ARGENTINA cannot turn its back on negotiations with holdout creditors after defaulting on its sovereign debt, a U.S. judge instructed Friday, just as the country’s failure to service a June interest payment was declared a “credit event.”

    In a stern tone, U.S. District Judge Thomas Griesa in New York slammed the decision by Latin America’s third-biggest economy to defy his order to pay holdout investors in full and instead default on US$29 billion in debt.

    As Griesa was speaking, a 15-member committee facilitated by the International Swaps and Derivatives Association voted unanimously to call the missed coupon payment a “credit event.” The move triggers a payout process for holders of insurance on Argentine debt, which analysts estimate could amount to roughly US$1 billion.

    Argentina’s economy ministry said later in a combative statement that Griesa’s attitude sought to favor “vulture funds.” It has asked Argentina’s securities watchdog to investigate whether the litigation against the nation by holdouts was merely the “facade of speculative maneuver.”

    Griesa said: “Nothing that has happened this week has removed the necessity of working out a settlement.” He chided Argentina for making public statements he characterized as misleading.

    “The debts weren’t extinguished. There’s no bankruptcy, no insolvency proceedings,” Griesa said. “The debts are still there.”

    The veteran judge has been at the center of Argentina’s drawn-out fight against the New York hedge funds suing it for full payment on bonds they bought on the cheap following the country’s record 2002 default on US$100 billion in debt.

    The lead holdout investors are NML Capital Ltd., an affiliate of Elliott Management Corp. and Aurelius Capital Management.

    Argentine bond prices slightly extended earlier losses after Griesa’s comments.

    In other markets, the blue-chip Merval stock index pared earlier losses to trade down just 0.6 percent from Thursday’s close at 8,150.91. The peso currency traded fractionally weaker on the black market at 12.700 per U.S. dollar.

    Griesa told both sides to continue working with mediator Daniel Pollack, a lawyer one senior Argentine government minister had dubbed “incompetent” a day earlier.

    Argentina’s lead lawyer told the judge the Buenos Aires government had no confidence in Pollack after he released a statement after negotiations broke down, saying the case had become “highly politicized.”

    (SD-Agencies)