(Adds statement from holdout hedge fund Aurelius)
By Hugh Bronstein and Alejandro Lifschitz
BUENOS AIRES Aug 20 Argentina's new plan to
skirt U.S. courts and resume payment on defaulted bonds aims to
protect creditors who participated in two debt restructurings,
the economy minister said on Wednesday as the local peso
currency weakened to a new historic low.
Defying a U.S. federal court order, Axel Kicillof also said
it would be "madness" to pay holdout creditors the 100 cents on
the dollar that they were awarded in 2012.
The government has sent a bill to Congress that would
replace its New York intermediary bank with state-run Banco
Nacion, the latest move in a years-old legal chess game between
Argentina and its "holdout" creditors who refused to participate
in the restructuring.
Argentina's black market peso reeled on the news, falling
2.0 percent to an all-time low 13.5 to the U.S. dollar. The
country's benchmark dollar-denominated bonds due in 2033 slumped
more than 2.0 percent in price.
The legal deadlock is squeezing Argentina's foreign reserves
and the availability of dollars in the market by preventing the
economically ailing country from issuing international bonds.
Last month, Argentina defaulted on an estimated $29 billion
of its restructured debt after a New York court blocked an
interest payment of $539 million. The payment did not go through
to investors because U.S. District Judge Thomas Griesa says
restructured bonds cannot be paid unless the holdouts are
simultaneously paid 100 cents on the dollar, plus interest.
The $539 million deposited by Argentina remains with
intermediary Bank of New York Mellon. Argentina says
Griesa overstepped his bounds by blocking the coupon payment,
and is moving to ensure future payments go through local banks
out of Griesa's reach.
On Tuesday evening, President Cristina Fernandez announced
her intention to replace Bank of New York Mellon with state-run
Banco Nacion as intermediary. She also offered to swap bonds
governed by U.S. law for debt under local jurisdiction.
Kicillof told reporters the proposed swap would neither
break existing bond contracts nor be obligatory.
"Argentina is going to continue paying its debts," Kicillof
said, mentioning a $200 million payment due on Sept. 30 on
restructured Par bonds denominated in dollars.
"Argentina will preserve its debt restructurings."
But to pay the holdouts 100 cents on the dollar, in
accordance with U.S. court rulings, would be "financial
madness", he said.
Holdout fund Aurelius Capital Management issued a statement
saying Argentina was "doubling down on an illicit and failed
approach" to its defaulted debt. "Argentina's leaders have
literally chosen to be outlaws. They have chronically flouted
U.S. court orders," the statement said.
The debt swap bill is set to start being debated in the
Fernandez-controlled Senate next week. In presenting the idea to
the public on Tuesday she gave no hint of how many bond holders
would have to participate in the swap for it to be activated.
On international markets, the price on Argentina's widely
traded and dollar-denominated Discount bond maturing in 2033
fell 2.31 percent to bid 80.513, with a nominal
yield of 11.024 percent.
The case goes back to Argentina's 2002 default on about $100
billion in sovereign bonds. The vast majority of holders
participated in restructurings in 2005 and 2010, which offered
less than 30 cents on the dollar on the defaulted debt.
A group of hedge funds led by Elliott Management Corp and
Aurelius opted to sue in the U.S. federal courts, which govern
the original bond contracts, for 100 cents on the dollar.
Fernandez and her ministers characterize the funds
"vultures" who bought Argentine bonds at steep discounts and are
out to wreck the country's finances in their pursuit of
"They have created conditions of anarchy and the destruction
of the rule of law, all so they tenaciously attack countries
that do not accept the conditions that they impose," Cabinet
chief Jorge Capitanich said.
(Additional reporting by Richard Lough and Walter Bianchi; and
Daniel Bases in New York; Editing by W Simon, Clive McKeef,