President of Argentina, Cristina Fernandez de Kirchner
© RIA Novosti/Grigoriy Sisoev
President of Argentina, Cristina Fernandez de Kirchner
For the last decade, Argentina has been fighting a legal battle against the so-called "holdout" creditors led by American hedge funds that are pushing the country into a new default. Recently, American courts have started helping the "vulture funds" in their quest to make the South American country pay in full for its old bonds.

The subject of the legal battle is the payment for the bonds that have been issued before the Argentine sovereign default in 2001. While most of the bondholders participated in two bond-swaps, basically allowing the country to restructure its debt and extend the maturity of its bonds, some bonds ended up in the hands of so-called "vulture funds". Such funds are specialized in extracting value from "troubled" bonds. While some vultures feed on the carcases of animals, the "financial vultures" try to use the courts for making issuers pay in full for the bonds acquired by the "vulture funds" at steep discounts.

Comment: No doubt the fact that Argentina is getting closer to the BRICS organisation and the Non-Petrodollar world is a major incentive for the US to push the South American country closer to the abyss. Will Argentina buckle and tow the US line or will the BRICS countries perhaps rally up behind Argentina?

Several US courts have ruled that Argentina has to repay the vulture funds around 1.33 billion dollars, before it can continue paying the bondholders who agreed to restructure the Argentine debts in the aftermath of its 2001-2002 default. President of Argentina, Cristina Fernandez de Kirchner slammed the court rulings, describing the actions of the US judiciary system as "extortion".

The deadline for paying the vulture funds is June the 30th and if the country doesn't pay up, it will lose the possibility to pay other bondholders through US banks and will face the risk of having its international assets confiscated. Moreover, Argentina risks to face a situation similar to the situation of Iran, because it will be locked out of the dollar-based financial system and will be unable to repay its creditors in dollars or seek dollar-denominated funding.

"It's our obligation to take responsibility for paying our creditors, but not to become the victims of extortion by speculators," Kirchner said. However, Argentina's leading newspaper El Nacional reports that the government will send a team to the US in order to negotiate a settlement with the "vulture funds". The team made of financial and legal experts is supposed to convince the speculators to accept an initial "good faith" payment of 300-400 million dollars and a postponement of other payments till 2015. The most likely outcome of the upcoming negotiations is that "vulture funds" will not accept any proposals made by the Argentine government and will seek to push the country into default.