(Adds official communique paragraphs 14-15)
By Diego Ore and Deisy Buitrago
CARACAS, July 29 South American leaders have
rallied behind Argentine President Cristina Fernandez, who is
locked in a legal battle with holdout investors that could
trigger a debt default this week.
The standoff figured prominently at the Mercosur bloc's
meeting in Caracas on Tuesday, with heads of state castigating
the holdouts as speculators menacing the entire region.
Argentina has until late Wednesday to either pay out or
reach a deal with the hedge funds that are suing for full
payment on their bonds to avert a second default in little over
a decade in Latin America's No. 3 economy.
While Fernandez was in Venezuela on Tuesday, Argentine debt
negotiators met in New York with a court-appointed mediator for
last-gasp negotiations to cut a deal.
"We have ratified all our militant solidarity with the
Republic of Argentina, with the struggle the president is
leading against the attempt, through so-called vulture funds, to
cause damage via financial speculation," Venezuela President
Nicolas Maduro told the forum.
"It's not just damage to Argentina. It's damage to all the
countries of the south," added the socialist Maduro, who
replaced Hugo Chavez after his death from cancer last year.
Regional heavyweight Brazil also backed Argentina.
"The problem that's affecting Argentina today is a threat
not just to a brother nation. It affects the entire
international financial system," President Dilma Rousseff said.
"We cannot accept that the actions of a few speculators put
the stability of entire countries at risk. We need clear rules
and a system that allows impartial forums, and allows for
justice in the process of restructuring sovereign debt."
If the deadlock persists, U.S. District Judge Thomas Griesa
will prevent Argentina from making the July 30 deadline for a
coupon payment on exchanged bonds. A default would hurt
Argentina, which is already in recession and grappling with
dwindling foreign reserves and soaring inflation.
Argentina has been cut off from international credit markets
since its 2002 default on $100 billion, which plunged millions
of Argentines into poverty.
For many years, the country refused to negotiate with the
holdouts who bought its distressed debt on the cheap, slamming
them as "vultures" picking over the carcass of its default.
Fernandez defended Argentina's position extensively during
the summit, accusing the holdouts of threatening the stability
of the international financial system.
At the end of the summit, a formal Mercosur communique said
Argentina could in no way be considered in default when it had
funds to pay debt but was being legally blocked from doing so.
"The presidents reaffirmed their solidarity and unrestricted
support for the Republic of Argentina regarding legal decisions
favorable to a minority group of sovereign debt-holders who have
rejected conditions accepted by the large majority," it said.
(Writing by Andrew Cawthorne; Editing by Richard Lough, Andre
Grenon and Richard Chang)