Argentina's economics minister, Axel Kicillof, made it clear this week that a deal covering the other 92% of bondholders would collapse if the country was directed to favour the hedge funds. Photograph: Lucas Jackson/Reuters  A US judge has blocked a $500m (£290m) payment by Argentina to creditors due on Monday, pushing South America's second largest economy closer to a second massive default in 13 years.  New York district judge Thomas Griesa said after a quickly convened court hearing that Argentina was in breach of his decision that US vulture funds, which have pressed for full repayment of their loans, were entitled to bypass a longstanding debt restructuring deal.  The ruling, which enforces an earlier decision in favour of vulture funds seeking a $1.6bn payout, means that $539m of Argentina's scheduled debt repayments were stuck in Bank of New York Mellon, which as trustee was due to disburse the payments under the previous debt deal.  A spokesman for the vulture funds called Argentina's attempt to pay rival creditors holding restructured bonds a "brazen step" that had forced them back to court. Robert Cohen, a lawyer for NML Capital, the lead hedge fund pursuing Argentina, had asked Griesa to hold the country in contempt of court.  Argentina has claimed it will default if the US courts insist the vulture fund bondholders – many of which bought their bonds at a steep discount – are repaid in full.  The court has only ruled in favour of the vulture funds, mostly hedge funds, but Argentina's economy minister, Axel Kicillof, made it clear this week that a deal covering the other 92% of bondholders would collapse and the country forced to default again if it was directed to favour the hedge funds.  The Argentinian government, led by president Cristina Fernández de Kirchner, published adverts in most major local newspapers explaining why it had rejected the court's ruling and needed to press ahead with the original payments to meet its obligations.  The row is the latest in a long running battle between Argentina and a group of US hedge funds that bought the country's bonds after it defaulted on its debts in 2001. The hedge funds picked up the bonds at a fraction of their previous value and then demanded repayment in full.  Argentina had already brokered a deal with the majority of bondholders, who accepted losses – called a haircut – on their holdings.  Greisa made his first ruling last year in favour of the hedge funds, triggering a storm of protest from campaign groups which argued it set a precedent for other investors to wreck longstanding debt forgiveness deals with developing countries.  Eric LeCompte, executive director of the debt relief group Jubilee USA Network, said: "We are in the middle of a ping-pong match between Argentina and the holdouts. Unfortunately, as this battle continues in the courts, Argentina faces another default."  Argentina defaulted on nearly $100bn of debt in 2001. It could decide to pay the vulture funds, but experts believe it would be unable to do that for all other bondholders and so be forced back into bankruptcy.  There is no formal procedure in international law for a sovereign debt default. Argentina followed common practice by allowing the US courts to resolve how much should be repaid and when, under a bipartisan agreement between Republican and Democrat legislators.  LeCompte said the lack of agreement in the US meant a pillar of support to resolving international disputes was under threat. "I'm really worried about how this court precedent is promoting predatory behaviour and will hurt debt restructurings for poor countries," he said.  Late last week, signs of a possible solution emerged when Fernández said she would attempt to resolve all of Argentina's unpaid debts in one grand bargain. She planned to ask Griesa to impose a stay on debt rulings to allow the country to make payments to creditors of restructured bonds.  Her note of conciliation helped lift prices of Argentine bonds.  However, the vulture funds were incensed and persuaded Griesa to rule that if Argentina did not give the plaintiffs all the money due, it would be refused access to the US banking system to make its other interest payments.
New York judge blocks $500m payment to creditors in ruling that favours 'predatory' hedge funds over debt restructuring plan