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Argentina readies talks with mediator over debt default

Argentine representatives hold talks with a court-appointed arbiter in New York on Monday hoping to resolve an impasse over debt payments to hedge funds as the country faces possible default.

BUENOS AIRES: Argentine representatives hold talks with a court-appointed arbiter in New York on Monday hoping to resolve an impasse over debt payments to hedge funds as the country faces possible default.

The government of President Cristina Kirchner announced late Sunday that Economy Minister Axel Kicillof will head the team of negotiators.

Argentina has refused to pay the holdout hedge funds, mainly NML Capital and Aurelius Management, because they did not join bondholders which accepted a 2005-2010 debt restructuring plan which covered 92 per cent of the US$100 billion in debt that Argentina defaulted on in 2001.

The bond holders agreed to be paid less than the face value of the debt.

The hedge funds however bought Argentine debt at a bargain price but are insisting on being paid the full face value of the bonds.

After lengthy litigation, US District Judge Thomas Griesa ordered Argentina to pay more than US$1.3 billion owed to the holdout hedge funds.

At the same time, because Griesa ruled two years ago that Argentina cannot pay one group of bondholders without paying the other, efforts by Buenos Aires to settle its restructured debt were blocked after the US Supreme Court upheld the judge's ruling.

In late June Buenos Aires deposited more than US$500 million in an Argentine account of Bank of New York Mellon to make the June 30 principal and interest payment due on the restructured bonds.

But Griesa reiterated in a hearing in New York that BNY Mellon cannot make the transaction, because there was no simultaneous payment for the holdouts.

The outcome meant that Argentina was late on the payment to bondholders which had participated in the debt restructuring, and faces default if the issue is not resolved by the end of July.

"Argentina paid in a timely manner," Kicillof said, calling the blockage of the deposited funds a "puzzling and unusual situation."

Just ahead of the Monday talks Argentine chief of staff Jorge Capitanich questioned Griesa's impartiality.

"Many US officials say that the judicial branch is independent," said Capitanich. "They may be as independent as they say, but they are not independent from the vulture funds."

Kicillof has asked the Organization of American States in Washington for "urgent solution" to help keep Argentina afloat, and he received a statement of support.

Lawyers for Argentina have informed mediator Daniel Pollack that officials set to be at the Monday meeting include deputy chief of the Treasury Javier Pargament and Finance Secretary Pablo Lopez.

BNY Mellon complained to Griesa in a letter dated July 2 that it does not know what to do with the half-billion dollars Buenos Aires deposited in its account last week.

Griesa ordered the bank to give the money back to Argentina. But BNY Mellon said it has no instructions from Argentina on where to return the money, placing it in a situation of not being able to comply with the court's order.

Asking the court to address the problem "as quickly as possible," BNY Mellon said it faced possible threat of litigation outside the United States from bondholders expecting payment if it returns the money to Argentina.

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