Kirchner refuses to pay hedge fund 'vultures' back the $1.5 BILLION they loaned Argentina when it was bankrupt



U.S. court orders nation to start payments in two weeks

Cristina Kirchner tells the nation the orders are extortion



Hedge fund billionaire Paul Singer has chased loans since 2001

Stock market and currency fall amid fears orders will be ignored



Argentina's President Cristina Fernandez de Kirchner has refused to pay back $1.5 billion in cash to so-called 'vulture funds' which lent the South American nation money to bounce back after its economy collapsed more than a decade ago.



Kirchner told the nation in a televised address that the debt-laden country could not possibly comply with orders to repay the loans after the U.S. Supreme Court refused to hear her government's final appeal on the dispute.



The president said there was simply no way that Argentina could start paying the loans back in cash in just two weeks, which is what the court has ordered.

'What I cannot do as president is submit the country to such extortion,' Kirchner said.

President Cristina Kirchner says Argentina won't be paying back $1.5 billion it owes hedge funds

She even said she had a moral obligation not to pay back the money to investors such as NML Capital, the firm owned by New York billionaire Paul Singer, who she called 'vulture funds'.

'It's our obligation to take responsibility for paying our creditors, but not to become the victims of extortion by speculators,' Kirchner said.

Under the court orders, Argentina must hand over $907 million or lose the ability to use the U.S. financial system to pay an equal amount due on June 30 to holders of other Argentine bonds.

Kirchner said investors were owned $1.5 billion including interest, and paying it all immediately in cash could trigger another $15 billion in cash payments to the remaining holders of defaulted debt.



That 'is not only absurd but impossible,' since it represents more than half the Central Bank's remaining foreign reserves, she said.

She repeatedly vowed to keep making payments on the vast majority of the country's performing debts, which are held by bondholders who agreed previously to provide debt relief that enabled Argentina to rebound from its economic crisis of 2001.



Even if Argentina can't use the U.S. financial system to do so, she said, teams of experts are working on ways to avoid such a default and keep Argentina's promises.



The president said her government has repeatedly shown its willingness and ability to negotiate debt accords, and called on her countrymen to 'remain tranquil' despite the Supreme Court loss. 'It was known that this would happen,' she said.

In the red: Argentina has a museum dedicated to its debt

But the markets reacted in fear that Fernandez would take just such a stance, with economists, analysts and opposition politicians practically begging her to comply.

Argentina's Merval stock index dropped 11 percent after the court decision, its largest one-day loss in more than six months. Share prices for the state-run YPF energy company fell nearly 13 percent, while the Edenor electricity utility plummeted 20 percent.



The cost of insuring Argentine bonds against default soared, and the value of Argentina's currency plunged to 12 pesos to the dollar on the black market, implying a 33 percent loss to anyone needing to buy foreign currency legally.

The justices not only rejected Argentina's appeal without comment — they also ruled 7-1 that bondholders could force Argentina to reveal where it owns property around the world. That could make it easier to collect on other debts that have gone unpaid since Argentina's economy collapsed.

Justice Antonin Scalia wrote that U.S. federal law offers no shield to Argentina's assets. Justice Ruth Bader Ginsburg worried that this could expose even its embassies and military ships to seizure if the government doesn't pay.

'This is the end of the line for Argentina in the judicial appeal process. It has nowhere else to turn,' said Richard Samp, a lawyer for the Washington Legal Foundation who lobbies for plaintiffs that included Paul Singer's NML Capital Ltd.

Argentina could win a delay of a few weeks by asking for a rehearing, but they are almost never granted.

Bowing to the U.S. courts would force Kirchner to betray a pillar of the government that she and her late husband and predecessor, Nestor Kirchner, have led since he won the presidency in 2003: That Argentina must maintain its sovereignty and economic independence at any cost.

In addition, Kirchner said, there's near certainty that the 92 percent of creditors who accepted new bonds at steep discounts years ago — debt now totaling at $24 billion — 'will find a judge who will tell them that they, too, have the same rights,' leading to 'the more than certain possibility that the economy will crash.'

Refusing to comply could win applause from her core supporters, because paying the plaintiffs 100 percent plus interest in cash would mean sacrificing the subsidies and populist programs that enabled her to win re-election by a landslide.

But while she and NML Capital's owner, New York billionaire Paul Singer, jockey for any remaining advantage ahead of the inevitable negotiations, Argentina's immediate economic outlook seems grim, analysts say.

Refusing to comply was 'the best option' among a series of grim alternatives that Cleary, Gottlieb, US law firm representing Argentina in Washington, presented to Kitchener ahead of the Supreme Court decision.

Kitchener will pay a steep political price by paying off the winners, but doing so will lower Argentina's country risk, restore foreign reserves and prevent the recession from worsening, said Miguel Kiguel, a former deputy finance minister and World Bank economist in the 1990s who now runs the Econviews consulting firm.