Argentina votes to move debt, ignores US ruling it's 'illegal'

Argentina is also considering adding France as a jurisdiction for making bond payments after $1.5bn default

Argentina has voted to swap defaulted bonds for new locally issued debt, despite the move being dismissed as "illegal" by the US judge overseeing the country's $1.5bn default.

The measure was passed in the Argentine Senate by a vote of 39 to 27 with two abstentions, and now goes to the House of Representatives.

The House, like the Senate, is controlled by allies to President Cristina Fernandez's government, who are expected to vote the bill into law.

Argentina is also considering adding France as a jurisdiction for making bond payments, although Pablo Gonzalez, a senator from the ruling Front for Victory coalition, did not clarify why.

The legislation is an attempt by the country to sidestep a US block on payments to its creditors by replacing Bank of New York Mellon - which, under an earlier ruling by New York Judge Thomas Griesa, is holding a $539m payment by Argentina - as trustee with state-run Banco Nacion.

Argentina would then be allowed to pay the $539m to bondholders, if they agree to the plan.

However, Mr Griesa, whom the Argentine government has claimed is an “agent” for what it has labelled "vulture funds", has already slammed the bond move as "lawless".

Miguel Angel Pichetto, head of the government's Frente para la Victoria coalition in the Senate, said on Thursday: "Sometimes there are court decisions that cannot be followed. To pay the vulture funds would be very dangerous."

Argentine officials deny the country has defaulted on its debt because they deposited $539m for creditors in Bank of New York Mellon. But Mr Griesa blocked that deposit in June, saying it violated his ruling that Argentina must first pay $1.5bn to settle its dispute with holdout investors first.

The block led to war of words between the two contries, with Argentina launching legal action in The Hague against the US, claiming President Barack Obama's government had "committed violations of Argentine sovereignty". The US government has yet to consent to the ICJ's jurisdiction, which is required before the UN can proceed with the case.

The country officially defaulted at the beginning of August, after the International Swaps and Derivatives Association ruled that its failure to pay creditors earlier this week constituted a "credit event".

The ISDA's move will almost certainly trigger credit default swaps on Argentina’s debt worth $1bn.

On Wednesday, it was revealed that traders taking part in an auction to settle Argentina's credit default swaps valued the country's restructured bonds at 39.5 cents to the dollar.

Argentina is due to pay the next installment on its debt on September 30.