| BUENOS AIRES
BUENOS AIRES Faced with a default by July 30, Argentina will likely be in touch with a mediator by telephone instead of sending a mission to New York this week in its battle with holdout bondholders, an Argentine economy ministry source said on Tuesday.
If Argentina does not reach a deal with the holdouts, who have rejected previous debt restructurings in the wake of its 2002 default, it faces a new crisis by the end of July as it struggles with recession and dwindling foreign reserves.
Argentine officials and holdouts met separately with the court-appointed mediator, Daniel Pollack, in New York last Friday but failed to reach a deal or even schedule further talks.
Asked if there would be a meeting in New York this week with Pollack, the source said, "This is the most probable ... There surely will be contact by telephone."
The group of holdouts involved in the case, led by hedge funds Elliott Management Corp and Aurelius Capital Management, say Argentina is not serious about negotiating with them.
For years, Argentina refused to negotiate, portraying the funds as "vultures" circling the corpse of its 2002 default that plunged millions of Argentines into poverty. The funds bought bonds in the secondary market at a steep discount.
After a string of adverse U.S. court decisions, the country has exhausted its legal options to get around a 2012 ruling by U.S. District Judge Thomas Griesa that it pay holdouts in full, $1.33 billion plus accrued interest.
Until it pays up, or reaches a deal with the holdouts, Griesa will prevent Argentina from servicing restructured debt resulting from 2005 and 2010 debt swaps. That means it could go into default by a July 30 deadline for a coupon payment.
The South American country says if it pays up in accordance with the ruling, it faces claims from other holdouts and exchange bondholders worth more than $100 billion, an amount it cannot afford.
Argentina says it wants Griesa to re-instate a stay of proceedings so it can negotiate with holdouts for a longer period than the two weeks until July 30 without defaulting. But holdouts say the country already had a stay for 2-1/2 years while it contested the ruling in appeals courts and does not deserve a new one.
Siobhan Morden, head of Latin America strategy at Jefferies in New York, said markets have been overly optimistic about the likelihood of a deal given that Argentina had shown no willingness to respect Griesa's ruling.
"It's not a good sign when a deadline is two weeks away and you don't know what your priorities are," she said. "If Argentina showed some good will, it could get some flexibility on timing, but it hasn't so far."
(Additional reporting by Jorge Otaola; Writing by Sarah Marsh; Editing by W Simon, J Benkoe and Dan Grebler)