Argentina’s Senate Begins Debate on Local Debt Payment Proposal

Argentina’s Senate began debate today on a proposed law that would allow the government to pay international bonds through local banks.

The bill would open the way for overseas investors to voluntarily swap their bonds into new debt issued under domestic laws, according to a draft released Aug. 19. Interest payments, which is currently handled by Bank of New York Mellon Corp., would be made by local banks. The government also intends to pay holders of defaulted bonds using the same terms as the rest of its restructured debt, regardless of whether they decide to accept the swap.

The measure is an attempt by President Cristina Fernandez de Kirchner to circumvent a U.S. judge’s order for the nation to pay the full amount owed to holders of debt Argentina defaulted on in 2001, or about $1.6 billion, at the same time it pays restructured bonds. U.S. District Judge Thomas Griesa on Aug. 21 said the move is illegal and banned third parties from aiding the government in carrying it out.

“The government has enough support from senators to pass the law, and the big surprise would be if it doesn’t get approved,” Alejo Costa, a Buenos Aires-based strategist at Puente Hermanos Sociedad de Bolsa SA, said by phone. “The market is already pricing in that this law means there’s a smaller chance of a resolution with holdouts this year.”

The ruling Frente Para la Victoria coalition has 32 senators out of the total 72. If passed, it would go to the lower house for approval.

Legal Secretary Carlos Zannini met with pro-government lawmakers yesterday, and said Argentina will include the possibility to pay creditors in France, Ambito reported.

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