Argentina debt repayment must be returned, says US judge

Argentina's Economy Minister Axel Kicillof wants to pay investors who agreed to the restructure

A US judge has ordered that a debt repayment made by Argentina to US bondholders be returned, calling the payment "an explosive action".

Argentina owes money to two sets of bondholders - those who have agreed a deal to restructure the debt, and those who have not.

The judge previously ruled the country must pay both, but Friday's payment was just to those who had agreed a deal.

He urged Argentina to negotiate a deal with the remaining bondholders.

"Any attempt to make payment to the exchange bondholders without complying with [my order to pay the remaining bondholders at the same time] is illegal," said US District Court Judge Thomas Griesa.

"The money should be returned to the republic. Simple as that."

The money was paid to Bank of New York Mellon, whose job it is to distribute the money to the individual bondholders.

Default

Earlier this month, the US Supreme Court ruled that Argentina must pay the hedge funds that had refused to participate in the debt restructuring deal the full $1.3bn (£766m) value of the debt.

The Argentine government has been in a 12-year legal battle in the US courts, arguing that this is unreasonable and that the hedge funds are engaging in blatant profiteering.

The South American country defaulted in 2001 following an economic crisis, and has been in a legal battle with bondholders led by hedge funds NML and Aurelius Capital Management.

Under a deal, 92% of bondholders agreed in 2005 and 2010 to write off two-thirds of the bonds' pre-crisis value, providing Argentina with time to rebuild its economy.

Restructuring deals are voluntary between the borrower, in this case Argentina, and lenders. Bondholders are not obliged to agree to a devaluing of their debt, but risk a full default and loss of all their funds if they don't. Some investors may buy debt ahead of a restructure and bet that they can demand a better deal.

The hedge fund investors bought Argentine government bonds at a big discount after the 2001 default.

'Serial defaulter'

Dr Jerome Booth, an economist at New Sparta, told 5 live: "What's going to have to happen is they will have to sit down and do a deal with the hold-outs."

Argentina is a "serial defaulter" he said. Part of the country's complaint appears to be investors are trying to make money from the situation.

"It's a bit rich to turn round and say 'people made money from it' as that's why investors buy the bonds in the first place," he said.

Now, Argentina wants to pay the investors who took part in the debt restructures.

Financial system

Argentina's Economy Minister, Axel Kicillof, said on Thursday that Argentina had taken steps to pay $832m owed by Monday to creditors who participated in debt swaps in 2005 and 2010.

"Not paying while having the resources and forcing a voluntary default is something that is not contemplated in Argentine law," Mr Kicillof said. "It would be a clear violation of the debt prospects."

The US judge has ruled Argentina must pay all of its creditors rather than being selective.

If Argentina does not also pay the US bondholders who refused to join the debt swaps, the court ruling bars it from using the US financial system to pay other bondholders.