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Argentina announces a new debt swap outside US law

August 27, 2013

BUENOS AIRES, Argentina (AP) — Argentina’s president revealed Monday night how she’ll try to defy U.S. courts that have ruled against her government in a decade-long, billion-dollar legal fight over debts that have been unpaid since the country’s world-record, $100 billion default.

Rather than comply with Friday’s unanimous ruling ordering her government to pay $1.4 billion in cash to a group of plaintiffs she calls “vulture funds,” President Cristina Fernandez is proposing another debt swap: offering new bonds to be paid in dollars in Buenos Aires to anyone still holding defaulted debt.

Fernandez made the announcement in a surprise address to the nation, saying the U.S. federal appellate judges were unfair to label Argentina a deadbeat. She said Argentina has made $173 billion in debt payments since 2003 and will pay $2 billion more on Sept. 12.

“Rather than ‘recalcitrant debtors,’ we are serial payers,” she said.

The proposal she is sending to congress Tuesday is her long-awaited “Plan B” for answering court rulings requiring Argentina to first pay cash to a small fraction of “holdouts” who sued rather than join the more than 92 percent of bondholders who provided Argentina with billions of dollars in debt relief in 2005 and 2010. Those who joined in the debt swap have been paid ever since.

Friday’s court ruling seemed to leave Fernandez with no wiggle room: If she keeps refusing to pay the holdouts, Argentina’s payments to those who accepted previous swaps will be embargoed by the U.S. financial system, forcing the country into another default.

Argentina has filed a long-shot appeal to the U.S. Supreme Court, but meanwhile Fernandez is proposing that any bondholders who haven’t been paid, or who fear that their current payments will get held up, can trade their New York-law bonds for new bonds whose contracts will be enforced under Argentine law.

“We can’t keep the country under a ‘Sword of Damocles,’” she said. “The first decision we made is to ask God to shine down on the United States Supreme Court.”

“We’ve made two more decisions: Tomorrow we’re going to send a proposed law to Congress ... to open for the third time the debt swap, for the 7 percent that haven’t entered. We want to face up to the promises of Argentina.”

She said bondholders who have worked with Argentina will be able to trade their current bonds for new ones under the same payment terms, but paid in Argentina rather than New York.

“Those who have Argentine bonds, we are going to replace these with similar bonds, in foreign currency, and under the same terms, but paid here in Argentina,” she said.

Analysts have predicted that any attempt to pay bondholders in Buenos Aires rather than comply with the U.S. courts will fail, reasoning that few bondholders who now can turn to courts in New York in any dispute with Argentina’s government will be willing to risk a change that makes Argentine courts the final arbiter.


Associated Press writer Michael Warren in Montevideo, Uruguay, contributed to this report.

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