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Argentina deposits debt payment, defying US judge

Buenos Aires (AFP) - Argentina deposited a $161 million payment on its restructured debt Tuesday, defying a US judge who ruled it in contempt of court and ordered it to pay two "holdout" creditors first.

The Argentine government, forced into default for the second time in 13 years as a result of the bitter legal dispute, said it had deposited the payment in a Buenos Aires account of the state-run Banco Nacion, just in time for a Tuesday deadline.

"By making said deposits, the Argentine Republic has once again demonstrated its unbreakable commitment to fulfill all its obligations to bondholders and contribute by any means available to preserve their right to collect payment," the economy ministry said.

The South American country is trying to meet its obligations to creditors who agreed to take steep losses on their bonds after it defaulted on $100 billion in debt during its 2001 economic crisis.

But it has been blocked by US federal judge Thomas Griesa, who has ordered the country to first repay two hedge funds demanding the full $1.3 billion face value of their bonds.

Griesa ruled Monday that Argentina was in contempt of court after it passed a law allowing the government to repay creditors in Buenos Aires or Paris -- skirting the New York judge's freeze on the bank accounts it previously used to service its debt.

Argentine cabinet chief Jorge Capitanich brushed off the ruling, saying it had "no basis or impact" and violated international law.

"The judge has unleashed a true legal rigamarole. Every decision he makes gets worse," Capitanich told journalists in Buenos Aires.

He said any potential contempt penalties -- which could amount to a $50,000-a-day civil fine, as requested by the hedge funds -- would be "inapplicable."

"Sovereign immunity law prohibits contempt penalties against foreign states," he said.

- Market pariah vs. 'vultures' -

The debt row has strained relations between Argentina and the United States.

Foreseeing Griesa's ruling, Argentina's ambassador to Washington had warned US Secretary of State John Kerry that a contempt finding against the country would constitute "unlawful interference" in its affairs.

Following the ruling, a State Department spokeswoman said the United States was "monitoring the situation closely."

"Our position on this issue remains clear. We believe it is in Argentina's interest to normalize relations with all of its creditors," she said.

Argentina has been locked out of international financial markets since its 2001 default.

More than 92 percent of its creditors agreed to take losses of up to 70 percent on the face value of their bonds in 2005 and 2010 to get the struggling country's debt repayments back on track.

But the two hedge funds, US billionaire Paul Singer's NML Capital and US-based Aurelius Capital Management, which had bought up defaulted Argentine bonds for pennies on the dollar, refused to accept the write-down and took the country to court.

The strategy, which stands to make them profits of up to 1,600 percent, has earned them the label "vulture funds" from Buenos Aires.

Blocked from paying its restructured debt, Argentina missed a $539 million interest payment and entered default again on July 30.

It is now trying to buy time until the end of the year, the expiration date for a clause in the restructuring deals that entitles all bondholders to equal treatment.

- Will investors defy court? -

It remains to be seen whether bondholders will be able or willing to collect.

Many investment funds will likely be reluctant to defy a US court ruling, though one major creditor, Mexican billionaire David Martinez, has already said he has no problem collecting payment in Buenos Aires.

Struggling Argentina exited recession in the second quarter of the year with 0.9 percent economic growth.

But with inflation estimated at more than 30 percent and the peso tumbling, it is still mired in a slowdown.

Analysts are forecasting the economy will shrink two percent this year.

Argentina is meanwhile lobbying to create a UN convention to prevent a minority of bondholders from scuppering struggling countries' debt restructuring plans.

A resolution to negotiate such a framework passed the United Nations General Assembly earlier this month.