(Adds quotes, new date for passing law)
By Alejandro Lifschitz
BUENOS AIRES, Sept 9 (Reuters) - A majority of Argentina’s creditors are opposed to their bonds being moved to a new jurisdiction under a government proposal that would sidestep a U.S. court ruling that toppled it into default, the country’s economy minister said on Tuesday.
Argentine Congress, which is controlled by allies of leftist President Cristina Fernandez, is expected to pass the plan into law on Wednesday. But that would make little difference if investors do not agree, meaning Argentina would remain in default until its legal battle with creditors is resolved.
“It is not the wish of a majority of bondholders, as far as I know, to have a big change in the jurisdiction,” Economy Minister Axel Kicillof told a number of Congressional committees.
The South American country last month unveiled a two-pronged plan to make payments on its foreign-held bonds locally and offer creditors to swap their notes for bonds under Argentine or French law to skirt a ruling barring it from servicing its debt in the United States.
But Kicillof’s debt swap plan received a cold reception in New York last week, where Argentine economy ministry officials met with investors, Thomson Reuters’ IFR reported.
Investors were concerned about legal and logistical hurdles and underscored the lack of financial incentive to participate.
Argentina defaulted in July after a U.S. court blocked an interest payment to holders of its restructured debt governed by U.S. law, ordering the government to settle first with a small group of so-called “holdout” U.S. hedge funds who spurned previous bond swaps and demand full payment.
The frozen coupon payment is still held by U.S. intermediary Bank of New York Mellon.
If investors refuse to participate in the debt swap, the government can still hope it will succeed in replacing the Bank of New York Mellon as trustee for bond payments with Nacion Fideicomisos, a unit of state-controlled Banco Nacion. That way, it can service its debt locally.
But scepticism over this part of the plan is growing too, and Kicillof told lawmakers on Tuesday the government was open to suggestions from bondholders about where to make payments if investors were unhappy with its proposal.
“This is a law that does not impose anything because it cannot impose anything,” said Kicillof.
Economists say Argentina’s foreign reserves risk running out if it remains in default and is unable to tap international credit markets. The country has been barred from global markets since its catastrophic 2002 default on $100 billion.
A prolonged default is seen worsening the recession in Latin America’s third largest economy and sending the currency to new record lows.
Argentina says the holdout investors that it calls “vulture funds” are torpedoing its past debt restructuring at the cost also of its creditors who accepted steep writedowns on their debt in the 2005 and 2010 swaps.
Spurred by Argentina’s debt crisis, the 193-member United Nations General Assembly agreed on Tuesday to negotiate and adopt a multilateral legal framework for sovereign debt restructuring processes to improve the global financial system.
While the resolution drafted by Bolivia on behalf of the Group of 77 developing nations and China was adopted with 124 in favor, the United States voted against it, saying the measure would create uncertainty in financial markets.
In an interview with Reuters on Tuesday, Nobel prize-winning economist Joseph Stiglitz said other countries may struggle to revamp defaulted bonds unless an international framework is adopted, adding that Argentina was right to fight the U.S. court ruling that pushed it into default. (Additional Reporting by Michelle Nichols; Writing by Richard Lough; Editing by Gunna Dickson and Diane Craft)