MercoPress. South Atlantic News Agency

Argentine Senate approves bill changing debt payment jurisdiction; next step Lower House

“Sometimes there are court decisions that cannot be followed,” said Miguel Angel Pichetto, head of the government's coalition in the Senate.

Argentina's Senate on Thursday passed a bill aimed at circumventing U.S. court decisions regarding its defaulted debt by changing payment jurisdiction, sending the proposal to the lower house Chamber of Deputies for final approval. The chamber, like the Senate, is controlled by government allies who are expected to vote the bill into law.

Debate in the lower chamber is set to start next week. The Senate vote approving the measure was 39 to 27.

President Cristina Fernandez wants to resume servicing sovereign bonds that were restructured after Argentina's previous default in 2002. Her government missed a coupon payment on its restructured bonds in July, thrusting Argentina into default.

The proposed law, which says that foreign debt can be paid through intermediaries outside the United States, is Fernandez's attempt at getting back on a paying basis by putting government debt out of reach of U.S. courts that have jurisdiction over some of the original bond contracts.

The bill would replace Bank of New York Mellon with state-controlled bank Banco Nacion as the trustee for bond payments. It would also allow holders of restructured bonds governed by foreign law to swap them for paper governed by Argentine law.

Both moves would be in violation of U.S. court orders.

U.S. District Judge Thomas Griesa in New York has banned Argentina from making interest payments on restructured debt until it settles with a group of hedge funds who rejected restructurings in 2005 and 2010 and are suing for full payment.

Griesa ordered Argentina to pay the funds 1.3 billion plus interest. Argentina says to do so would trigger additional demands from holdout investors and wreck the country's finances.

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

The bill is expected to become law before Sept. 30, when the next payment on Argentina's restructured bonds is due.