholders' trustee. It plans
replacing it with the state-run Banco Nacion, which would open
up an account at the central bank to enable Argentina to service
its exchange debt there.
The sovereign debt bill will likely enjoy smooth passage
through Congress because Fernandez's faction of the ruling
Peronist movement enjoys a strong majority in both chambers.
The debt saga has strained already difficult relations with
the United States.
A series of rulings by U.S. District Judge Thomas Griesa set
off a wave of heated exchanges with Argentine officials. They
said Griesa did not understand the complexities of the case and
instead blamed Griesa for overstepping his bounds and blocking
It was not clear on Tuesday night whether the maneuver could
succeed in sidestepping the U.S. court's rulings and what impact
it might have on the country's default status.
"Argentina could end up in contempt," said Alejo Costa,
strategy chief at local investment bank Puente in Buenos Aires.
The proposed bond swap reduced the likelihood of Argentina
reaching an agreement with the holdouts and dashes hopes of
Argentina returning to global capital markets any time soon,
Lead holdout hedge funds NML Capital Limited and Aurelius
Capital Management did not immediately respond when contacted by
(Writing by Richard Lough; Editing by Kieran Murray, Ken Wills
and Eric Meijer)