Argentina attempts debt swap to pay creditors locally

BUENOS AIRES, Aug. 20 (UPI) -- Argentina announced a proposed debt swap Tuesday to avoid a U.S. court ruling that pushed the country into default.

President Cristina Fernandez said Argentina seeks to service its debt locally by allowing bondholders to swap bonds issued under foreign law for those under local law. A $539 million interest payment on bonds issued under U.S. legislation, after Argentina defaulted in 2002, was blocked last month in a New York court.

Although 92 percent of Argentina's creditors agreed to lesser payments, accepting large losses, those that did not convinced a U.S. judge last month to ban payments in a restructured settlement. Fernandez said the proposal would allow an Argentine bank, Buenos Aires' Banco de la Nation, to make payments on the bonds, bypassing the United States and the Bank of New York Mellon.

"This is an option bondholders have. It's not an obligation because we can't impose obligations on them according to our contracts. Our contractual obligation is to always guarantee that they can collect," she said.

The plan requires approval from the Argentine legislature.

Analysts suggested the maneuver would assure no deal with hold-out creditors could be arranged, and the country could not move out of default and rejoin global capital markets. It remains unclear if the U.S. court ruling could be sidestepped so easily.

"Argentina could end up in contempt," said Alejo Costa, strategy chief at the Buenos Aires bank Puente.