Argentine bond swap 'illegal'

During a hearing at the US District court in Manhattan on Thursday, Judge Thomas Griesa described Argentina's actions toward creditors who had refused to accept restructured Argentine bonds as "lawless."

Argentina's President Cristina Kirchner has remained steadfast in her refusal to pay those "holdout creditors" - most of them US-based hedge funds - the face value on their bonds.

Argentina plunged into "technical default" after missing a June 30 coupon payment on its government bonds restructured in 2005 and 2010. Buenos Aires couldn't make the interest payment because Judge Griesa had blocked them, demanding that holdout investors in old Argentine debt should be paid simultaneously.

On Tuesday, Kirchner unveiled a bill that would allow her government to resume payments to holders of exchanged bonds in defiance of Griesa's ruling. The bill would make state-controlled bank Banco Nacion the intermediary for bondholder payments instead of Bank of New York Mellon.

"It's illegal, and the court directs that it cannot be carried out," Griesa said.

During the hearing, Judge Griesa, however, stopped short of finding Argentina in contempt of court. He rejected requests to that end by the lawyers of hedge funds NML Capital, Aurelius and Elliott Management which are suing Buenos Aires for payment.

Noting that the parties should focus on a settlement, Griesa said: "In my judgment, it does not add anything to the scales of settlement to make a finding of contempt."

In a statement issued late on Thursday, Kirchner's office accused Judge Griesa of being contemptuous of Argentina's sovereignty in his attack on the president's plan. Griesa was trying to "impose conditions" on the Argentine Congress, the country's "highest legislative body," the statement said, adding that the judge only looked "to favor the vulture funds."

uhe/msh (AP, Reuters, dpa)