Argentina Attacks Hedge Funds, Germany As Judge Mulls Contempt

Sep 25 2014 | 2:06pm ET

Argentina is lashing out at hedge-fund holdouts from its 2001 default and a new target, as the U.S. federal judge whose rulings paved the way to its July default is to consider new sanctions against the country.

Speaking to the United Nations General Assembly yesterday, Argentine President Cristina Kirchner accused what she calls “vulture funds”—Elliott Management and Aurelius Capital Management, who have rejected its debt restructuring—of “practicing a kind of economic and financial terrorism.”

“Terrorists are not only those who set off bombs, but also those who destabilize economies, causing hunger, misery and poverty,” she said.

Argentina is trying to build support for a new system of sovereign-debt restructuring that would prevent creditors like Elliott and Aurelius from blocking settlements. The country has refused to negotiate with the hedge funds but is barred from servicing its restructured debt without paying the holdouts by U.S. court rulings.

Argentina also had harsh words for Germany, one of the 11 countries—including the U.S., U.K. and other western economic powers—that voted against an Argentine-backed proposal to establish an international legal framework for sovereign restructurings.

“Germany has always had a hostile attitude toward Argentina from an economic and financial point of view,” Argentine Cabinet Chief Jorge Capitanich said. The remark followed German Finance Minister Wolfgang Schäuble’s comment that Argentina’s leaders are “an example of lack of strength.”

Kirchner’s visit to New York—during which she met with George Soros, an investor in Argentina’s restructured debt—comes in advance of a hearing tomorrow at which U.S. District Judge Thomas Griesa will consider whether to hold the country in contempt of court.

Griesa has declined to take that step for months, noting that it would not help reach a settlement, in spite of increasingly strident Argentine rhetoric and efforts to sidestep his rulings. Tomorrow, he’ll ask the country’s lawyers to explain how the country’s actions are not a violation of his orders.

The holdouts are seeking legal fees and fines of $50,000 per day. It’s not clear how a contempt holding could be enforced, however, given the country’s sovereign immunity.

Following that hearing, Griesa will consider Citigroup’s request to allow it to make payments on Argentina’s domestic bonds.

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